Credit Reporting & Data Brokers

We are proud to announce that Troutman Sanders partner David Anthony will be a featured speaker at the Practising Law Institute’s 23rd Annual Consumer Financial Services Institute at the Practising Law Institute (PLI) Center in New York City on March 26-27, 2018.

In its 23rd year, topics will focus on a broad array of recent regulatory, enforcement and litigation issues relating to mortgages; auto finance; credit, debit and prepaid cards; marketplace lending and Fintech; deposit accounts; student loans; and other products and services. We will also focus on new developments pertaining to fair lending, and the TCPA, FDCPA, FCRA, Military Lending Act and SCRA. Join us and our esteemed faculty for an insightful review of this dynamic area of legal practice.

David will speak on a panel entitled “Fair Credit Reporting Act & Debt Collection Issues” on Monday, March 26 from 4:00 – 5:00 p.m. The panel will discuss reporting on authorized user accounts, and what it means for defining “accuracy,” viability of standalone disclosure claims, dangers of class trials on statutory damages claims, impact of the Equifax data security breach on FCRA litigation, and increasing public and private litigation directed at debt collection mills.

For more information regarding this conference or to register, please click here.

On February 12, the White House released its budget proposal for Fiscal Year 2018, a document that calls for numerous changes to the repayment and forgiveness of federal student loans taken out after July 1, 2019. While Congress, of course, retains responsibility for any appropriations legislation, this document’s wish-list reflects the apparent priorities of the Trump Administration: the complete overhaul of the federal student loan program and cuts of $3.8 billion to the budget for the Department of Education.

Some prominent changes include:

  • Public Service Loan Forgiveness Program (“PSLFP”): The budget eliminates this program. As it is presently constituted, borrowers who are eligible for PSLFP can apply to receive loan forgiveness for working in certain types of public service jobs, after making 120 months of consecutive payments. Nearly two-thirds of student loan borrowers interested in PSLFP earn less than $50,000 a year.
  • Income-Drive Repayment (“IDR”) Plans: The federal government’s four income-driven repayment plans would be consolidated into one universal income-driven plan that caps payments at 12.5% of a borrower’s annual discretionary income. Under the new rules, undergraduate borrowers could win forgiveness after fifteen years of payments, while graduate students would need to make thirty years of consecutive payments before gaining such an opportunity. Presently, the DOE’s regulations allow borrowers to receive forgiveness after twenty years of payments for undergraduate school loans and twenty-five years for graduate school loans. In support of this change, the budget plan says: “[T]he numerous IDR plans currently offered to borrowers overly complicate choosing and enrolling in the right plan.”
  • Subsidized Student Loans: As with the PSLFP, the budget abolishes all subsidized federal student loans. These loans, which do not accumulate interest during a borrower’s schooling, were used by approximately 5.7 million students in the 2016-17 school year.
  • Pell Grant Program: If this budget is enacted, Pell Grants would be expanded to cover short-term, training programs. Currently, Pell Grants cannot be used for academic programs shorter than fifteen weeks or that include fewer than 600 hours of instruction.
  • Consequences of Delinquency: The budget would subject delinquent borrowers to far more stringent enforcement and calls for “streamlin[ing] the Department of Education’s ability to verify applicants’ income data held by the Internal Revenue Service.”
  • Elimination of Various Programs: Some 30 programs would also lose funding, including the Supporting Effective Instruction State Grants, 21st Century Community Learning Centers, and Federal Supplemental Educational Opportunity Grant programs.

In support of these proposals, the Trump Administration stressed their potential to save $143 billion over the next decade. Secretary of Education Betsy DeVos stated that the budget “expands education freedom for America’s families while protecting our nation’s most vulnerable students” and “reflects our commitment to spending taxpayer dollars wisely and efficiently by consolidating and eliminating duplicative and ineffective federal programs that are better handled at the state or local level.” Notably, some of these suggestions appear in draft legislation already being considered by federal lawmakers.

As summarized in the March 2018 issue of the American Bankruptcy Institute Journal, ABI’s Consumer Bankruptcy Committee has recently issued several recommendations and made several observations regarding the treatment of student loans under the Bankruptcy Code, codified in Title 11 of the United States Code.

First, the Committee intends to fashion a program that would address possible ways of securing greater access for consumers owing student loans to the bankruptcy process and competent legal counsel. The Committee praised what they called consumer attorneys’ “very creative litigation to obtain relief for student loan debtors.” However, it noted that “[m]any debtors . . . cannot afford or have no access to attorneys who are willing and able to bring dischargeability [(i.e., elimination)] actions for student loan debt.”

Second, the Committee endorsed procedures, pioneered by the United States Bankruptcy Courts for the Middle District of North Carolina and the Western District of Texas (Austin Division), to allow for the repayment of student loans through a Chapter 13 plan. In general, a Chapter 13 bankruptcy is also called a “wage earner’s” plan and enables individuals with regular income to develop a plan to repay all or part of their debts. The prototype plans so far formulated are limited to loans paid through an income-based repayment plan and thus require debtors to apply for such a plan prior to filing for bankruptcy protection.

Third, the Committee expressed its support for the creation and adoption of court-sponsored student loan debt mediation programs. As currently envisioned, such a program would resemble many bankruptcy courts’ mortgage mediation programs, praised for their effectiveness and efficiency by debtors, creditors, and courts during the financial crisis of 2007-08. As the Committee observed, “a local rule requiring mandatory mediation for student loan dischargeability actions” would do better than the otherwise informal encouragement of such efforts voiced by many bankruptcy judges.

Fourth, the Committee endorsed statutory amendments to Code § 523(a)(8), which governs the discharge of student loans, and § 1322(b), which dictates the permissible content of a Chapter 13 plan.

With respect to § 523(a)(8), the Committee announced its opposition to any wholesale deletion of § 523(a)(8) as urged by some advocates. Instead, it recommends that the following statutory changes be enacted:

(1)   that its coverage of private student loans, a change made by Congress in 2005, be rolled back;

(2)    that “undue” be struck from this subsection’s “undue hardship” standard, thereby lowering the bar for securing a student loan’s nullification;

(3)    that Congress should adopt some guidance as to the appropriate construction of the term “hardship”; and

(4)    that the current test for “undue hardship” be replaced by the totality-of-circumstances test favored in the Eighth and First circuits (but not by a majority of bankruptcy courts).

The Committee favored “an amendment to the statute” because, in its words, “[i]t has become all too clear that . . . [Department of Education] policies can be changed with the stroke of a pen and a change in administrations.”

As to § 1322(b), the Committee favors a revision that would allow separate classification and treatment of student loan debt for a debtor enrolled in an income-driven repayment plan, as defined under the Higher Education Act of 1965.

“With the high default rate on this debt and the need to preserve this important resource for future students, it is time to explore options for dealing suc­cessfully with student loan debt in bankruptcy proceedings,” the Committee concluded.

More information on the Committee and its work can be found here.


The Senate’s latest banking bill primarily focuses on overturning large chunks of the DoddFrank Wall Street Reform and Consumer Protection Act. Somewhat unexpectedly, on March 8, the Senate’s Banking, Housing, and Urban Affairs Committee approved the addition of two bipartisan proposals that provide help to some of the nation’s forty-four million student loan borrowers to this larger package. Mirroring legislation previously introduced by Senators Gary Peters (D-Mich.) and Shelley M. Capito (R-W.Va.) (and once more sponsored by these two congresspersons), these proposals would adjust how private student loan lenders treat a co-signer’s death or bankruptcy and how they report defaults to the big three credit bureaus. Due to the support of senators from both sides of the aisle, one observer reckoned that “this legislation is probably going to move.” In fact, the two proposals, as incorporated into the Senate’s banking bill, now head for consideration by the entire Senate.

The first proposal bars a lender from declaring a default or accelerating a private education loan when a co-signer dies or declares bankruptcy and obligates a private lender to release the co-signer from a student loan debt, if any remained, upon a student’s death. Per the second proposal, if a financial institution offers a loan rehabilitation program in which a borrower demonstrates the ability to make timely monthly payments and the ability to repay the relevant loan, the borrower may compel the lender to remove any default from their credit report. In a notable constriction, a borrower would only be able to use this option once per loan. As to the latter, one observer, Betsy Mayotte, founder and president of the Institute of Student Loan Advisors, commented: “From a fairness perspective, it makes sense to make this no longer an option for future private student loans.” In defending these bills, Sen. Peters observed that [d]efaulting on a private student loan can have long-term economic effects, making it harder for a borrower to find a job, rent an apartment, or buy a car.” Sen. Capito added, “It is essential students are able to recover from defaulted student loans without permanently harming their financial future.” If left untouched, both changes would only apply to private student loans (PSLs) or agreements struck at least 180 days after the bill’s passage.

Both of these proposals would award borrowers of PSLs with greater protections than they currently enjoy as a matter of law. Yet, even if Congress enacts these changes, federal student loans, defined as those educational loans for which the federal government serves as the sole lender rather than merely the guarantor, would still boast more mitigatory features and allow for more flexibility than most PSLs. Although 90% of higher education loans are public and therefore eligible for loan rehabilitation, this private market remains substantial, currently totaling $9.9 billion and encompassing more 850,000 defaulted loans.


State in the House: Bill Passed Committee, but Vote Not Scheduled

Introduced by Rep. Virginia Foxx (R-N.C.), the Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act cleared the Committee on Education and the Workforce of the United States House of Representatives on December 13, 2017. It did so despite claims by Democrats—and the Association of Public and Land-grant Universities—that they had been shut out of the process.

Among other pertinent provisions, the PROSPER Act:

  • adopts a single definition of “institution of higher education,” eliminating for most purposes the distinctions between public and private nonprofit institutions and proprietary institutions;
  • effectively requires the Department of Education to treat programs that are not correspondence courses and that satisfy the current definition of “distance education” programs the same as traditional brick-and-mortar programs;
  • prohibits the DOE from defining any term in the Higher Education Act of 1965 (“HEA”), through regulation or otherwise;
  • repeals the borrower defense regulations promulgated by the DOE on November 1, 2016;
  • bars the DOE from developing, administering, or creating a ratings system for institutions of higher education;
  • expands the ways by which institutions may show that they are financially responsible for purposes of Title IV program participation;
  • forbids the DOE from prescribing the specific standards that an accreditor is required to implement and defers such standards to the discretion of each accrediting agency;
  • simplifies the Free Application for Federal Student Aid (“FAFSA”);
  • eliminates loan origination fees for all student borrowers;
  • eliminates the Public Service Loan Forgiveness Program for new borrowers; and
  • caps annual loan limits for various categories of students.

According to its supporters, the PROSPECT Act would improve higher education in at least two major ways. First, it focuses resources on helping Americans with the greatest financial need. Second, it expands the choices for students who need financial aid rather than steering them overwhelmingly towards community colleges.

While opponents have praised certain aspects of the bill, from its simplification of the FAFSA and linking of accreditation with outcomes for students, they have also criticized its limitations on student financial aid, removal of protections for students, and failure to incorporate rigorous data collecting requirements. Opponents also cite a February 7 report by the Congressional Budget Office that claimed that college students would lose $15 billion in federal student aid over the next decade if the PROSPER Act becomes law.

As of March 8, the full House has not voted on the PROSPER Act.

The text, as well as other legislative resources, including speeches from both sides, can be found here.

State in the Senate: Hearings and Debates

In contrast to the House, the process in the Senate has involved somewhat more give-and-take in considering the companion bill to the PROSPER Act. The Senate version was proposed by Health, Education, Labor and Pensions Committee Chairman Sen. Lamar Alexander (R-Tenn.), a former Secretary of Education. By February 6, his Committee had held four hearings on the problems posed by the rising cost of higher education and the nation’s increasingly troubled borrowers.

As in the House, partisan fault lines quickly emerged. However, unlike the House committee, a more robust debate has occurred. Like his House colleagues, Alexander has endorsed the “Bennett hypothesis” (named after former Secretary of Education William Bennett), which faults growing federal student aid for mounting college costs. For Alexander, the bottom line is simply, “How can we get the Federal Government out of the way so that we can meet our students’ needs?”

Alexander has urged his colleagues to focus on revisions to simplify the student aid process and redirect money to Pell Grants for low-income students.

In response, Committee Democrats expressed approval of streamlining grants and loans, but with the caveats that the total amount of aid must be preserved and that quality protections must be put in place for students and taxpayers.

Alexander, who has long worked with the Committee’s Democratic leader, Sen. Patty Murray (D-Wash.), saw a consensus emerging over the need for “simpler, more effective regulations to make it easier for students to pay for college and to pay back their loans; reducing red tape so administrators can spend more time and money on students; making sure a degree is worth the time and money students spend to earn it; and helping colleges keep students safe on campus.”

While Alexander is aiming for an April markup of the bill, which would allow Senate Majority Leader Mitch McConnell (R-Ky.) to bring legislation to the Senate floor in the first part of the year, observers are less optimistic. “The likelihood of it passing before 2020, I would put at very minimal,” said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities. “I’d put it as close to zero as I would any likelihood.”

Nassirian’s viewpoint is representative of that of many observers: Although everyone seems to agree that the current state of student lending is a problem, no one can agree on a solution. Meanwhile, disagreements about gatekeeping, costs, and quality continue to fester.

How much may a consumer reporting agency charge for a security freeze on a consumer’s credit report?  The 2018 session of the Virginia General Assembly answered that question by halving the existing $10 maximum fee, dropping the fee cap to $5.

Measures passed the Senate (Senate Bill 16) and House (House Bill 1027) on March 5 and 9, respectively, and are expected to be signed by Governor Ralph Northam.  Once the measure becomes law, the $5 fee cap will take effect on July 1, 2018.

Background on Credit Report Security Freezes in Virginia

The amendments address Title 59.1, Chapter 35.1, of the Virginia Code: “Security Freezes.”  The sort of “security freeze” at issue in the legislation, covered in Code Section § 59.1-444.2(A), is “a notice placed in a consumer’s credit report, at the request of the consumer and subject to certain exceptions, that prohibits the consumer reporting agency from releasing the consumer’s credit report or score relating to the extension of credit.”

Existing Virginia law generally requires consumer reporting agencies to “place a security freeze on a consumer’s credit report no later than three business days after receiving from the consumer: 1. A written request . . . ; 2. Proper identification; and 3. Payment of a fee not to exceed $10, if applicable.”  Id. § 59.1-444.2(C) (emphasis added).  The fee may not be applied when the consumer is “a victim of identity theft who has submitted a valid police report to the consumer reporting agency.”  Id. § 59.1-444.2(M).

Significance to Credit Reporting Agencies 

Credit reporting agencies should take measures to ensure compliance with Virginia’s halved fee cap by or before the July 1 effective date.  Even negligent (rather than willful) noncompliance permits a consumer to recover not only actual damages from a violation but also costs and attorneys’ fees.

Another point of significance is that the General Assembly could, in a future session, revisit the issue of permissible fees for security freezes.  As initially introduced, House Bill 1027 would have disallowed any fee where the consumer made their request electronically (with a $3 fee cap applying to requests made by telephone or mail).  The Senate Bill, as introduced, would have done away with such fees altogether.  Thus, it is possible that, in the future, the fee cap may be reduced or eliminated.

We will monitor the issue for further developments.

On March 9, the Ninth Circuit affirmed dismissal of a putative FACTA class action on Article III standing grounds, citing the requirement of a “concrete injury” reinforced by the U.S. Supreme Court’s 2016 decision in Spokeo v. Robins. In Noble et al. v. Nevada Checker Cab Corp. et al., No. 16-16573, the court held that the plaintiffs had not alleged a concrete injury simply because the defendant taxi companies had included the first and last four digits of their credit card numbers on receipts. FACTA prohibits printing more than the last five digits of a card on receipts.

The panel noted that the plaintiffs failed to allege a breach of privacy or any tangible harms resulting from the first-digit disclosure. Further, the court relied on its February 2018 decision in Bassett v. ABM Parking Services Inc., in which it rejected standing for a plaintiff who claimed a FACTA violation for including his card expiration date on a receipt.

“As in Bassett, appellants here did not allege that anyone else had received or would receive a copy of their credit card receipts. As in Bassett, appellants’ alleged injury depended entirely on a FACTA violation,” the Ninth Circuit stated. “Bassett’s reasoning controls the issue in this case, and we are bound by it.”

Finally, the Ninth Circuit found that the alleged violation did not result in the disclosure of information envisioned by Congress in protecting against identity theft. Like the disclosed expiration date, the first digit of the card number (which simply identifies the brand of the card) by itself posed a minimal risk.

A copy of the decision can be found here.

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

DirecTV was on the receiving end of a proposed class action in the Central District of California earlier this week alleging the direct broadcast satellite service provider violates the Fair Credit Reporting Act and California state law by pulling credit reports on consumers without a permissible purpose.  A copy of the complaint is available here.

The complaint, filed by consumer Jon Wulf Amadeus Adler, claims DirecTV LLC and a number of affiliates “routinely and systematically” run “hard” credit checks on consumers who have had no interactions with the company and who have not consented to the inquiries.  Adler claims these impermissible hard credit pulls are visible to potential creditors and have negatively affected his and the putative class members’ credit scores.

Adler alleges in his complaint that “Defendants, without permission, conducted hard credit pulls … on Plaintiff and Proposed Class Members’ credit histories, without any authorization, prior relationship or interactions initiated by Plaintiff or Proposed Class Members, which necessarily adversely affected their credit scores.”  Adler claims that he “and Proposed Class Members did not even know about the hard pulls until viewing their own credit reports.”

The FCRA allows for a “soft pull” of a consumer credit report under certain specified purposes – including when a creditor plans to extend a firm offer of credit.  Soft pulls are only visible to the consumer and do not alter a consumer’s credit score.  Hard pulls, on the other end, typically occur when a lender with whom a consumer has applied for credit reviews a credit report.  Hard pulls can impact consumer credit scores and can be seen by others.

Adler alleges violations under both the FCRA and California’s Consumer Credit Report Agencies Act and California’s Unfair Competition Law.  He seeks to represent a proposed class of individuals who were subject to a hard credit pull by DirecTV without their permission within the five years prior to the filing of the complaint.  The suit seeks statutory and punitive damages, injunctive relief, civil penalties, interest, and attorneys’ fees and costs.

The claims against DirecTV are similar to other cases we have previously reported on, including Patel v. Comcast Corporation and Heaton v. Social Finance, Inc., the latter of which resulted in a $2.4 million class settlement.

Can the United States Government be liable for reporting inaccurate credit information on a consumer and then failing to investigate the consumer’s dispute?  Many courts are divided as to whether the Fair Credit Reporting Act (“FCRA”) applies to the United States Government.  In Jones v. United States Department of Agriculture, the District Court for the Eastern District of Michigan recently waded into the dispute, concluding that the Government could be on the hook for such actions and failures.

In Jones, consumer plaintiff Kyisha Jones initially owed the United States Department of Agriculture for unpaid medical insurance bills.  Eventually, however, she paid the entire outstanding balance.  Despite paying the balance, Jones alleged that the Government continued to inaccurately report information regarding the debt to the three major credit reporting agencies.  Jones claims that when she disputed the reporting, the USDA failed to conduct a reasonable investigation into its reporting.  Jones subsequently sued the USDA for violating the FCRA.

The USDA moved to dismiss Jones’ complaint, arguing that the FCRA does not waive sovereign immunity for claims against United States Government entities.  The court disagreed.  According to the Court, when the United States waives sovereign immunity by statute, the waiver must be unequivocal.  With this standard in mind, the Court focused on the FCRA’s liability scheme.  In the Court’s view, the FCRA allows a consumer to hold any “person” liable, which the statute defines to include “any … government or government subdivision or agency.”  This was sufficient for the Court to find a waiver of sovereign immunity.

The Court’s conclusion is consistent with the Seventh Circuit’s 2014 Bormes decision.  There are other district court opinions, however, that go the other way.  In its decision, the Jones court recognized that other courts have declined to find a waiver of sovereign immunity in the FCRA because to do so would expose the United States to punitive damages or subject government employees to criminal penalties.  The court reasoned, though, that those considerations do not change the FCRA’s express waiver language.

With the developing split of authority nationwide, perhaps the Supreme Court will eventually be forced to decide whether it too can be held liable for alleged FCRA violations.  Until that time, we will continue to track the crossroads of the FCRA and governmental sovereign immunity.

As part of its systematic review of all current rules and guides, the Federal Trade Commission recently announced a revised regulatory review schedule for 2018.  For 2018, the FTC intends to initiate reviews of, and solicit public comments on, the following topics:

  • Guides for the Nursery Industry, 16 CFR Part 18;
  • Test Procedures and Labeling Standards for Recycled Oil, 16 CFR Part 311;
  • Disclosure Requirements and Prohibitions Concerning Franchising, 16 CFR Part 436; and
  • Identity Theft [Red Flag] Rules, 16 CFR Part 681.  The Red Flag Rules require many businesses and organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs – or red flags – of identity theft in their day-to-day operations.

The Commission vote to publish the proposed Federal Register notice regarding its regulatory review program was 2-0.

Troutman Sanders will continue to monitor the activities and publications of the FTC, including as it relates to these consumer protection regulations.