Credit Reporting & Data Brokers

On September 12, the Consumer Financial Protection Bureau issued an interim final rule which provided a model Summary of Rights form, a form that both consumer reporting agencies (CRAs) and employers doing background checks use for compliance with the Fair Credit Reporting Act. CRAs and employers are required to implement revisions to the form by September 21, 2018.   

In May of this year, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act, which, among other changes, amended the Fair Credit Reporting Act to require new language to be added to the FCRA Summary of Rights form, published as Appendix K to Regulation V, regarding a consumer’s right to obtain a security freeze. As we previously reported, both consumer reporting agencies and users of consumer reports should take action to update their Summary of Rights forms prior to the September 21 effective date.  

Users of consumer reports are required to provide the FCRA Summary of Rights form prior to taking any employment adverse action based upon the use of a consumer report. Consumer reporting agencies are required to provide the form at various times, including, for example, to consumers when making a file disclosure pursuant to 15 U.S.C. § 1681g(c)(2).   

The CFPB has stated that it will deem users of consumer reports and CRAs as being in compliance by using the new form by the September 21 effective date, or by providing a separate statement along with the prior version of the official form that includes the new security freeze disclosure. 

The CFPB will accept comments on the interim final rule for a period of 60 days after the date the rule is published in the Federal Register. 

Troutman Sanders will continue to monitor important developments involving the CFPB and FCRA and will provide updates accordingly.

We are pleased to announce that Troutman Sanders attorneys David Anthony, Cindy Hanson, Timothy St. George and Julie Hoffmeister will be presenting during the 2018 NAPBS Annual Conference Passport to the World CCN in Baltimore, Maryland. NAPBS wants to provide Legal and Compliance information to all members and non-members attending the conference. Cindy, David and Timothy will be presenting information on a panel together called, “Litigation and Compliance in Background Screening: The Business Perspective,” on October 8th at 10:30 a.m. Cindy Hanson will also be a speaker at the general session on October 8th at 4 p.m. Julie Hoffmeister will be on a speaker panel discussing, “Island of Misfit Toys: How Does the FCRA Apply to FINRA Onboarding, Vendor Credentialing, Volunteers, Independent Contractors, and Other “Not Quite Employment” Circumstances “If at All),” on October 9th at 11:30 a.m.

Stay to the End to Hear from Three Top Legal Minds

Stick around for all the fun of the Annual Conference. You’ll want to stay for our closing General Session! A panel of three of the industry’s top FCRA attorneys will be on hand to answer your burning questions in “You’ve Got Questions – They’ve Got Answers!” You can’t afford to miss this must-see session with Pam Devata, Seyfarth Shaw LLP; Becki Kuehn, Hudson Cook LLP; and David Anthony, Troutman Sanders LLP.

Attendees will:

  • Gain valuable tips and advice in on working with Consumers
  • Discuss and Learn top issues that are happening now FCRA Litigation
  • Network with highly talented individuals in the legal and legislative department
  • Stay up to date with ongoing Litigation and Compliance in Background Screening

To register or obtain additional information, visit the NAPBS website.

On August 16, seven Democrat senators proposed a bill (S.3351, named the “Medical Debt Relief Act of 2018”) to amend the Fair Credit Reporting Act and Fair Debt Collection Practices Act to cover certain provisions related to the collection of medical-related debt. The proposed act would institute a 180-day waiting period under the FCRA before medical debt could be reported on a person’s credit report. Further, medical debt that has been settled or paid off would be required to be removed from a person’s credit report within 45 days of payment or settlement.

The bill has been referred to the Senate Banking Committee for consideration. The senators introducing the bill were Jeff Merkley (D-Ore.), Richard Blumenthal (D-Conn.), Dianne Feinstein (D-Calif.), Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill.), Bob Menendez (D-N.J.), and Maggie Hassan (D-N.H.).

The bill targeted Section 1692(g) of the FDCPA specifically and would require debt collectors to send a statement to individuals that includes a notification that:

(1) the debt may not be reported to a credit bureau for 180 days from the date in which the statement is sent, and

(2) if the debt is settled or paid by the individual or an insurance agency during the 180-day period, the debt may not be reported to a consumer reporting agency.

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

On August 20, 2018, the Supreme Court of California issued its long-awaited order in Connor v. First Student, Inc. finding the state’s Investigative Consumer Reporting Agencies Act (“ICRAA”) was not unconstitutionally vague as applied to employer background checks, despite overlap with the Consumer Credit Reporting Agencies Act (“CCRAA”). See Connor v. First Student, Inc., No. S229428, – P.3d –, 2018 Cal. LEXIS 6266 (Cal. Aug. 20, 2018). The Supreme Court resolved a conflict between two courts of appeal which had left many consumer reporting agencies (“CRAs”) wondering whether the ICRAA applied even if they did not obtain the information from personal interviews – the definition of “investigative consumer report” used under the Fair Credit Reporting Act to impose additional requirements under 15 U.S.C. §1681l similar to those included in the ICRAA. With this decision, CRAs providing consumer reports for employment and tenant screening will need to carefully review their products to assure compliance with the ICRAA and the CCRAA.

Relevant Legislative and Procedural History

Under California law, consumer reports are classified under the CCRAA and/or the ICRAA, depending largely on the means used to collect the information contained in those “consumer reports.” The CCRAA has always been limited to consumer reports containing specific credit information, and it expressly excludes character information obtained through personal interviews. And, certain reports containing information gathered through personal interviews are subject to the ICRAA only. However, both statutes govern reports that contain information relating to character and creditworthiness, based on public information and personal interviews, that were used for employment background purposes. Further, both the ICRAA and CCRAA impose obligations on CRAs regarding disclosure to consumers when the agencies furnish reports and also limit when and to whom those reports may be furnished and how such information must be verified before it is reported. However, the specific obligations and limitations, and the remedies for violations of each act are different. The ICRAA, for instance, imposes stricter requirements and penalties than the CCRAA. Under the ICRAA, an investigative consumer reporting agency (or user of information) may be liable to the consumer who is the subject of the report if the agency (or user) fails to comply with any requirement under the ICRAA in an amount equal to $10,000 or actual damages sustained by the consumer, whichever is greater, plus the cost of the action and reasonable attorney’s fees.

In Connor, which has been pending since 2010, a class of current and former bus drivers alleged that the defendant employers and consumer reporting agencies violated the ICRAA when the employers obtained background checks on the drivers without providing them notice and without obtaining the drivers’ prior written authorization to obtain such reports as required by the ICRAA. The defendant employers moved for summary judgment claiming that the ICRAA is unconstitutionally vague because it overlaps with the CCRAA and fails to provide adequate notice to regulated entities as to whether the statute governs its conduct, and that, in any event, the employers’ notice satisfied the requirements of the CCRAA.

The trial court granted defendants’ motion, finding that consistent with state court precedent (see Ortiz discussed below), the ICRAA was unconstitutionally vague and impressibility overlaps with the CCRAA, such that a person of common intelligence cannot determine which statute governs its conduct.

The Court of Appeal in Connor reversed in 2015, finding that “[t]here is nothing in either the ICRAA or the CCRAA that precludes application of both acts to information that relates to both character and creditworthiness.” The Court of Appeal further stated that under California law, “[a]n agency that furnishes a report containing both creditworthiness information and character information, and the person who procures or causes that report to be made, can comply with each act without violating the other. And despite the overlap between the CCRAA and the ICRAA … there remain certain consumer reports that are governed exclusively by the ICRAA (those with character information obtained from personal information) because each act expressly excludes those specific reports governed by the other act.”

The Court of Appeal decision in Connor affirming the constitutionality of the ICRAA was itself contrary to a competing 2007 decision from the Court of Appeal in Ortiz v. Lyon Management Group, Inc., 157 Cal. App. 4th 604 (2007), which held that the ICRAA was unconstitutionally vague, as applied to tenant screening reports containing unlawful detainer information, as the court in Ortiz held that there was no “rational basis to determine whether unlawful detainer information constitutes creditworthiness information subject to the CCRAA or character information subject to the ICRAA.” Thus, given this split in authority, the issue was ripe for review by the Supreme Court of California.

The Supreme Court of California’s Decision

Before the Supreme Court of California, the defendant employers in Connor raised two principal contentions. First, defendants argued that the CCRAA and the ICRAA were initially intended to be exclusive of each other and that the ICRAA’s subsequent amendment in 1998 to expand its scope to include character information obtained under the CCRAA or “obtained through any means” was not intended to abolish that distinction. The Supreme Court rejected the argument, holding that while the legislature amended the ICRAA to expand its scope, it did not concurrently amend the CCRAA to limit its scope.

Thus, the Supreme Court found that potential employers could comply with both statutes without undermining the purpose of either. “In interpreting ICRAA and CCRAA, we agree with the Court of Appeal and find that potential employers can comply with both statutes without undermining the purpose of either . . . . If an employer seeks a consumer’s credit records exclusively, then the employer need only comply with CCRAA. An employer seeking other information that is obtained by any means must comply with ICRAA. In the event that any other information revealed in an ICRAA background check contains a subject’s credit information and the two statutes thus overlap, a regulated party is expected to know and follow the requirements of both statutes, even if that requires greater formality in obtaining a consumer’s credit records (e.g. seeking a subject’s written authorization to conduct a credit check if it appears possible that the information ultimately received may be covered by ICRAA).” In this manner, the Supreme Court held that the prior decision in Ortiz was “inconsistent with [its] own precedent governing the interpretation of overlapping statutes.”

The defendants in Connor also argued that if the legislature intended the ICRAA to apply to employment screening reports that previously were exclusively subject to the CCRAA, then it would have amended the CCRAA to conform to this understanding. However, the Supreme Court found that the limiting language of the CCRAA obviated the need to amend the statute in response to the changes it made to the ICRAA. Thus, the Supreme Court confirmed that the ICRAA is also applicable in the employment screening context, despite its overlap with the CCRAA. And, by overruling Ortiz, the Supreme Court likewise confirmed that the ICRAA is also applicable in the tenant screening context, and more generally when its threshold definitions are satisfied.

The Supreme Court ultimately held that: (1) because partial overlap between two statutes does not render one superfluous or unconstitutionally vague; (2), the ICRAA and CCRAA can coexist, as both acts are sufficiently clear; and (3) each act regulates that information that the other does not, which supports concurrent enforcement of both statutes.

Practical Impact of the Decision

As a practical matter, the Supreme Court’s decision removes the cloud of uncertainty regarding whether the ICRAA is enforceable against consumer reporting agencies preparing reports in California. Companies that fall under the purview of the ICRAA must comply with its provisions, regardless of whether the report also triggers the requirements of the CCRAA.

The ICRAA contains a number of distinct, technical requirements, that should be the subject of a compliance review after the decision in Connor. To use but one example, under the ICRAA, “public record” information (e.g., civil actions, tax liens, and outstanding judgments) cannot be included unless the background checking agency has verified the accuracy of the information during the 30-day period before the report is issued. That requirement counsels in favor of the implementation of procedures to address any delay of 30 days or more in receiving public records updates from the providers of such records.

The decision in Connor will also have indirect ramifications for other open questions regarding the preparation of consumer reports in California. For instance, the matter of Moran v. Screening Pros, LLC, No. 2:12-CV-05808-SVW, 2012 U.S. Dist. LEXIS 189350 (C.D. Cal. Nov. 20, 2012), is currently on appeal to the United States Court of Appeals for the Ninth Circuit. Moran, however, was stayed pending this decision in Connor. The Moran case concerned the issue of what dates must be used to calculate the temporal limitations on reporting of criminal records that do not result in a conviction under the federal Fair Credit Reporting Act. Presumably, that case will also now move forward to resolution.

Troutman Sanders LLP has a national and industry-leading practice counseling clients and defending them in litigation concerning consumer reporting issues under the Fair Credit Reporting Act and its state part counterparts, including under California state law. We will continue to monitor these developments.

On August 3, the U.S. District Court for the District of Columbia dismissed a putative class action brought under the Fair and Accurate Credit Transactions Act for lack of subject matter jurisdiction and Article III standing, relying on the 2016 U.S. Supreme Court ruling in Spokeo Inc. v. Robins. As is commonplace in FACTA litigation, the class complaint alleged that the defendant had printed the plaintiff’s entire 16-digit credit card number and expiration date on receipts.

U.S. District Judge Colleen Kollar-Kotelly ruled that plaintiff Doris Jeffries lacked standing to bring her FACTA suit since the few facts alleged in her case failed to show she suffered an injury in fact that is fairly traceable to the defendants’ challenged conduct and that could likely be redressed by a favorable judicial decision. The court also rejected Jeffries’ argument that she was at an increased risk of identity theft when the defendants handed her the receipt with her information printed on it.

In relevant part, the court held:

The receipt containing prohibited information allegedly was provided to plaintiff, and she does not allege any further disclosure of that receipt to anyone else. …  Nor does plaintiff cite any history to support any notion that additional inconvenience associated with review and disposal of an infringing receipt rises to the level of a concrete harm.

The case is Jeffries v. Volume Services America, Inc. et al., Civil Action No. 1:17-cv-01788, in the U.S. District Court for the District of Columbia.  A copy of the memorandum opinion and order can be found here.

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

The Southern District of West Virginia recently held that the reporting of an account being paid through a Chapter 13 bankruptcy plan as having an outstanding balance or past due payments does not violate the Fair Credit Reporting Act.

Plaintiffs Angela and Robert Barry alleged that Farm Bureau Bank FSB continued to report their account as having an outstanding balance with past due payments after they had disputed the account with the credit bureaus. Specifically, the Barrys alleged that their account is being paid through their confirmed Chapter 13 bankruptcy plan; thus, the account “should be showing paid on time through a Chapter [13] plan or it should stop as of the date of the filing [of] the Chapter 13 [confirmation], and indicate it is being paid through the plan.”

The Court granted Farm Bureau’s motion for summary judgment, answering the question of whether the FCRA prohibits the reporting of historically accurate information of a delinquent account after a Chapter 13 bankruptcy plan is confirmed but before the debt is discharged.

Farm Bureau argued the information it provided to the credit bureaus before and after the credit disputes was accurate. The Court agreed, ruling that the confirmation of a Chapter 13 bankruptcy plan does not change the debt’s legal status. For example, a Chapter 13 bankruptcy plan allowing payments “at a lower monthly rate does not concurrently insinuate that the account cannot become delinquent” because under the bankruptcy plan, payments are no longer being made according to the loan’s terms.

The Court relied on previous decisions from the Northern District of California in finding that a confirmed Chapter 13 bankruptcy plan does not absolve a debt owed to a financial institution because a bankruptcy petition could be dismissed if the debtor does not comply with the plan, resulting in the debt owed as if the bankruptcy was never filed. Therefore, the Court concluded that “it would not be inaccurate to report a debt’s balance as outstanding or the account as delinquent subsequent to a Chapter 13 plan’s confirmation, but before the debt has been discharged, if the debtor no longer makes the payments required under the loan schedule.”

Additionally, the Court rejected the proposition that the failure to report an account as included in a Chapter 13 bankruptcy proceeding is incomplete for purposes of the FCRA, holding that “even if Plaintiff is correct that Plaintiff’s credit report did not reflect the terms of Plaintiff’s Chapter 13 bankruptcy plan, this would not be an inaccurate or misleading statement that could sustain a FCRA claim … .”

We are pleased to announce that Troutman Sanders attorney David Anthony will be presenting during the Consumer Data Industry Association Inaugural Law Symposium at the One CityCenter in Washington, D.C. CDIA wants to focus heavily on trending topics in credit reporting, including state regulatory initiative, key litigation developments, investigation and enforcement activities, and cybersecurity.  David will be providing information on a panel discussing “Key Litigation Developments” on July 17, 2018.

Attendees will:

  • Gain valuable tips and advice for Credit Reporting
  • Discuss and Learn top issues that are happening now
  • Network with highly talented individuals in the legal and legislative department
  • Stay up to date with ongoing Credit reporting and regulatory compliance

This conference will focus heavily on trending topics in credit reporting, including state regulatory initiative, key litigation developments, investigation and enforcement activities, and cybersecurity.

To register or obtain additional information, visit the CDIA website.

On July 17, the Missouri Court of Appeals affirmed a ruling of the Cole County Circuit Court dismissing a putative class action under the Fair Credit Reporting Act against multinational staffing company, Kelly Services, Inc.

A three-judge panel of the Missouri Court of Appeals issued a one-page order and eleven-page memorandum opinion upholding the lower court’s ruling that the plaintiff lacked standing to pursue his claim since he alleged only bare procedural violations without the requisite concrete injury.

The panel held: “Not even the most liberal construction of his pleading would support a construction favorable to finding that Mr. Boergert pleaded a concrete and actual injury. …  Because Mr. Boergert did not plead an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical, the trial court did not err in dismissing his complaint for lack of standing.”

Plaintiff Cott Boergert claimed Kelly Services violated the FCRA when it fired him from a job placement based on information in his consumer report indicating that he had been on probation in 2009 for commission of a felony. Boergert had previously indicated that he had not been on probation for a felony in the preceding seven years when he filled out the employment application.

He then filed the class action in Cole County Circuit Court, claiming that Kelly Services violated the FCRA by including more information in its disclosure form than was allowed and by not providing him with either the report or a summary of his rights. Interestingly, the case was removed to federal court but was dismissed in 2016 under the U.S. Supreme Court’s Spokeo v. Robins decision. That federal district court, however, rethought its decision and the case was remanded back to state court.

The panel’s ruling added: “While alleging that Kelly Services knowingly violated the FCRA by using a disclosure form that contained extraneous information – a bare procedural violation – and that he was therefore entitled to statutory damages for these violations, Mr. Boergert did not plead any concrete or actual injury. … Although he testified during a deposition that the form confused him, he did not plead that it did so or that he did not see the disclosure or authorize Kelly Services to obtain a consumer report.”

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

We are pleased to announce that Troutman Sanders attorneys Jonathan Floyd and Julie Hoffmeister will be presenting during the 13th Annual Credit Grantor Consortium at the Loews Regency Hotel in New York City, NY. CCN Consortium wants to focus heavily on trending topics in credit reporting, including a technology update, TCPA, politics within the collection industry and an economic update. Jonathan and Julie will be presenting on a panel discussing, “Working with the TCPA & California’s New Privacy Law” on August 7, 2018.

Attendees will:

  • Gain valuable tips and advice in working with Consumers
  • Discuss and learn top issues that are happening now within the economy
  • Network with highly talented individuals in the legal and legislative department
  • Stay up-to-date with ongoing credit reporting and regulatory compliance within TCPA

This conference will focus heavily on trending topics in credit reporting, including updates from the BCFP, TCPA, and an economics update.

To register or obtain additional information, visit the CCN website.

A recent Virginia Supreme Court decision, The Game Place, L.L.C. v. Fredericksburg 35, LLC, 813 S.E.2d 312 (Va. 2018), highlights the long-standing statutory requirement for using a deed of lease, affixing a corporate seal, or utilizing acceptable seal substitutes in long-term leases.  In Game Place, the Supreme Court of Virginia ruled that a fifteen-year lease was unenforceable under Virginia’s Statute of Conveyances, which requires that any freehold in land for a term of more than five years, including leases, be accomplished by deed or will.  The Court found that the subject lease was not in the form of a deed and the lessor-lessee relationship could therefore only be enforced as a month-tomonth tenancy against the tenant.  The tenant was current in their rent payments when they terminated the lease and vacated the premises; thus, the Court found the tenant had no ongoing payment obligations owed to the landlord. 

The Statute of Conveyances, Va. Code § 55-2, states: “No estate of inheritance or freehold or for a term of more than five years in lands shall be conveyed unless by deed or will.”  At common law, deeds in Virginia required a wax-imprinted seal or a scroll.  The Virginia legislature has statutorily recognized acceptable substitutes for a formal seal, contained in Va. Code § 11-3.  The substitutes include:  (1) a scroll; (2) an imprint or stamp of a corporate or official seal; (3) the use in the body of the documents of the words “this deed” or “this indenture” or other words importing a sealed instrument or recognizing a seal; and (4) a proper acknowledgement “by an officer authorized to take acknowledgements of deeds.” 

Virginia Practice Tip:  In light of this decision, it is clear under Virginia law that leases with a term of more than five years that do not comport with the Statute of Conveyances may be deemed unenforceable.  Commercial landlords and lenders with loans secured by lease agreements should confirm that the leases comprising or securing their transactions have a formal seal or one of the alternatives available under Va. Code § 11-3.  To the extent a lease for a period longer than five years lacks a seal or language importing a deed of lease as permitted by Va. Code § 11-3, the parties should consider requiring an amendment to the lease agreement, whereby landlord and tenant recognize formally that the lease is a sealed document and/or deed of lease from its effective date.