Credit Reporting & Data Brokers

Last month, Troutman Sanders reported on the proposed TRACED Act which would instruct the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.  FCC Chairman Ajit Pai tweeted his approval for the bill, but the FCC is not waiting on Congress to fight robocalls.  On November 21, it released its final report and order on creating a reassigned numbers database.

According to the FCC’s press release, the final draft of the report and order would create a comprehensive database to enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number, thereby helping to protect consumers with reassigned numbers from receiving unwanted robocalls.

More specifically, this proposal changes the existing federal regulatory scheme by:

  • Establishing a single, comprehensive reassigned numbers database that will enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number;
  • Establishing a minimum aging period of 45 days before permanently disconnected telephone numbers can be reassigned;
  • Requiring that voice providers that receive North American Numbering Plan numbers and the Toll Free Numbering Administrator report on a monthly basis information regarding permanently disconnected numbers; and
  • Selecting an independent third-party administrator, using a competitive bidding process, to manage the reassigned numbers database.

Pai announced the items tentatively included on the agenda for the December Open Commission Meeting scheduled for Wednesday, December 12. Considering that robocalls are the number one basis of complaints filed with the FCC and the speed in which the issue has been addressed, it will come as no surprise if the proposal is passed at the meeting.

Troutman Sanders will continue to monitor this and related FCC’s rulemaking decisions.

On November 16, the United States District Court for the Southern District of California granted final approval of a $1.2 million Fair Credit Reporting Act class action settlement against Petco Animal Supplies, Inc.

As we previously reported, a putative class action was filed against Petco in June 2016, challenging the company’s form of disclosure for employment background checks.  The complaint alleged that the background check disclosure was “hidden” among other pages of “fine print” and did not constitute the “stand alone” disclosure required by law.  After more than two years of litigation, including discovery and motions practice, the parties reached a class settlement.

The key terms of the settlement are as follows:

  • Total Settlement Fund: $1.2 million
  • Settlement Class Definition: “All persons regarding whom Defendant procured or caused to be procured a consumer report for employment purposes during the period from May 1, 2014 through December 31, 2015.  Included in the Settlement Class is a subclass consisting of those against whom Petco took an adverse action subsequent to procuring a consumer report and did not receive a pre-adverse action notification letter.”
  • Settlement Class Sizes: The Disclosure Class consists of 37,279 class members.  The Adverse Action Subclass consists of 52 class members.
  • Settlement Class Member Benefits: Members of the Disclosure Class will receive approximately $20 each.  Members of the Adverse Action Subclass will receive an additional $150 each, for a total settlement of approximately $170 each.
  • Attorneys’ Fees: $300,000.
  • Total Incentive Award for the Two Named Plaintiffs: $10,000.

A copy of the Court’s Order granting final approval of the class settlement can be found here.


On November 15, Senators Marco Rubio (R-Fla.) and John Kennedy (R-La.) announced the Small Business Credit Protection Act – proposed legislation that would require consumer reporting agencies to inform small businesses of a nonpublic personal data breach within 30 days of the breach. If passed, the SBCPA also would prohibit credit bureaus from charging small businesses for a credit report within 180 days following a breach.

A one-page summary of the bill is available here.

Unlike “consumer” credit reports, business credit reports are not free and generally cost between $40 and $100 to view a single report from one of the three credit reporting agencies.

“The federal government must uphold the trust Americans need to fully participate in our economy. By ensuring that small businesses receive the protections they need in cases of a security breach, the Small Business Credit Protection Act will do just that,” Rubio said. “I urge my colleagues to join me in passing this bill so that we can continue to protect America’s small businesses – the cornerstone of our economy.”

At this juncture, the proposed SBCPA is only one page, as it appears Senators Kennedy and Rubio are looking for early support for their initiative. The Senate is expected to release a formal draft of the proposed legislation in the coming months.

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

In an ominous sign, Americans’ total debt hit another record high, rising to $13.5 trillion in the last quarter, as student loan delinquencies jumped, according to Reuters. Specifically, flows of student debt into serious delinquency of 90 or more days rose to 9.1 percent in the third quarter from 8.6 percent in the previous quarter, reported the Federal Reserve Bank of New York, propelling the biggest jump in the overall U.S. delinquency rate in seven years.  

Total household debt, driven by $9.1 trillion in mortgages, now stands $837 billion higher than its previous peak in 2008, just as the Great Recession took hold and induced massive deleveraging across the United States. In fact, indebtedness has risen steadily for more than four years and sits more than 21% above its 2013 low point, and the $219 billion rise in total debt in the quarter that ended on September 30 amounts to the biggest jump since 2016. 

“The new charts in our report help to better understand how the debt and repayment landscape have shifted in the years following the Great Recession,” Donghoon Lee, research officer at the New York Fed, announced in a press release published on November 16. “Older borrowers now hold a larger share of total outstanding debt balances, while the shares held by younger borrowers have contracted and shifted toward auto loans and student loans.”

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.

On November 16, Sen. John Thune (R-S.D.), the current chairman of the Senate Commerce Committee, and Ed Markey (D-Mass.), a member of the committee and the author of the Telephone Consumer Protection Act, unveiled the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (“TRACED Act”). Among other things, this bill would require carriers to eventually implement “an appropriate and effective call authentication framework” and instructs the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.

According to its proponents, an “ever increasing number … of robocall scams” prompted this bill. Indeed, one report touted by Markey estimated the number of spam calls will grow from 29% of all phone calls this year to 45% of all calls next year.

In its current form, the TRACED Act gives regulators more time to find scammers, increases civil forfeiture penalties for those caught, promotes call authentication and blocking adoption, and brings relevant federal agencies and state attorneys general together to address impediments to criminal prosecution of robocallers who intentionally flout laws.

More specifically, this act makes the following changes to the existing federal regulatory scheme:

  • Broadens the authority of the FCC to levy civil penalties of up to $10,000 per call for those who intentionally violate telemarketing restrictions.
  • Extends the window for the FCC to catch and take civil enforcement action against intentional violations to three years after a robocall is placed. Under current law, the FCC has only one year to do so. The FCC has told the committee that “even a one-year longer statute of limitations for enforcement” would improve enforcement against willful violators.
  • Brings together the Department of Justice, FCC, Federal Trade Commission, Department of Commerce, Department of State, Department of Homeland Security, the Consumer Financial Protection Bureau, and other relevant federal agencies, as well as state attorneys general and other non-federal entities, to identify and report to Congress on improving deterrence and criminal prosecution at the federal and state level of robocall scams.
  • Requires providers of voice services to adopt call authentication technologies, enabling a telephone carrier to authenticate consumers’ phone numbers prior to initiating any call.
  • Directs the FCC to initiate a rulemaking to help protect subscribers from receiving unwanted calls or texts from callers using unauthenticated numbers.

Announcing the TRACED Act, neither senator minced their words. “The TRACED Act targets robocall scams and other intentional violations of telemarketing laws so that when authorities do catch violators, they can be held accountable,” Thune said in a statement. He continued: “Existing civil penalty rules were designed to impose penalties on lawful telemarketers who make mistakes. This enforcement regime is totally inadequate for scam artists and we need do more to separate enforcement of carelessness and other mistakes from more sinister actors.” Markey added: “As the scourge of spoofed calls and robocalls reaches epidemic levels, the bipartisan TRACED Act will provide every person with a phone much needed relief. It’s a simple formula: call authentication, blocking, and enforcement, and this bill achieves all three.”

Troutman Sanders will continue to monitor this and related legislative proposals.

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.