Credit Reporting & Data Brokers

As Congress’ emboldened majority has sought to lessen the federal government’s regulatory footprint, the states have not always been quiet, as one summertime example amply shows.

In 2017, two congressmen introduced two bills which, if enacted, would expand the scope of federal preemption to include non-bank entities. Introduced by Rep. Patrick McHenry (R-N.C.), the first of these two bills – the Protecting Consumers’ Access to Credit Act of 2017 (HR 3299) – states that bank loans with a valid rate when made will remain valid with respect to that rate, regardless of whether a bank has subsequently sold or assigned the loan to a third party. A second bill known as the Modernizing Credit Opportunities Act of 2017 (HR 4439), championed by Rep. Trey Hollingsworth (R-Ind.), strives “to clarify that the role of the insured depository institution as lender and the location of an insured depository institution under applicable law are not affected by any contract between the institution and a third-party service provider.” Perhaps most significantly, it would establish federal preemption of state usury laws as to any loan to which an insured depository institution is the party, regardless of any subsequent assignments. In so doing, both bills amend provisions of the Home Owners’ Loan Act, Federal Credit Union Act, and/or Federal Deposit Insurance Act. Such an amendment would invalidate a long-line of judicial precedent barring a non-bank buyer’s ability to purchase a national bank’s right to preempt state usury law, which culminated in the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC, and thereby provide non-originating creditors with a potent – and until now nonexistent – shield against liability under certain state consumer laws.

On June 27, 2018, the attorneys general of twenty states[1] and the District of Columbia stated their opposition to both bills in a letter to Congressional leadership. Beginning with an historically accurate observation – “[t]he states have long held primary responsibility for protecting American consumers from abuse in the marketplace” – the A.G.s attacked these legislative efforts as likely to “allow non-bank lenders to sidestep state usury laws and charge excessive interest that would otherwise be illegal under state law.” The cudgel of preemption, they warned, would “undermine” their ability to enforce their own consumer protection laws. The A.G.s went on to argue many non-bank lenders “contract with banks to use the banks’ names on loan documents in an attempt to cloak themselves with the banks’ right to preempt state usury limits”; indeed, “[t]he loans provided pursuant to these agreements are typically funded and immediately purchased by the non-bank lenders, which conduct all marketing, underwriting, and servicing of the loans.” For their small role, the banks “receive only a small fee,” with the “lion’s share of profits belong[ing] to the non-bank entities.” In support of this position, the A.G.s cite to a 2002 press release by the Office of the Comptroller of the Currency (“OCC”) and the more recent OCC Bulletin 2018-14 on small dollar lending, the latter announcing the OCC’s “unfavorabl[e]” view of “an[y] entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).

The A.G.s concluded by arguing that the proposed legislation would erode an “important sphere of state regulation,” state usury laws having “long served an important consumer protection function in America.”

We will continue to monitor this legislation and other developments in the preemption arena, and will report on any further developments.

[1] The signatories come from California, Colorado, Hawaii, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Washington.

The Federal Trade Commission proposed a rule requiring consumer reporting agencies to provide free credit monitoring service to active duty military members that would electronically notify these consumers of “material” changes to their file within 24 hours. The deadline to submit comments on the proposed rule is January 7, 2019.

The proposed rule implements the credit monitoring provisions contained in Section 302 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, “Protecting Veterans’ Credit,” which amends the Fair Credit Reporting Act.

The proposed rule specifies that the electronic credit monitoring must electronically notify the consumer within 24 hours of “material additions or modifications” to the consumer’s file. Under the proposed rule, “material additions or modifications” include:

  • New accounts opened in the consumer’s name;
  • Inquiries or requests for a credit report, other than inquiries made for the purpose of making a firm offer of credit or insurance or for the purposed of reviewing an account of the consumer;
  • Changes to a consumer’s name, address, or phone number;
  • Changes to credit account limits; and
  • Negative information.

“Negative information” is defined to include delinquencies, late payments, insolvency, or any form of default.

The proposed rule further requires that notices to consumers include a hyperlink to a summary of rights under the Fair Credit Reporting Act.

Under the proposed rule, consumer reporting agencies may condition providing the free electronic monitoring service on the consumer providing proof of identity, contact information, and proof of active duty status. The proposed rule lists any of the following as adequate proof of active duty military status: a copy of the consumer’s active duty military orders, a certification of active duty status issued by the Department of Defense, a method or service approved by the Department of Defense, or a certification of active duty status approved by the consumer reporting agency.

The proposed rule also contains limitations on the use of the information collected from consumers as a result of requesting this service and limitations on the content and format of the communications sent to those requesting this service.  Further, the consumer reporting agencies cannot ask or require the consumer to agree to terms and conditions in connection with obtaining this service.

We will continue to monitor and report on the ongoing implementation of the Act and the implications for industry stakeholders.

The states of most complaint, you ask?  – California, Florida, Texas, New York, and Georgia.

In October, the Consumer Financial Protection Bureau released its Complaint Snapshot, which supplements the Consumer Response Annual Report and provides an overview of trends in consumer complaints received by the Bureau.

The Snapshot revealed that the CFPB has received 1.5 million complaints since January 1, 2015.  Of those complaints, the most come from consumers in California, Florida, Texas, New York, and Georgia.  Conversely, the CFPB received the fewest number of complaints from consumers in Wyoming.

In general, U.S. consumers complain more to the CFPB about credit or consumer reporting (i.e., that there is incorrect information on the report) and debt collection (i.e., that there are attempts to collect on debt allegedly not owed) than any other issues.  The top complaints in the top states are as follows:

State Top Complaint
Georgia Credit or consumer reporting
Florida Credit or consumer reporting
Texas Debt collection
California Credit or consumer reporting
New York Credit or consumer reporting

The report also highlights the financial products that result in the largest number of complaints to the CFPB.  They include student loans, money transfers or services, virtual currency, prepaid cards, payday loans, and credit repair.

Click here to download the full report.

We will continue to monitor and report on developments in this area of consumer financial services and compliance.

On October 26, the Eastern District of Wisconsin issued a ruling dismissing a Fair Credit Reporting Act case. In Garland v. Marine Credit Union, the Court granted summary judgment in favor of the debt collector, holding the dispute was a legal issue such that the consumer could not establish a factual inaccuracy in the credit reporting.

The borrower, Sandra Garland, incurred debt to Marine Credit Union (“Marine”) and World Finance Corporation of Wisconsin (“World Finance”). Garland then filed an action under Section 128.21 of the Wisconsin Statutes to repay her debts over a three-year period. This Wisconsin statute allows a wage earner to file a suit in state court to amortize the repayment of debts they owe over a period of three years, much like a Chapter 13 bankruptcy, though they cannot be legally discharged under the statute. After completing the repayment plan, the state court entered an order stating that “each creditor had been paid 100% of their claim,” and directing the creditors named in the case, including Marine and World Finance, to “report their claim balance as zero.” Upon checking her credit report, Garland saw them both reporting a balance owed on the accounts to consumer reporting agencies (“CRAs”). After submitting a dispute to the CRAs, Garland then brought a suit against Marine, World Finance, and two CRAs, claiming they each violated the FCRA by failing to conduct a reasonable investigation into the credit dispute because they continued to report that money was owed on the accounts after the Sec. 128 proceeding. The defendants argued that they are not challenging the state court’s order in the Sec. 128 proceeding, but instead contend that any portion of the debts not included in the plan or which accrued after the plan was approved were still owed to the court. As such, a balance remained on the accounts.

In deciding Garland’s motion for summary judgment, the Court entered judgment in favor of the defendants, concluding that the Wisconsin Statute in question only applies to claims that arose prior to the proceeding and that were included in the amortization plan, but is silent as to interest or late charges, and cannot result in a discharge of the debt. The Court held that judgment was proper in favor of the furnishers and the CRAs, as there was no factual issue regarding the reporting on Garland’s credit report. The Court held that Garland’s claim was a legal dispute on the effect of the Sec. 128 proceeding to her overall debt, ruling:

[U]nless and until a proper tribunal concludes the Chapter 128 proceeding eliminated the debts in their entirety or that the plan precludes the accrual of post-filing interest and other penalties, Plaintiff cannot establish that the reported information is factually inaccurate.  As a result, unless and until a proper tribunal concludes the Chapter 128 proceeding eliminated the debts in their entirety or that the plan precludes the accrual of post-filing interest and other penalties, [Garland] cannot establish the reported information is factually inaccurate. Accordingly, her claims fail as a matter of law.

This case, besides invoking a peculiar Wisconsin statute, does give some guidance to furnishers and CRAs defending lawsuits under the FCRA that arise from disputed legal issues. While the main holding of Garland is that, under the Wisconsin statute, debt repayment is a legal rather than a factual issue, when determining liability under the FCRA, there are many other situations where credit disputes involve analogous legal issues that are not appropriately resolved when investigating a credit dispute.  Accordingly, such claims under the FCRA should likewise fail as a matter of law.

The Court in Patterson v. Peterson Enterprises, Inc., No. 2:18-cv-161-RMP (E.D. Wash. Oct. 23, 2018) recently denied a motion to dismiss seeking dismissal of a Fair Debt Collection Practices Act (“FDCPA”) claim due to the consumer plaintiff’s assertions that counterclaims in a previous collections lawsuit indicated that a debt was being disputed.  The Court ran with the plaintiff’s theory.  A copy of the opinion can be found here.

Plaintiff Latalia Patterson alleges in her complaint that her child’s medical providers failed to properly bill her insurance and, as a result, medical accounts went unpaid, there was a default, and the medical account were transferred to Valley Empire Collection, after which a collections lawsuit ensued.  Patterson also alleges that Valley Empire “failed to report the medical accounts as disputed after Patterson’s opposition to the debt collection lawsuit.”  Additionally, as alleged in the complaint, the “failure to report the credit accounts as disputed violates the [FDCPA], 15 U.S.C. § 1692 et seq.,” as well as other state laws.

In citing Turner v. Cook, 362 F.3d 1219, 1227–28 (9th Cir. 2004) and Heejon Chung v. U.S. Bank, N.A., 250 F. Supp. 3d 658, 680 (D. Haw. 2017), the Court noted that “a plaintiff alleges an FDCPA claim by alleging: (1) the plaintiff is a consumer; (2) the debt involved meets the definition of debt in the FDCPA; (3) the defendant is a debt collector; and (4) the defendant committed an act prohibited by the FDCPA.”  The Court held that Patterson easily satisfied the first three elements of an FDCPA claim.  However, the fourth element—that Valley Empire “committed an act prohibited by the FDCPA”—warranted additional analysis, in addition to a determination as to whether the debt collector’s “failure to communicate with credit reporting agencies [concerning Patterson’s dispute] was material.”

First, with respect to the fourth element of a FDCPA claim, the Court found:

Ms. Patterson alleges that Valley Empire failed to report [her] dispute of the amount due on the medical account to credit reporting agencies in violation of section 1692e(8).  She alleges to have disputed the account by denying liability on the account in her answer to Valley Empire’s debt collection lawsuit and her opposition to Valley Empire’s summary judgment motion.  Id.  Therefore, Ms. Patterson has alleged that she disputed the credit account, and that Valley Empire failed to tell credit reporting agencies that the account was disputed.

Second, with respect to the materiality of Valley Empire’s alleged failure to communicate Patterson’s dispute vis-à-vis her response in the collections lawsuit, the Court reasoned:

Here, Ms. Patterson alleges that Valley Empire elected to report the unpaid medical accounts to credit reporting agencies.  Because Valley Empire elected to report the medical account, if Valley Empire did not disclose that the account was disputed, that failure to disclose would be material. Ms. Patterson’s complaint therefore alleges that Valley Empire failed to report the credit account as disputed, and that such a failure would be material under section 1692e.  Thus, Ms. Patterson’s complaint sufficiently states a FDCPA claim.

At the very least, the Patterson decision sends a clear signal that debt collectors, when defending themselves (and positioned to make a motion to dismiss), need to consider the entire relationship and history of their interactions with their consumers, the debts at issue, and all collection efforts, including previous lawsuits.

How the FCRA Accurate Reporting Requirement Interacts with Temporary Forbearance Plans

This past summer, the United States Court of Appeals for the Eleventh Circuit evaluated a $25-per-month mortgage forbearance plan and concluded that reporting the borrower as delinquent despite her forbearance payments was accurate and not materially misleading.  The case is Felts v. Wells Fargo Bank, N.A., 893 F.3d 1305, 1309 (11th Cir. June 27, 2018).

In 2009, as part of refinancing her home in Carmel, Indiana, Christina Felts executed a Note and Mortgage that required her to make monthly mortgage payments of over $2,000.  Felts lost her job three years later.  In light of her unemployment, she contacted her loan servicer to discuss a revised payment plan.  Ultimately, she enrolled in an unemployment forbearance program offered by Fannie Mae and administered by her loan servicer. 

The Plan terms were detailed in a letter to Felts that explained that she would be required to make “monthly forbearance plan payments” of $25.00 per month beginning in September 2012 and ending in February 2013.  The letter further clarified that even though her monthly statement would “continue to show your regular mortgage payment amount,” she only needed to make the $25.00 monthly forbearance payments.  Finally, the letter provided that (1) the loan servicer would hold off on any foreclosure proceedings during the time of the forbearance, (2) the loan servicer would report that Felts was paying under a “partial payment agreement,” and (3) regular mortgage payments would still continue to accrue and would be due upon completion of the plan or upon employment.  The letter explained that “[e]ven though you are participating in this Plan, you remain responsible for all other terms and conditions of your existing mortgage.”

Prior to Felts’ participation in the Plan, a representative from the loan servicer explained the terms in a recorded telephone conversation.  Felts specifically asked whether her payments would be considered late because she was not paying her complete monthly payment, clarifying,But you did say each month even though it’s refigured as this it still shows up as a late payment?”  The loan servicer representative responded,Yes.  Because it’s not the contractual payment.”  Felts confirmed that she understood.

Felts made timely $25.00 monthly payments, and the loan servicer reported her as past due and delinquent because she was not making the full monthly payments.  Subsequently, when Felts attempted to get a new loan, her credit report reflected this delinquency reporting.  Felts disputed the account reporting, but the loan servicer took the position that it was accurate to report her as past due and delinquent during the months that she paid the nominal forbearance fee.

The Eleventh Circuit agreed.  In the opinion, the court concluded that the delinquency reporting was accurate because Felts did not make the full monthly payments that she was obligated to make under her Note, and the loan servicer’s promise to forebear foreclosure while she made nominal payments did not change her contractual obligations to make the complete payments.

The court addressed several specific arguments:

First, the court held that it was technically accurate to report Felts as delinquent:  “As Felts has not identified any fact in the record establishing that the Plan legally modified the Note, the information [the loan servicer] reported regarding Felts’ compliance with the terms of the Note was not inaccurate: [the loan servicer] reported that (1) the Scheduled Monthly Payment Amount for the Note was $2,197.38, which Felts agrees that it was; and (2) Felts did not pay the amount the Note required her to pay beginning in July 2012, which Felts concedes she did not do.”

Next, the court distinguished cases cited by Felts as dealing with permanent loan modifications that legally amended the terms of the note and emphasized that, during the forbearance plan, there was no permanent, legal modification of Felts’ mortgage obligations.  According to the court, “[a] loan modification agreement, by contrast, permanently legally alters a borrower’s obligations under the original loan agreement.”  

Finally, the court found that the reporting was not so misleading as to be inaccurate.  Basically, Felts felt that the delinquency reporting grossly misrepresented her diligence in trying to pay her mortgage.  Despite the sympathetic nature of this argument, the court rejected it for its lack of legal relevance.  According to the court, this “argument again ignores that [Felts’] partial payments under the Plan simply were not the payments owed under the Note.  Unlike in the cases Felts cites, where the borrowers no longer legally owed the amounts listed, Felts did owe payments under the Note, which she failed to make.  Therefore, it was not misleading for [the loan servicer] to report that she was not making payments under the Note as agreed … .”  Further, the court observed that while Felts “likens her position to that of a person who made no payments at all, she ignores that the Plan provided her with a valuable benefit: she was permitted to stay in her home. Without the Plan, [the loan servicer] could have foreclosed on Felts’ mortgage following her inability to make full payments under the Note.”

This case provides helpful precedent to loan servicers responding to allegations that they failed to properly review and investigate consumer credit disputes.  If the loan servicer can show that the reported information was accurate, there can be no violation of the statutory duty to investigate disputes.  Also, this case provides helpful reasoning in evaluating temporary, as opposed to permanent, loan modifications and a loan servicer’s ability to report based on the original Note terms. 

Troutman Sanders will continue to analyze breaking cases as this area of the law develops.


In a recent Eighth Circuit case, the appellate court vacated the district court’s orders, holding that the plaintiff lacked Article III standing to bring her Fair Credit Reporting Act claims in federal court. 

In Auer v. Trans Union, LLC, plaintiff Colleen Auer had accepted a job as city attorney for the City of Minot, North Dakota.  Several days later, Auer signed an authorization form permitting the City to run a background check on her.  The City later terminated Auer’s employment.  

Auer then filed a lawsuit against several defendants, including the City, the City’s law firm, and the consumer reporting agency that provided the background report, alleging violations of a number of obligations under the FCRA.  Specifically, Auer asserted that the City procured her consumer report without making “a clear and conspicuous disclosure” that her “consumer report may be obtained for employment purposes;” that the City did not obtain her written authorization to do so; and that the City procured and used her report for purposes not authorized by the FCRA.  Auer claimed that these purported violations “caused her to suffer injury to her privacy, reputation, personal security, the security of her identity information and loss of time spent trying to prevent further violations of her rights under the FCRA.”  The district court dismissed Auer’s claims on the merits and Auer appealed. 

On appeal, the Eighth Circuit first considered whether Auer had standing to assert her claims.  The Court held that “[b]ecause Auer consented to the City’s background check, she failed to plead an intangible injury to her privacy that is sufficient to confer Article III standing.”  Auer’s argument that she did not authorize or consent to the procurement and use of her consumer report “is belied by her well-pleaded allegation that she completed the City’s authorization form.”  In sum, Auer’s conclusory and speculative allegations of some undefined harm were insufficient to establish Article III standing.  The Eighth Circuit therefore vacated the district court’s orders dismissing Auer’s claims on the merits and remanded with instructions to dismiss for lack of jurisdiction.


Fair Isaac Corporation, creator of the FICO credit score, plans to roll out a new scoring system in early 2019 that could result in higher credit scores for millions of would-be borrowers. 

The new “UltraFICO Score” factors in how consumers manage their cash, savings, and money-market accounts.  While borrowers currently have little control over their credit score, the UltraFICO Score will function as an alternative method for score calculation.  For example, if an applicant’s traditional FICO score falls short, a lender can offer to have the score recalculated to reflect banking activity.  According to FICO, borrowers who frequently engage in transactions, do not overdraw, and maintain a balance in their accounts will likely see their scores rise, especially because applicants will be able to choose which accounts they want considered when the score is recalculated. 

The new scoring system represents an answer to lenders seeking to boost loan approvals.  Following the subprime mortgage crisis, lenders have been cautious to offer credit to borrowers with low credit scores and have instead focused on ultra-creditworthy consumers.  With an improving economy, lenders can utilize the UltraFICO scoring system to boost lending without taking on significantly more risk.  According to FICO, about seven million applicants with short borrowing histories and some 26 million subprime borrowers will see their scores improve under the new system that will reflect positive financial behavior that was previously invisible.  

Troutman Sanders will continue to monitor important developments involving FICO and the major credit reporting agencies.

On October 18, the U.S. District Court for the Western District of Washington granted a motion to compel arbitration filed by student loan servicer Navient Solutions, LLC because the arbitration provision in the promissory note signed by the plaintiff was broad enough to capture future credit reporting disputes.  The case is Howard v. Navient Solutions, LLC, 2018 U.S. Dist. LEXIS 180022 (W.D. Wash., Oct. 18, 2018).  A copy of the decision can be found here.

The plaintiff, Adrienne Howard, asserted claims under the Fair Credit Reporting Act for inaccurate credit reporting based on Navient’s alleged failure to update her reduced loan balance to the credit reporting agencies, resulting in delinquencies appearing on her credit report.  Howard had previously filed for bankruptcy and contested the non-dischargeability of her student loans, then settled with Navient after agreeing to a reduced loan balance.

Navient filed a motion to compel based on the arbitration provisions in promissory notes signed by Howard which provided for arbitration as to any claim that “ar[ose] from or relate[d] in any way to the Note.”  Howard opposed Navient’s motion, claiming that the arbitration provisions in her notes were not broad enough to encompass her claim. She argued that her claim did not arise from Navient’s failure to comply with its duties under her notes, but instead stemmed from its alleged failure to investigate and correct the credit reporting of her student loans after her dispute.

According to Judge Settle, the language in the promissory notes was sufficient to compel arbitration because Navient’s “reporting or investigatory actions on the loans [we]re inherently related to the underlying promissory Notes.” The court also found the arbitration provision was not unconscionable since (1) Howard had the option of opting out at the time of execution, (2) the clause provided a mutual right of appeal, and (3) the class action waiver in the clause was valid under governing law.

Troutman Sanders will continue to monitor these developments and provide any further updates as they are available.

In Daniel v. Goodyear Tire/CBSD, 2018 U.S. App LEXIS 29345, the Sixth Circuit on October 17 affirmed the dismissal of a claim for violating the Fair Credit Reporting Act by accessing a credit report without a permissible purpose.  The Court of Appeals held the claimant had failed to plead sufficient factual allegations demonstrating a plausible claim to relief under the FCRA or state law.

The FCRA provides a private right of action against businesses that willfully or negligently access a consumer’s credit information without a “permissible purpose.”  Permissible purposes include, among other things, using the credit information in connection with a credit application involving a consumer or reviewing or collecting an account.  In Daniel, consumer plaintiff Rochelle Daniel alleged that she learned in April 2013 that the defendant card issuer had requested her credit report in June 2012, even though she allegedly never applied for credit, employment, or insurance.  Daniel, however, did not contact the card issuer until sixteen months later, by which time it no longer had any records related to the alleged credit inquiry or potential credit application.  Based on these factual allegations, Daniel brought claims for willful and negligent violation of FCRA and a state law claim for invasion upon seclusion.

In affirming the district court’s dismissal, the Court of Appeals ruled that Daniel had not stated a claim for willful violation of FCRA, as her allegation that the credit issuer had no record of a credit application in her name more than two years after the alleged inquiry did not constitute reckless disregard of the FCRA.   The Court further determined that Daniel had not stated a claim for damages for negligent violation of the FCRA.  Despite claiming that she suffered mental anguish and was “frustrated” that the credit issuer’s representative provided an “unapologetic and nonchalant” response, she did not allege behavior that could give rise to emotional distress that would constitute a claim for damages under FCRA.  Accordingly, the dismissal of the action was affirmed.