Posts tagged ‘FCRA’

SC to Consumers: When It Comes To Suing in Federal Court – No Harm, No Foul

A decision by the Supreme Court last week, TransUnion, LLC v. Ramirez, has some very practical implications for credit unions large enough to be on the radar of class action attorneys anxious to sue in federal court over alleged violations of federal law.  In a nutshell, the Supreme Court made it more difficult for plaintiffs to sue your credit union in federal court.

In order to understand just how important this case may be, it’s important to understand just how bad a job TransUnion did complying with the FCRA. A majority of the court held that notwithstanding all these mistakes, only individuals that could show they were harmed by these mistakes in a concrete way had the right to sue the company in federal court. 

In the aftermath of 9/11, TransUnion offered financial institutions a feature which allowed them to more easily spot individuals subject to OFAC sanctions. Specifically, the service informed creditors when a person’s first and last name was the same as an individual on an OFAC list.  Needless to say, this service generated a lot of false positives. One of its victims was Sergio Ramirez.  When he and his wife went to buy a Nissan Maxima, he thought the deal was done only to be informed by the car dealership that it would not sell the car to him because when they ran a TransUnion credit report it indicated that his name was a match for an individual who was on the OFAC sanctions list (incidentally, in the finest tradition of car salesmen everywhere, the dealership closed the deal with the alleged terrorist’s wife).

Things got even worse in the weeks ahead. Mr. Ramirez called TransUnion and requested a copy of his credit file. In response he received the statutory summary of his rights which he is entitled to under the FCRA, but the file he received did not include the OFAC notice.

Mr. Ramirez brought a class action lawsuit on behalf of individuals whose credit reports wrongly identified them as OFAC miscreants. The “class” contained 8,185 members but only 1,853 of these individuals had their credit reports disseminated to potential creditors during the relevant period. He successfully won at trial since there was more than enough evidence to prove that TransUnion violated several key provisions of the FCRA by failing to follow reasonable procedures to insure the accuracy of its credit reports and failed to provide consumers with accurate credit files upon request. In addition, the FCRA explicitly gives individuals the right to sue for violations of its provisions.

As I talked about in this blog before, an individual seeking to sue in federal court has to show not only that they were subject to a violation of the law but that they were subject to an actual concrete harm. In this case, the Supreme Court ruled that even when Congress writes a statute such as the FCRA and gives a person the right to receive damages for violations of that act, plaintiffs must still show that they suffered injury “in fact” in order to access the federal courts. In this case, a majority of the court agreed that the 1,800 individuals whose credit report was disseminated to potential creditors suffered an injury in fact by effectively being defamed. But what makes this decision so potentially significant is that the court did not believe that an inaccurate credit report by itself injured individuals enough to give them access to the federal courts. As judge Cavanaugh pithily explained “no concrete harm, no standing.”

Why does this matter so much? First, because its rationale could easily be applied not only to cases involving violations of the FCRA but to other violations of federal consumer laws such as the Truth In Lending Act which allowed consumers to sue lenders simply because a statute has been violated irrespective of whether or not anyone was harmed by this violation. To be clear, states such as NY and California are free to have their own standards for determining when someone can sue in state court. The long term impact of this decision may simply be to empower state courts to exercise greater influence over the way consumer laws are interpreted. But in the short term, expect more disputes over whether or not creditors can be sued in federal court.

June 29, 2021 at 8:49 am 1 comment

Three Things to Ponder During Your Credit Union Day

Good morning, folks. Here are some things you need to know as you start your credit union day.

 Covid Compliance Could Be Focus of 2021 Exam Cycle

One of the challenges in dealing with compliance and legal issues for credit unions has always been getting information that’s as relevant to a smaller credit union, with its primary focus on regulatory compliance, as it is to larger credit unions, which not only face compliance burdens but the very real threat of class action lawsuits brought by an increasingly sophisticated group of plaintiff lawyers. These two emerging concerns are melding together. At its fair lending webinar yesterday, NCUA staff highlighted the areas it will focus on when it audits your credit union in 2021. 

The list includes policies and procedures related to loan modifications and credit reporting. It seems straightforward to me – this would include an analysis of your fair credit reporting policies to make sure that your credit union is properly complying with forbearance modifications. Remember that under Section 623 (a) (1) (F) of the Fair Credit Reporting Act, a furnisher must report a loan as current when it is subject to an accommodation caused by the pandemic. This does not apply when the credit obligation was delinquent before the accommodation was made. This is going to be a point of emphasis not only for NCUA, but for New York State as well. 

As luck would have it, an hour or so after the webinar, I came across news about this lawsuit in which a loan servicer in Pennsylvania is being sued over its alleged violations of these FCRA requirements. What intrigues me most about these cases going forward is not so much the regulatory violations, which will be easy enough to prove or disprove, but the amount of damages plaintiffs are rewarded. After all, even if a mistake was made, it is one that can be quickly corrected and would only be harmful to a consumer over a three month period. 

New Boss at MCU

I typically don’t use the blog to highlight personnel moves, but Municipal Credit Union is no ordinary case. MCU is the oldest credit union in the state. So, it’s good to see that it is gradually coming back after being placed under conservatorship by NCUA. Yesterday, NCUA announced the appointment of Kyle Markland as the permanent CEO at Municipal, who previously served as COO at Bethpage. With the credit union in conservatorship, it remains under the direct supervision of NCUA. If things go according to plan, a board will eventually be appointed.

Just How Bad Could it Get For Your Members?

The Century Foundation released a report this morning highlighting the economic strain that millions of Americans could face by the end of this year. The foundation put out an analysis indicating that 12 million workers face jobless benefit cutoffs on December 26, 2020. Specifically, the Pandemic Unemployment Assistance Program, which was designed for so-called gig workers (typically independent contractors) not eligible for unemployment insurance, an extended benefits program will come to an end by the new year. The better known Pandemic Unemployment Compensation Program, which provided the unemployed with an additional $600 weekly supplement, ended on July 31st. Strip away all these acronyms, and the bottom line is that an estimated 40 million Americans received a benefit from one of these programs. This is one of the reasons why the most important period for anticipating losses will be the first quarter of next year. If you want more background on the type of people who are struggling during the pandemic, you should take a look at this analysis by Liberty Street Economics, posted by the staff at the Federal Reserve Bank of New York.

By the way, the Century Foundation was founded as the Cooperative League in 1919 by none other than Edward Filene, who is of course the father of the credit union movement. Who knew?! 

Peace out people, enjoy your day.

November 18, 2020 at 9:58 am Leave a comment

Are You Using Your Credit Reports Illegally?

I’m asking this question to highlight an enforcement action announced by the CFPB yesterday against several companies which, if the allegations are true, blatantly violated several sections of the Fair Credit Reporting Act (FCRA) by obtaining credit reports under false pretenses and passing them around like stewardesses passing  out airline peanuts. I want to highlight the case not only because of its accusations, but because I wanted to provide you an ever so gentle reminder to use your credit reports consistent with the reasons you obtained them in the first place.

15 U.S.C. 1681b(f) permits entities to obtain prescreened credit reports provided that the individuals who qualify under the criteria will receive a firm offer of credit. A “firm offer” is an offer that will be honored subject to certain exceptions. The bottom line is that credit reports are not to be used simply to facilitate marketing, but are instead to be used for legitimate underwriting purposes.

The lawsuit that the CFPB announced yesterday is against several companies, ranging from a mortgage broker to a student loan debt consolidator to a mortgage lender that apparent did not get this memo. For instance, Monster Loans obtained prescreened lists from Experian, ostensibly to offer mortgage loans. There would, of course, be nothing wrong with this if that was all that Monster Loans used these lists for. However, Monster Loans subsequently distributed these lists to third parties, including an entity that specialized in student loan debt consolidation.

Although I’m concentrating on the FCRA part of the complaint, the defendants are also accused of engaging in unfair and deceptive practices, and the Telemarketing and Consumer Fraud and Abuse Prevention Act by marketing these deceptive loan products over the phone. This allegation underscores, yet again, why it is so important for all institutions to understand TCPA and ensure proper compliance.

On that brief note, its time for you to receive my annual Super Bowl prediction, which as you all know, is considered tier-one capital for credit unions and their employees. I like the Seahawks to take on the Chiefs with the Seahawks winning in a dramatic last-second field goal by the score of 20-17. Peace out.

January 10, 2020 at 9:18 am Leave a comment

On Head Injuries and the CFPB

PEDs3It’s Football Season people!  In addition to loving the game, the legal and compliance geek in me loves to see what the new points of emphasis will be for the referees this year.  For example, a couple of years ago, they decided to really crack down on those great, open-field bone crushing tackles with which safeties love to cripple wide receivers.  This year, the NFL continues to reform itself having concluded after much medical research and recent legal threats that football is actually bad for your health and that blows to the head can actually damage someone.  Now they are going to try to crack down on blows to the heads of running backs.  Is flag football far off?

Now, I’m not trying to diminish the dangers posed by playing football but it is an intrinsically violent game and no matter how hard we try, it is going to stay that way.  This brings me to a recent guidance by the CFPB.  One of the great points of emphasis of the Bureau since taking over as the nation’s consumer watch dog has been improving the accuracy of information in credit reports.  It has even created quite a stir by suggesting that large numbers of Americans are being denied credit as a result of inaccuracies in credit reports maintained by the national credit reporting agencies. 

In a 2012 report, the Bureau was critical of the inability of the major reporting agencies to retain and forward all the documentation that a consumer has brought to their attention regarding an alleged inaccuracy.  In yesterday’s guidance, the CFPB emphasized that it “expects furnishers to have reasonable systems and technology in place to receive and process notices of disputes and information regarding disputes, including information forwarded to them by CRAs.”  Remember that if you report information to the credit bureau, you are a furnisher. 

This dictate is a follow-up on the CFPB’s efforts to get the CRA’s to improve their technology so that they coul better retain consumer complaint information.  I would hope that our good friends at the CRAs will be willing to provide a guidance to furnishers explaining what technological baselines furnishers will have to have in order to comply with the CFPB’s wishes.  As someone who has had to read consumer complaints about alleged violations in their credit reports, I have serious doubts that what we need is the ability to read one more letter from an irate consumer with a perfectly good explanation as to why they haven’t paid their bills in the last three months.  Remember that with or without this guidance, you’ll still have an obligation to research discrepancies and correct errors where they exist. 

 

September 5, 2013 at 7:49 am 1 comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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