Credit Reporting & Data Brokers

On Wednesday, May 23, from 3 – 4 pm ET, Troutman Sanders attorneys, Alan Wingfield, Wendy Sugg, and Meagan Mihalko will present a webinar discussing employment-purpose background screening laws. The federal Fair Credit Reporting Act imposes technical paperwork requirements on employers desiring to obtain background screenings, and many millions of dollars have been paid in individual and class actions based on alleged failures to comply. State analog laws to the FCRA impose their own procedural requirements. State and local “ban the box” laws regulate when and how an employer can request and use background reports on potential hires. The federal Equal Employment Opportunity Act has been used by regulators to attack employer screening policies that allegedly have a discriminatory effect against protected groups. Some states and localities regulate the type of background information, particularly criminal history, that can be collected and used. Meanwhile, tort law remains ready to impose large damages on an employer who is found, after the fact, to have not conducted an adequate background check on employees. Rather than digging deeply into a single legal aspect of background screening, this webinar is designed to give a holistic overview of the entire legal landscape affecting employment-purpose background screening. Companies and professionals who are charged with developing effective compliance strategies for their background screening activities need to have the entire legal context in mind, and our webinar is designed to survey that context and provide guidance for compliance.

One hour of CLE credit is pending.

To register, click here.

Chapter 13 of the United States Code’s eleventh title (“Bankruptcy Code” or “Code”) “permits any individual with regular income to propose and have approved a reasonable plan for debt repayment based on that individual’s exact circumstances,” explaining why a Chapter 13 plan is commonly known as “a wage earner’s plan.”  In general, upon winning approval of such a plan by a bankruptcy court, a debtor is obligated to pay any post-petition disposable income in sufficient quantity to guarantee every unsecured creditor at least what would have been received in a bankruptcy proceeding under the Code’s seventh chapter. In exchange, the debtor gains unconstrained control of every asset subsumed into the bankruptcy estate upon the date that he, she, or they filed for bankruptcy relief. Even after the passage of the 2005 bankruptcy reform law, a Chapter 13 discharge still eliminates types of debts not dischargeable via Chapter 7, including civil fines and penalties, divorce decree debts, and welfare repayment obligations.

To be eligible for Chapter 13 and thus for this expanded discharge, however, a debtor must satisfy the eligibility criteria in § 109(e): “Only an individual with regular income that owes . . . noncontingent, liquidated, unsecured debts of less than [$394,725] . . . may be a debtor under chapter 13.” Over the past year, a question that could affect lenders’ ability to collect on outstanding student loans debts—whether a debtor whose student loan debt pushes them above this statutory maximum forfeits their eligibility for relief under Chapter 13—has resulted in inconsistent rulings by several bankruptcy courts.

Conflicting Cases

The latest case—In re Fishel, No. 17-14180-13, 2018 Bankr. LEXIS 965, 2018 WL 1870368 (Bankr. W.D. Wis. Mar. 30, 2018)—is from Madison, Wisconsin.

On December 18, 2017, Victoria Sue Fishel, a consumer debtor with a car loan, tax debt, credit card and charge account debt, and a small amount of medical bills, filed a bankruptcy petition listing some $150,000 in unsecured, nonpriority debt, including about $16,000 in student loans, as well as other student loans of an unknown size. Filed with her petition, Fishel’s repayment plan proposed to devote all disposable income for five years toward payment of her creditors. While the Chapter 13 trustee tabulated only $132,000 of student loan debt, the United States Department of Education (“DOE”) filed a claim for more than $340,000. Noting that Fishel’s debt totaled more than $394,725 using the latter figure, the trustee objected to her plan and consequently filed a motion to dismiss based on § 109(e).

In articulating her decision, Judge Catherine J. Furay made several points. Legally, regardless of the fact that a lack of § 109(e) eligibility, though not identified as a basis for mandatory dismissal in § 1307, had been treated as a valid reason for dismissal by some courts, the decision to convert or to dismiss a Chapter 13 case always remains “a matter of discretion for the bankruptcy court.” “It should be made,” she added, “on a case-by-case basis considering the best interest of creditors and the bankruptcy estate.” Factually, it was “undisputed the Debtor can make the proposed [p]lan payments,” “[t]he only real roadblock to confirmation of Debtor’s [p]lan . . . [being] the alleged amount of her student loans which, in any case, will not be discharged in her bankruptcy.” Lastly, she stressed the policy considerations set forth in In re Pratola, 578 B.R. 414 (Bankr. N.D. Ill. 2017), that she held weighed in favor of permitting Fishel’s case to proceed.

As Judge Furay herself acknowledged, multiple courts have rejected the approach to student loans and § 109(e) favored by Fishel and Pratola, including In re Petty, No. 18-40258, 2018 Bankr. LEXIS 1231, 2018 WL 1956187 (Bankr. E.D. Tex. Apr. 24, 2018); In re Bailey-Pfeiffer, No. 1-17-13506-bhl, 2018 WL 1896307 (Bankr. W.D. Wis. Mar. 23, 2018); and In re Mendenhall, No. 17-40592-JDP, 2017 Bankr. LEXIS 3600, 2017 WL 4684999 (Bankr. D. Idaho Oct. 17, 2017).

Troutman Sanders LLP will continue to monitor these developments and the intersection of bankruptcy law with student loans.

On May 2, Kansas Governor Jeff Colyer signed a “ban the box” order applicable to state government positions but not private businesses or state contractors.  Kansas agencies will no longer ask job applicants whether they have a criminal record during the initial application process. The state legislators argued that asking about criminal records on applications unfairly stigmatized individuals with records years – even decades – after their convictions and made it more difficult for individuals released from prison to be employed.

Applicants may still be asked about criminal history later in the hiring process, and applications for jobs where individuals with felonies are specifically prohibited from working will also continue inquiring about the applicant’s criminal history.

“It provides applicants with the opportunity to explain their unique facts and circumstances and what has happened to them and how their lives have changed,” Colyer said.  Colyer indicated that he was in favor of expanding the “ban the box” law to private businesses, but enactment would be up to the Kansas legislature.

Currently, Kansas has no “ban the box” law, unlike thirty-one other states.  Eleven of those states have required the removal of criminal history questions from job applications for private employers, and more than 150 cities and counties in the United States have a “ban the box” ordinance.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

According to a recent report from WebRecon, filings of Fair Credit Reporting Act cases have continued to increase in 2018.  FCRA claims led consumer litigation filings in February, while Fair Debt Collection Practices Act (“FDCPA”) and Telephone Consumer Protection Act (“TCPA”) cases declined during the same month.  The overall statistics for consumer litigation in February 2018 were as follows:

  • 2,458 complaints filed with the Better Business Bureau
  • 4,439 complaints filed with the Consumer Financial Protection Bureau
  • 788 FDCPA cases filed, of which 181 were class actions (23.0%)
  • 296 TCPA cases filed, of which 66 were class actions (22.3%)
  • 422 FCRA cases filed, of which 153 were class actions (36.3%)

Notably, the 422 FCRA filings in February 2018 far outnumbered the 265 filings from the same month last year.

Troutman Sanders will continue to monitor industry trends and will provide updates as they are available.

In a still-incomplete provocative piece whose conclusions were presented at this year’s American Economic Association (“AEA”) meeting in Philadelphia in January 2018 and highlighted by the American Bankruptcy Institute on March 29, 2018, three economists—Gene Amromin, Vice President and Director of Financial Research at the Federal Reserve Bank of Chicago; Janice C. Eberly, Professor of Finance at Northwestern University’s Kellogg School of Management; and John Mondragon, Assistant Professor of Finance at Kellogg—pinpoint a new potential culprit behind the nation’s student loan crisis.

As reported by the Federal Reserve Bank of New York, since the recession began in 2008, federally-owned student debt has grown from around 5% of all household debt to around 11.2%, and from $619.32 billion to $1.49 trillion. The report to the AEA discounts two commonly-cited factors for this increase: a growing number of students and soaring tuition costs. Simply put, with undergraduate enrollment only increasing by 4% from 2008 to 2015, the average growth in net tuition and fees from the 2007-08 to the 2017-18 school year cannot explain the dramatic increase in student debt seen over the last decade.

The numbers as to this latter area are debatable. According to some sources, the increase was 3.2%, 2.8%, and 2.4% at public four-year, public two-year, and private non-profit four-year universities, respectively. According to others, however, it was 37%. Importantly, not even the latter and larger figure would account for the explosion in student debt.

Instead, these scholars posit another possibility: the collapse of housing prices. They reason that many people tend to borrow money against their houses to fund their children’s educations (on average, a household with a child in college will extract $3,000 more in home equity than those without). Thus, when housing values collapsed from 2006 through 2012, thereby causing a credit crisis which greatly contributed to America’s Great Recession, the spigot for these funds closed. As home equity financing thusly dried up, many students faced two options: either dropping out of school or relying on education loans to meet their bills. Naturally enough in a nation in which higher education remains the surest apparent path to long-term prosperity, many students opted to incur greater debt. Ultimately, at least according to Amromin, Eberly, and Mondragon, a $1 drop in home equity loans due to a drop in a house’s value corresponded with 40 to 60 cents more in student borrowing.

Fittingly, the problem of student debt potentially linked to declining home values may be coming full circle. The National Association of Realtors reports that 83% of adults aged 22 to 35 with student debt who have yet to buy a house blame their lack of homeownership on student loans. Lending credence to these survey results, the Federal Reserve Board has found that for every 10% in student loan debt a person holds, their chance of home ownership drops 1-2% during their first five years after school.

For hard data regarding America’s consumer debt, one can consult the website of the Federal Reserve Bank of New York.

Within days of realizing a data breach incident had occurred, Under Armour, Inc.—the owner of the popular calorie counting application, MyFitnessPal—began notifying its users of the breach that impacted approximately 150 million user accounts.  According to the data breach notice, the MyFitnessPal team learned on March 25 that an unauthorized party acquired data associated with MyFitnessPal user accounts.  The affected information included user names, email addresses, and passwords, but users’ payment card data remained secure since that information is collected and processed separately by MyFitnessPal.

In response to the data breach, MyFitnessPal immediately began taking steps to protect the MyFitnessPal community, including:

  1. Providing users with information on how they can protect their data;
  2. Requiring users to change their passwords and urging them to do so immediately;
  3. Monitoring accounts for suspicious activity and coordinating the company’s efforts with law enforcement authorities; and
  4. Continuing to make enhancements to their systems to detect and prevent unauthorized access to user information.

MyFitnessPal also instructed users to change their passwords for other accounts that use the same or similar information as their MyFitnessPal accounts and to monitor all accounts for suspicious activity. It is currently unknown who is responsible for the data breach. However, Under Armour has made it clear that the investigation into the matter remains ongoing.

Under Armour has already earned high marks for its quick response to the data breach, which in large part can likely be attributed to a well-oiled Incident Response Plan that had been tested through tabletop exercises.  This should serve as a reminder that companies are no longer being judged on whether a data incident occurs but rather on how they respond to such incidents—with timeliness being a key component.

We are pleased to announce that Troutman Sanders attorneys David Anthony, Cindy Hanson and Ronald Raether will be panelists for a NAPBS webinar titled, “Updates, a Case Study & Legal Developments in Background Screening.”

The webinar will discuss recent case studies and case law developments that are currently affecting the background screening industry. The webinar discussion will include an update on Spokeo, Inc. and the effects of the decision by the United States Supreme Court that occurred almost two years ago; and the amicus brief filed in January of this year will also be included in discussion on behalf of NAPBS. NAPBS supports Spokeo, Inc.’s second petition for certiorari to the U.S. Supreme Court and will be discussed.

The new petition has requests that will make the U.S. Supreme Court revisit its prior ruling and add clarity and justification to the divergence in lower court rulings over the past two years. The panelists that have been chosen to speak will provide their own overview of relevant cases with implications for employers and businesses in the background screening industry.

We are pleased to announce that Troutman Sanders partners David AnthonyCindy Hanson,  Ron Raether, and Tim St. George will be featured panelists at the National Association of Professional Background Screeners (“NAPBS”) 2018 Mid-Year Legislative & Regulatory Conference to be held April 15-17, 2018 in Arlington, Virginia.

David, Cindy and Tim will speak on a panel entitled, “Increasing Litigation Against Wholesalers: What it Means for the Industry as a Whole, How to Prepare and Defense Strategies.” An increasing number of lawsuits are being filed nationwide against public records vendors and “wholesalers” of information, claiming that the transmission of public records renders the company a consumer reporting agency for purposes of application of the Fair Credit Reporting Act. These cases raise unique issues and potential defenses, as well as issues of insurance coverage. Moreover, such claims also raise related concerns for background screening companies. This session explores those issues and how best to prepare for such a lawsuit.

Ron will speak on a panel entitled, “Driving Records: Putting Your Compliance in Gear.” Employment screening companies offering driving records must navigate both the Fair Credit Reporting Act and the Drivers Privacy Protection Act. With litigation under the DPPA increasing, this presentation offers a check under the hood for compliance with both of these laws and a chance to tune up compliance.

For additional conference information or to register, click here.

Troutman Sanders’ Financial Services Litigation practice has extensive experience litigating cases under the Fair Credit Reporting Act.  We have served as counsel in more than 1,500 FCRA cases nationwide, including over 100 class actions.  We are called upon by users, furnishers, consumer reporting agencies, and credit reporting agencies to assist in FCRA litigation and compliance issues pertaining to the full spectrum of FCRA-regulated activities, including credit reporting, consumer credit, and insurance transactions.  Troutman Sanders has defended actions under all of the substantive provisions of the FCRA, including every provision of the FCRA addressing the background screening process.  Additionally, Troutman Sanders has a strong tradition in FCRA compliance counseling, including FCRA audits.  We utilize this compliance expertise to strengthen our clients’ regulatory positions, both prior to and subsequent to litigation.

The United States Court of Appeals for the Seventh Circuit recently affirmed a lower court decision finding that a debt collector’s verification and investigation of a consumer’s disputes through its review of records obtained from the creditor was both satisfactory under the Fair Debt Collection Practices Act and reasonable under the Fair Credit Reporting Act. The case is Deborah Walton v. EOS CCA, No. 17-3040 (7th Cir. Mar. 21, 2018).

Originally filed in the Southern District of Indiana in 2015, this matter arose out of a debt consumer plaintiff Deborah Walton owed to AT&T. After notifying Walton of her delinquency, AT&T assigned or sold the debt to EOS for collection. However, the records AT&T transferred to EOS contained the wrong account number for Walton’s debt.

EOS subsequently mailed Walton a collection letter in an attempt to collect the debt. Walton recognized the inaccurate account number and disputed the debt with EOS over the phone and by letter. EOS confirmed the account information through a review of the records it received from AT&T and sent Walton a letter that verified that the information included in its debt collection letter was accurate. Walton alleges EOS’ review of the account documents without specifically verifying the underlying debt with AT&T was a violation of the FDCPA.

Following Walton’s dispute, EOS reported Walton’s debt to TransUnion and Experian with a notation that the debt was disputed. Walton then disputed EOS’ reporting of the debt with these entities. The reports generated by the credit reporting agencies for EOS stated that Walton claimed the account was not hers. Again, EOS reviewed its internal records and verified Walton’s debt. Walton disputed the debt a second time, this time claiming the account number associated with the debt was inaccurate. Upon receipt of this dispute, EOS requested deletion of the credit reports at issue. Walton alleges EOS’ investigation of her disputes was not reasonable under the FCRA. 

The district court found that EOS satisfied its legal obligations under the FDCPA and FCRA in reviewing Walton’s disputes and granted EOS’ motion for summary judgment. Walton appealed and the Seventh Circuit affirmed the lower court’s findings. In doing so, the Court followed the Fourth and Ninth circuits with regards to Walton’s FDCPA claim and found that a debt collector is only required to verify that the amount of debt and debtor information in its collection communications is the same information the creditor claims is owed. The debt collector is not required to investigate whether the obligation the creditor claims is owed is valid in itself. Rather, the debt collector must simply provide the consumer with enough information to dispute the payment obligation, which the Court found EOS did.

Regarding Walton’s FCRA claims, the Court found EOS’ investigations of Walton’s credit disputes reasonable based on the information included in the credit agencies’ dispute reports. Specifically, the Court found Walton’s first dispute, which stated the AT&T account did not belong to her, provided so little information that EOS’ review of its internal information alone was reasonable. The Court also found that once EOS learned that Walton disputed the debt based on the inaccurate account number, it took the reasonable and appropriate action to request deletion of its reporting of Walton’s debt.

The Seventh Circuit’s decision provides greater clarity regarding a debt collector’s review and investigation obligations when it receives a dispute from a consumer or a credit reporting agency. We will continue to monitor and report on developments involving debt collectors responsibilities under the FDCPA and FCRA.

 

Psychologists say that adolescents and young adults take more risks than any other age group. Perhaps this is why about one in five (21.2%) college students receiving financial aid to pay for their education have invested these loans in a cryptocurrency, according to a recent survey by The Student Loan Report, a website for student loan information.

Some Basics Facts About Today’s Popular Cryptocurrencies

According to numerous financial metrics, cryptocurrencies constituted one of the hottest investments of 2017, especially for young Americans. In the summer of 2017, these digital assets reached a combined market capitalization of $100 billion, split among bitcoin ($45 billion, or 40.1%), ethereum ($31 billion, or 28.3%), ripple ($12 billion, or 11.04%), litecoin ($2 billion, or 2.2%), ethereum classic ($2 billion, or 1.71%), nem ($1.7 billion, or 1.5), Dash ($1.3 billion, or 1.2%), and over 800 other currencies with market caps ranging from $1,000 to $800,000. Created in 2009, bitcoin was the first decentralized cryptocurrency and remains the most well-known. As these numbers reveal, however, countless variants, frequently called “altcoins,” (short for “alternative coins”), now exist.

“Cryptocurrencies represent an entirely new asset class and financial sector,” opined Ashe Whitener, a cryptocurrency enthusiast who formerly worked in business development for Euro Pacific Bank. Drew Cloud, Student Loan Report’s founder, told The Boston Globe: “Younger Americans are certainly the most enthusiastic about cryptocurrency; they are the most active investors and want to get involved in the space in any way possible.” Colleges today offer courses on these digital tokens, while a company called Campus Coin is attempting to establish cryptocurrencies as a medium of exchange at colleges throughout the country. At the same time, others have called the enthusiasm around cryptocurrencies “speculative mania.

This objection is not an idle one, as dramatic and inexplicable swings regularly wrack this market. For example, on January 1, 2017, a single bitcoin held a value of only $968; in December 2017, it was worth $19,783. By January 2018, bitcoin posted its worst monthly performance in three years: slipping below $6,000, it lost 70% of its value. Although it jumped to approximately $10,000 by February 15, 2018, it plummeted by 23.11% to $7,688.68 on March 14, 2018, with the announcement of a partial ban on online cryptocurrency advertising. Bitcoin slightly recovered to $8,600 by March 22 and fell to $8,490 by March 23.

Subject to a similar rollercoaster ride, Ethereum, the market’s second most-valuable cryptocurrency, was valued at over $1,400 in January 2017 but has since slumped to $520.

Less popular and smaller digital coins have proven even more volatile. Tron (TRX), for instance, reached a high of 30 cents on January 4, 2018, before nosediving to 4 cents within thirty days.

The dangers of investing in cryptocurrencies thus replicate the perils of investing in very small capital stocks. As one expert put it, “You can see big swings in a short period of time. There’s still a lot of price discovery going on.”

Financial and Legal Risks of Investing Student Loan Funds in Cryptocurrencies

Because investing in cryptocurrencies carries risk – and because student loans are intended for use in funding higher education, not speculating on the cryptocurrency market – student loan experts have been surprised by borrowers’ willingness to invest nearly non-dischargeable sums in this newest market.

“Investing from a . . . [student] loan is a terrible idea as these assets are extremely risky and volatile,” pointed out Christian Catalini, an assistant professor at the Massachusetts Institute of Technology who researches blockchain technology and cryptocurrencies. Others agree. “If you invest the student loans in cryptocurrency and lose money, you will still owe the student loans,” observed Mark Kantrowitz, a student loan expert. “And, where will you get the money to pay for college costs?”

For its part, the United States Department of Education has warned, “Federal student aid funds are to be used only to help meet the costs of attending an eligible institution of higher education. Investing is not considered an appropriate use of federal student aid funds.”

Trend Worth Watching 

For the sake of their bottom line, every participant in the student loan market, including loan providers and servicers, would be wise to monitor student borrowers’ investment of loan proceeds, particularly in innovative but volatile financial instruments.