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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Bush Expands FHA-Lending; Calls for Congressional Action. On August 31, President George Bush, appearing in a press conference with the Secretary of Housing and Urban Development (HUD), announced two new Federal Housing Administration (FHA) initiatives to help subprime borrowers, and called on Congress to modernize FHA and provide borrowers with short term tax breaks. The first of the two new FHA programs is called “FHA-Secure” and will, effective immediately, provide FHA mortgage insurance to borrowers who can meet the following criteria: (i) a history of on-time payments prior to the teaser rate reset, (ii) an interest rate that has or will reset between June 2005 and December 2009, (iii) three percent cash or equity in the home, (iv) a sustained history of employment, and (v) sufficient income to make the mortgage payment. The administration estimated the number of borrowers who will gain FHA-insured refinancings at 240,000. The second FHA initiative will be an effort led by the Secretary of HUD and the Secretary of the Treasury to “reach out to a wide variety of groups that offer foreclosure counseling and refinancing for American homeowners,” including Fannie Mae and Freddie Mac, to help expand borrowers’ financing options and awareness. As part of the announcement, the President also mentioned that starting January 1, 2008, FHA-insurance will switch to risk-based premium pricing. The President called on Congress to pass temporary tax breaks to “ensure that cancelled mortgage debt on a primary residence is not counted as income.” Moreover, the President drew attention to the issue of FHA modernization, noting a bill for this purpose passed the House last year with over 400 votes. In his speech, the President rejected at length any proposals of “bailing out” the mortgage industry, and made no mention of proposals to raise the size limit on mortgages sold to Fannie Mae and Freddie Mac. In a press release following the announcement, House Financial Services Committee Chairman Barney Frank (D – MA) objected to the President’s risk-based FHA insurance pricing and called for “federal action” to apply federal regulations “to all originators” rather than just banks. The official White House press release can be found at http://www.whitehouse.gov/news/releases/2007/08/20070831-5.html. The HUD press release can be found at http://www.hud.gov/news/release.cfm?content=pr07-123.cfm.
DOD Issues Final Rule on Extension of Credit to Service Members. Recently, the Department of Defense (DOD) issued a final rule implementing the consumer protection provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007 that put a 36% usury ceiling on consumer credit products offered to active duty service members and their dependents (most recently covered in the April 13th issue of InfoBytes). The final rule largely tracks the rule as proposed in April, including the definition of "consumer credit" that was narrowed in April's proposed rule to limit coverage to payday loans, vehicle title loans and refund anticipation loans after concerns raised by industry and trade groups about a potential unintended chilling effect on the credit availability in non-predatory situations. Revisions to the proposed rule include clarification that: (i) the definition of military annual percentage rate (MAPR) does not include certain taxes or fees prescribed by law, (ii) the definition of "consumer credit" is limited to closed-end transactions, so that the rules are not unintentionally interpreted to include credit cards, (iii) disclosure of the MAPR in advertisements is not required, and (iv) the refinancing or renewal of a covered loan requires new disclosures under Section 232.6 of the rule only when the transaction would be considered a new transaction that requires Truth In Lending Act disclosures. Further, with respect to refinancings and renewals, the final rule allows a creditor to rely on its original determination that a borrower was not a covered borrower under the Act. The final rule also removes an inadvertent reference in the proposed rule that would have prohibited covered borrowers from using a vehicle title as security for a loan even if the loan otherwise complied with the rule. In its Federal Register description of the final rule, the DOD states that, based on its belief that the penalties and remedies expressly provided in the Act and incorporated into the rule may be insufficient to ensure uniform compliance with the rule by all creditors, the DOD has contacted state regulatory agencies to determine which states plan to enforce the rule and to determine how best to work with all 50 states on enforcement. The effective date of the rule is October 1, 2007. For a copy of the rule, please contact .
GAO Issues Report on FHA's Title I Program and Manufactured Homes. The General Accounting Office (GAO) recently issued its report in connection with the Federal Housing Administration’s pending legislative changes to the Title I Manufactured Home Loan program. (One such piece of legislation, the FHA Manufactured Housing Loan Modernization Act of 2007, was discussed in the June 29th issue of InfoBytes.) These changes include increasing loan limits, insuring loans individually rather than in bundles, incorporating stricter underwriting requirements, and setting up-front premiums for FHA insurance of manufactured home loans. The GAO recommended that the Secretary of Housing and Urban Development (HUD) direct FHA to “assess the effects of the proposed changes to the Title I program and develop an approach for collecting the information needed to effectively manage the program.” HUD agreed with the GAO’s recommendations and has already commenced a study of Title I lending loss recovery rates. For the full text of the report, please see www.gao.gov/cgi-bin/getrpt?GAO-07-879.
FTC Announces Settlement with Telemarketers Targeting Spanish Speakers. On August 30, the Federal Trade Commission (FTC) announced that a group of Miami area telemarketers who were charged with deceiving Spanish-speaking consumers through the marketing of pre-approved, advanced fee credit cards, ATM cards, and phone cards has settled in connection with the FTC charges stemming from this alleged activity. As part of the final order the Miami area telemarketers have been banned from telemarketing activities and from selling similar products in the future. The defendants, who advertised on Spanish-speaking television stations, allegedly offered pre-approved and guaranteed credit cards (and various other incentive items, including phone cards and vacation vouchers) to consumers for a pre-set fee between $138 and $200, and then failed to deliver some or all of the items, or delivered items that did not work. In total, the FTC alleged that more than 30,000 consumers have been cheated out of more than $4 million. The court order also assessed $4,164,588 in judgments against each individual defendant. For the official FTC press release, please see http://www.ftc.gov/opa/2007/08/advancefeecc.shtm.
COURTS
Mortgage Insurer Found to Take FCRA Adverse Action When Coverage Provided at Higher Rate. On August 30, the U.S. Court of Appeals for the Third Circuit held that the Fair Credit Reporting Act (FCRA) requires a mortgage insurance company that provides mortgage insurance at a rate higher than the best available to provide an adverse action notice to the consumer. Whitfield v. Radian Guaranty, Inc., No. 05-5017 (3rd Cir. Aug. 30, 2007). The court of appeals first noted that the Supreme Court, in Safeco Insurance Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), disposed of one issue that arose in the district court but was not at issue in the appeal, by holding that an initial insurance premium at higher than the best rate can be “adverse action” under FCRA. (For more details on Safeco, see the June 4th InfoBytes Special Alert.) After first agreeing with the district court that mortgage insurance falls under the “insurance prong” of FCRA’s definition of adverse action, the court of appeals rejected the district court’s conclusion that the mortgage insurer did not take adverse action against the consumer because the insurance transaction was between the mortgage insurer and the lender, not the insurer and the borrower. Citing Broessel v. Triad Guaranty Insurance Corp., 2005 WL 2260498 (W.D. Ky. Sept. 15, 2005, reported in September 30, 2005 issue of InfoBytes), the court indicated that the mortgage insurer took adverse action because the premium was based on the consumers’ credit score, which was based on their credit report. The court also cited portions of the opinion of the U.S. Court of Appeals for the Ninth Circuit in Reynolds v. Hartford Financial Services Group, 453 F.3d 1093 (9th Cir. 2006) that were not overruled by Safeco to the effect that a “variety of entities,” including, in this case, the mortgage insurance company, may be liable for taking adverse action against a consumer. Finally, the court remanded to the district court the question of whether the mortgage insurer’s conduct met the willfulness standard set out in Safeco, holding that that is a factual rather than a legal question. For a copy of the opinion, please contact .
Mortgage Broker Found to Be a FCRA Creditor in Adverse Action Claim. A Connecticut federal court, holding a mortgage broker to be a “creditor” under the Equal Credit Opportunity Act (ECOA), found the broker liable for having failed to provide plaintiff with a notice of adverse action. Cochran v. Northeast Mortgage, LLC, Civil No. 3:06-CV-01131, 2007 WL 2412299(D. Conn., August 21, 2007). The plaintiff in Cochran sued her broker for violations of FCRA and ECOA, alleging that the broker did not provide her with notice after deciding not to forward her residential mortgage loan application to any lenders after obtaining and evaluating her credit report. After the broker admitted that this decision constituted an adverse action, plaintiff moved for summary judgment on the remaining issue of whether the broker was a “creditor.” The Court, relying on Treadway v. Gateway Chevrolet Oldsmobile Inc. (reported in the September 17, 2004 issue of InfoBytes), found that that the broker was “a person who, in the ordinary course of business regularly participates in a credit decision,” and therefore a creditor under ECOA. Indeed, the decision not to forward plaintiff’s loan application was just such a “credit decision” contemplated by ECOA. Noting that the defendant had admitted in its answer that it took adverse action against the consumer under FCRA, the court held that adverse action occurred under FCRA without addressing the repeal of FCRA’s private right of action. For a copy of this decision, please contact .
FACTA Card Truncation Claim Survives Safeco “Willfulness” Standard. On August 28, a U.S. District Court ruled that a company accused of failing to truncate credit card information under the Fair and Accurate Credit Transactions Act (FACTA) could be accused of a willful violation of the act, despite the Supreme Court decision in Safeco Ins. Co. v. Burr, because the company’s reading of FACTA was “not reasonable.” Korman v. Walking Co., No. 07-1557 2007 WL 2437958 (E.D. Pa. Aug. 28, 2007). The company, accused of failing to comply with FACTA by printing more than five digits of the credit card number or the card’s expiration date on receipts, moved to dismiss claiming (i) the plaintiff lacked standing without having suffered “injury”, (ii) the plaintiff’s reading of the truncation language was incorrect, and (iii) citing Safeco, the defendant could not have “willfully” violated FACTA as its reading was “a reasonable one” (for further discussion of Safeco, see the June 4th InfoBytes Special Alert). The court held that the plaintiff clearly did have standing, noting that “she has a legally protected interest” in the omission of credit card information by merchants under FACTA. The court also held the defendant’s reading of FACTA, that a merchant could comply by only omitting the credit card numbers or only omitting the expiration date, was “tortured” and was clearly invalidated by guidance from the Federal Trade Commission. In ruling on the issue of willfulness, the court noted that the Supreme Court had predicated its decision in Safeco on Safeco’s reading of FCRA being “not objectively unreasonable” and having “a foundation in the statutory text.” The district court found that the defendant’s reading did not meet these criteria, and that the plaintiff’s claim of a willful violation of FACTA had been adequately pled to survive a motion to dismiss. For a copy of this decision, please contact .
Safeco FCRA “Willfulness” Standard Does Not Help Defendant in Credit-Card Truncation Case. On August 22, the U.S. District Court for the Northern District of Illinois denied the defendant’s motion to dismiss a complaint alleging willful violations of the requirement, added by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), to truncate credit card numbers and remove the expiration date from card receipts. Iosello v. Leiblys, Inc., No. 07 C 2454, 2007 WL 2398474 (N.D. Ill. Aug. 22, 2007). The court followed the standard for finding a willful violation of FCRA set forth in Safeco Ins. Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), quoting Safeco to the effect that “’willfully fail[ing] to comply’ with FCRA covers both knowing and reckless violations of the statute and that ‘a company subject to the FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute’s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.’” (For more details on Safeco, see the June 4th InfoBytes Special Alert.) The court found the allegations in the complaint sufficient to “plausibly suggest” a willful violation of FACTA at the motion to dismiss stage, but noted that its decision did not preclude the defendant from ”raising the issue of willfulness in the summary judgment stage.” In finding that FACTA was not void for vagueness, the court explained that FACTA’s language “has only one reasonable meaning,” and that “[t]he plain meaning of the statute is that a merchant shall not print more than the last 5 digits of the credit card number upon any receipt and a merchant shall not print the expiration date upon any receipt.” Please contact for a copy of the decision.
Seventh Circuit Upholds Dismissal of Data Breach Suit over Credit Monitoring. The Seventh Circuit Court of Appeals upheld the dismissal of a potential class-action data breach lawsuit where the plaintiffs were seeking credit monitoring for potential future economic damages as the damages sought are not compensable as a matter of Indiana law. Pisciotta v. Old National Bancorp, No. 06-3817, 2007 WL 2389770 (7th Cir. Aug. 23, 2007). In this case, Old National Bancorp (ONB) had solicited personal information from applicants for banking services through its website. A third-party computer hacker was able to access the confidential information of the named plaintiffs, along with the information of tens of thousands of other users. The plaintiffs filed suit on behalf of these users as a result of the security breach, alleging potential economic damages and emotional distress. The plaintiffs did not allege any “completed direct” financial loss as a result of the breach, and no putative class member alleged already having been the victim of identity theft. ONB moved for judgment on the pleadings, and the district court dismissed the case, finding that the plaintiffs failed to state a claim. The Seventh Circuit affirmed the dismissal, holding, in a case of first impression under Indiana law, that “no cause of action for credit monitoring is available.” A copy of the opinion is available at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-3817_024.pdf.
Missouri Federal Court Reiterates Its Previous Firm Offer Decisions. On August 21, the Federal District Court for the Eastern District of Missouri ruled that a mailing that did not include an interest rate, method of interest accrual, nor amortization period, but did list a $10,000 to $30,000 range of credit to be extended constituted a firm offer of credit under the Fair Credit Reporting Act (FCRA). Ludditt-Poehl v. Capital One Auto Finance, Inc., No. 06-888, 2007 WL 2428044 (E.D. Mo. Aug. 2, 2007). Ruling in favor of the defendant on a motion for judgment on the pleadings, the court cited its previous decisions in Pohl v. Countrywide Home Loans and Klutho v. Home Loan Center (both reported in the November 11, 2006 issue of InfoBytes). In its decision, the court stated that “the [solicitation] letters do offer something of value” because “even absent a specific amount of money… the consumer can determine… [they] will be extended a minimum of $10,000.” For a copy of this opinion, please contact .
Reliance by Reporting Agency on Automated Dispute Verification May Violate FCRA. On August 15, the U.S. District Court for the District of Oregon issued an opinion denying summary judgment to Trans Union, a credit reporting agency, in an action claiming that Trans Union negligently and willfully violated the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable reinvestigation of the information contained in the consumer's report. Saenz v. Trans Union, LLC, No. CV 05-1206-PK, 2007 WL 2401745 (D. Or. Aug. 15, 2007). The plaintiff, George H. Saenz, settled an outstanding debt to NCO Financial Systems, Inc. (NCO) and requested that Trans Union remove the reference to that debt on his credit report. Saenz made several requests to Trans Union to remove the reference, and at one point, he sent documentation evidencing the payment of the debt. However, in response to each request by Saenz, Trans Union initiated an automated consumer dispute verification (ACDV) procedure, which did not indicate that the debt had been paid. The ACDV procedure matches the electronic data in Trans Union's records with electronic data provided by a creditor. At no time did Trans Union contact NCO to inquire about possible payment of the debt, nor did Trans Union forward copies of the documentation it had from the consumer. According to the District Court, "FCRA requires that consumer reporting agencies conduct 'reasonable reinvestigation[s]' of consumer information whenever information contained in a consumer report is disputed by the consumer." The court stated that "where a reporting agency is affirmatively on notice that information received from a creditor may be suspect, it is not reasonable for the agency simply to verify the creditor's position without additional investigation." The court then concluded that "[a] reasonable jury could infer from Trans Union's failure to provide NCO with copies or a summary of the evidence it received, or to conduct any independent consideration or investigation of Saenz' assertion that the balance had been paid, that the agency's reinvestigation was unreasonable." The court denied Trans Union's motion for summary judgment stating that a jury could find Trans Union to have willfully violated FCRA (thus being liable for potentially higher damages) if the jury found that Trans Union acted in reckless disregard of the law. For a copy of this decision, please contact .
Defamation Claim Preempted by FCRA. A California federal court granted summary judgment to defendants in a case alleging defamation arising from negative credit information mistakenly provided to a credit reporting agency. Woods v. Protection One Alarm Monitoring, Inc., No. 1:06-CV-00398-SMS (E.D. Cal., opinion issued August 22, 2007). In their complaint, plaintiffs leveled a number of state law claims against defendants, but, following successful motions to dismiss, only the defamation claim remained. Defendants moved for summary judgment, arguing that FCRA preempted the defamation claim, and that plaintiff did not show that defendants violated FCRA. The court agreed, analyzing both FCRA preemption provisions, and finding that, because the complaint “addresses conduct that clearly falls within the duties of furnishers of information” described in FCRA, plaintiffs’ defamation claim was preempted. The court then held that plaintiff failed to show a FCRA violation. For a copy of this opinion, please contact .
Consumer and Consumer’s Attorney Treated Differently for Purposes of FDCPA. On August 23, the Ninth Circuit Court of Appeals confirmed that the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., requires a debt collector, upon receipt of notice that the consumer disputes the alleged debt, to cease its collection efforts until it has provided verification of the debt to the consumer. Guerrero v. RJM Acquisitions, CV-03-00038-HG (9th Cir. Aug. 23, 2007). However, the court further held that the FDCPA does not require a debt collector to verify a debt once the debt collector has ceased all collection efforts directed at the consumer, and thereafter only directs collection efforts at the consumer’s attorney. Consequently, communications that would violate the FDCPA if directed at a consumer do not violate the FDCPA when directed at the consumer’s legal counsel. The court noted that “[a] consumer and his attorney are not one and the same for purposes of the [FDCPA].” The FDCPA “was meant to shield debtors from abusive collection practices, but it was never intended to shift the balance of power between debtors and creditors such that a debt collector cannot work with a debtor’s attorney to settle claims without exposing itself to liability out of proportion to the debt allegedly owed.” The Ninth Circuit’s decision reversed the District Court for the District of Hawaii’s ruling that the defendant debt collector violated the FDCPA when it (i) sent plaintiff consumer two collection letters containing slightly different account and file numbers, in an attempt to collect one debt; (ii) continued collection efforts after receiving notice that plaintiff disputed the debt and before providing verification of the debt; and (iii) misrepresented to plaintiff’s counsel that it was not a debt collection agency and not subject to FDCPA. The decision is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Bush Expands FHA-Lending; Calls for Congressional Action. On August 31, President George Bush, appearing in a press conference with the Secretary of Housing and Urban Development (HUD), announced two new Federal Housing Administration (FHA) initiatives to help subprime borrowers, and called on Congress to modernize FHA and provide borrowers with short term tax breaks. The first of the two new FHA programs is called “FHA-Secure” and will, effective immediately, provide FHA mortgage insurance to borrowers who can meet the following criteria: (i) a history of on-time payments prior to the teaser rate reset, (ii) an interest rate that has or will reset between June 2005 and December 2009, (iii) three percent cash or equity in the home, (iv) a sustained history of employment, and (v) sufficient income to make the mortgage payment. The administration estimated the number of borrowers who will gain FHA-insured refinancings at 240,000. The second FHA initiative will be an effort led by the Secretary of HUD and the Secretary of the Treasury to “reach out to a wide variety of groups that offer foreclosure counseling and refinancing for American homeowners,” including Fannie Mae and Freddie Mac, to help expand borrowers’ financing options and awareness. As part of the announcement, the President also mentioned that starting January 1, 2008, FHA-insurance will switch to risk-based premium pricing. The President called on Congress to pass temporary tax breaks to “ensure that cancelled mortgage debt on a primary residence is not counted as income.” Moreover, the President drew attention to the issue of FHA modernization, noting a bill for this purpose passed the House last year with over 400 votes. In his speech, the President rejected at length any proposals of “bailing out” the mortgage industry, and made no mention of proposals to raise the size limit on mortgages sold to Fannie Mae and Freddie Mac. In a press release following the announcement, House Financial Services Committee Chairman Barney Frank (D – MA) objected to the President’s risk-based FHA insurance pricing and called for “federal action” to apply federal regulations “to all originators” rather than just banks. The official White House press release can be found at http://www.whitehouse.gov/news/releases/2007/08/20070831-5.html. The HUD press release can be found at http://www.hud.gov/news/release.cfm?content=pr07-123.cfm.
Mortgage Insurer Found to Take FCRA Adverse Action When Coverage Provided at Higher Rate. On August 30, the U.S. Court of Appeals for the Third Circuit held that the Fair Credit Reporting Act (FCRA) requires a mortgage insurance company that provides mortgage insurance at a rate higher than the best available to provide an adverse action notice to the consumer. Whitfield v. Radian Guaranty, Inc., No. 05-5017 (3rd Cir. Aug. 30, 2007). The court of appeals first noted that the Supreme Court, in Safeco Insurance Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), disposed of one issue that arose in the district court but was not at issue in the appeal, by holding that an initial insurance premium at higher than the best rate can be “adverse action” under FCRA. (For more details on Safeco, see the June 4th InfoBytes Special Alert.) After first agreeing with the district court that mortgage insurance falls under the “insurance prong” of FCRA’s definition of adverse action, the court of appeals rejected the district court’s conclusion that the mortgage insurer did not take adverse action against the consumer because the insurance transaction was between the mortgage insurer and the lender, not the insurer and the borrower. Citing Broessel v. Triad Guaranty Insurance Corp., 2005 WL 2260498 (W.D. Ky. Sept. 15, 2005, reported in September 30, 2005 issue of InfoBytes), the court indicated that the mortgage insurer took adverse action because the premium was based on the consumers’ credit score, which was based on their credit report. The court also cited portions of the opinion of the U.S. Court of Appeals for the Ninth Circuit in Reynolds v. Hartford Financial Services Group, 453 F.3d 1093 (9th Cir. 2006) that were not overruled by Safeco to the effect that a “variety of entities,” including, in this case, the mortgage insurance company, may be liable for taking adverse action against a consumer. Finally, the court remanded to the district court the question of whether the mortgage insurer’s conduct met the willfulness standard set out in Safeco, holding that that is a factual rather than a legal question. For a copy of the opinion, please contact .
Mortgage Broker Found to Be a FCRA Creditor in Adverse Action Claim. A Connecticut federal court, holding a mortgage broker to be a “creditor” under the Equal Credit Opportunity Act (ECOA), found the broker liable for having failed to provide plaintiff with a notice of adverse action. Cochran v. Northeast Mortgage, LLC, Civil No. 3:06-CV-01131, 2007 WL 2412299(D. Conn., August 21, 2007). The plaintiff in Cochran sued her broker for violations of FCRA and ECOA, alleging that the broker did not provide her with notice after deciding not to forward her residential mortgage loan application to any lenders after obtaining and evaluating her credit report. After the broker admitted that this decision constituted an adverse action, plaintiff moved for summary judgment on the remaining issue of whether the broker was a “creditor.” The Court, relying on Treadway v. Gateway Chevrolet Oldsmobile Inc. (reported in the September 17, 2004 issue of InfoBytes), found that that the broker was “a person who, in the ordinary course of business regularly participates in a credit decision,” and therefore a creditor under ECOA. Indeed, the decision not to forward plaintiff’s loan application was just such a “credit decision” contemplated by ECOA. Noting that the defendant had admitted in its answer that it took adverse action against the consumer under FCRA, the court held that adverse action occurred under FCRA without addressing the repeal of FCRA’s private right of action. For a copy of this decision, please contact .
GAO Issues Report on FHA's Title I Program and Manufactured Homes. The General Accounting Office (GAO) recently issued its report in connection with the Federal Housing Administration’s pending legislative changes to the Title I Manufactured Home Loan program. (One such piece of legislation, the FHA Manufactured Housing Loan Modernization Act of 2007, was discussed in the June 29th issue of InfoBytes.) These changes include increasing loan limits, insuring loans individually rather than in bundles, incorporating stricter underwriting requirements, and setting up-front premiums for FHA insurance of manufactured home loans. The GAO recommended that the Secretary of Housing and Urban Development (HUD) direct FHA to “assess the effects of the proposed changes to the Title I program and develop an approach for collecting the information needed to effectively manage the program.” HUD agreed with the GAO’s recommendations and has already commenced a study of Title I lending loss recovery rates. For the full text of the report, please see www.gao.gov/cgi-bin/getrpt?GAO-07-879.
Reliance by Reporting Agency on Automated Dispute Verification May Violate FCRA. On August 15, the U.S. District Court for the District of Oregon issued an opinion denying summary judgment to Trans Union, a credit reporting agency, in an action claiming that Trans Union negligently and willfully violated the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable reinvestigation of the information contained in the consumer's report. Saenz v. Trans Union, LLC, No. CV 05-1206-PK, 2007 WL 2401745 (D. Or. Aug. 15, 2007). The plaintiff, George H. Saenz, settled an outstanding debt to NCO Financial Systems, Inc.(NCO) and requested that Trans Union remove the reference to that debt on his credit report. Saenz made several requests to Trans Union to remove the reference, and at one point, he sent documentation evidencing the payment of the debt. However, in response to each request by Saenz, Trans Union initiated an automated consumer dispute verification (ACDV) procedure, which did not indicate that the debt had been paid. The ACDV procedure matches the electronic data in Trans Union's records with electronic data provided by a creditor. At no time did Trans Union contact NCO to inquire about possible payment of the debt, nor did Trans Union forward copies of the documentation it had from the consumer. According to the District Court, "FCRA requires that consumer reporting agencies conduct 'reasonable reinvestigation[s]' of consumer information whenever information contained in a consumer report is disputed by the consumer." The court stated that "where a reporting agency is affirmatively on notice that information received from a creditor may be suspect, it is not reasonable for the agency simply to verify the creditor's position without additional investigation." The court then concluded that "[a] reasonable jury could infer from Trans Union's failure to provide NCO with copies or a summary of the evidence it received, or to conduct any independent consideration or investigation of Saenz' assertion that the balance had been paid, that the agency's reinvestigation was unreasonable." The court denied Trans Union's motion for summary judgment stating that a jury could find Trans Union to have willfully violated FCRA (thus being liable for potentially higher damages) if the jury found that Trans Union acted in reckless disregard of the law. For a copy of this decision, please contact .
Bush Expands FHA-Lending; Calls for Congressional Action. On August 31, President George Bush, appearing in a press conference with the Secretary of Housing and Urban Development (HUD), announced two new Federal Housing Administration (FHA) initiatives to help subprime borrowers, and called on Congress to modernize FHA and provide borrowers with short term tax breaks. The first of the two new FHA programs is called “FHA-Secure” and will, effective immediately, provide FHA mortgage insurance to borrowers who can meet the following criteria: (i) a history of on-time payments prior to the teaser rate reset, (ii) an interest rate that has or will reset between June 2005 and December 2009, (iii) three percent cash or equity in the home, (iv) a sustained history of employment, and (v) sufficient income to make the mortgage payment. The administration estimated the number of borrowers who will gain FHA-insured refinancings at 240,000. The second FHA initiative will be an effort led by the Secretary of HUD and the Secretary of the Treasury to “reach out to a wide variety of groups that offer foreclosure counseling and refinancing for American homeowners,” including Fannie Mae and Freddie Mac, to help expand borrowers’ financing options and awareness. As part of the announcement, the President also mentioned that starting January 1, 2008, FHA-insurance will switch to risk-based premium pricing. The President called on Congress to pass temporary tax breaks to “ensure that cancelled mortgage debt on a primary residence is not counted as income.” Moreover, the President drew attention to the issue of FHA modernization, noting a bill for this purpose passed the House last year with over 400 votes. In his speech, the President rejected at length any proposals of “bailing out” the mortgage industry, and made no mention of proposals to raise the size limit on mortgages sold to Fannie Mae and Freddie Mac. In a press release following the announcement, House Financial Services Committee Chairman Barney Frank (D – MA) objected to the President’s risk-based FHA insurance pricing and called for “federal action” to apply federal regulations “to all originators” rather than just banks. The official White House press release can be found at http://www.whitehouse.gov/news/releases/2007/08/20070831-5.html. The HUD press release can be found at http://www.hud.gov/news/release.cfm?content=pr07-123.cfm.
Reliance by Reporting Agency on Automated Dispute Verification May Violate FCRA. On August 15, the U.S. District Court for the District of Oregon issued an opinion denying summary judgment to Trans Union, a credit reporting agency, in an action claiming that Trans Union negligently and willfully violated the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable reinvestigation of the information contained in the consumer's report. Saenz v. Trans Union, LLC, No. CV 05-1206-PK, 2007 WL 2401745 (D. Or. Aug. 15, 2007). The plaintiff, George H. Saenz, settled an outstanding debt to NCO Financial Systems, Inc.(NCO) and requested that Trans Union remove the reference to that debt on his credit report. Saenz made several requests to Trans Union to remove the reference, and at one point, he sent documentation evidencing the payment of the debt. However, in response to each request by Saenz, Trans Union initiated an automated consumer dispute verification (ACDV) procedure, which did not indicate that the debt had been paid. The ACDV procedure matches the electronic data in Trans Union's records with electronic data provided by a creditor. At no time did Trans Union contact NCO to inquire about possible payment of the debt, nor did Trans Union forward copies of the documentation it had from the consumer. According to the District Court, "FCRA requires that consumer reporting agencies conduct 'reasonable reinvestigation[s]' of consumer information whenever information contained in a consumer report is disputed by the consumer." The court stated that "where a reporting agency is affirmatively on notice that information received from a creditor may be suspect, it is not reasonable for the agency simply to verify the creditor's position without additional investigation." The court then concluded that "[a] reasonable jury could infer from Trans Union's failure to provide NCO with copies or a summary of the evidence it received, or to conduct any independent consideration or investigation of Saenz' assertion that the balance had been paid, that the agency's reinvestigation was unreasonable." The court denied Trans Union's motion for summary judgment stating that a jury could find Trans Union to have willfully violated FCRA (thus being liable for potentially higher damages) if the jury found that Trans Union acted in reckless disregard of the law. For a copy of this decision, please contact .
DOD Issues Final Rule on Extension of Credit to Service Members. Recently, the Department of Defense (DOD) issued a final rule implementing the consumer protection provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007 that put a 36% usury ceiling on consumer credit products offered to active duty service members and their dependents (most recently covered in the April 13th issue of InfoBytes). The final rule largely tracks the rule as proposed in April, including the definition of "consumer credit" that was narrowed in April's proposed rule to limit coverage to payday loans, vehicle title loans and refund anticipation loans after concerns raised by industry and trade groups about a potential unintended chilling effect on the credit availability in non-predatory situations. Revisions to the proposed rule include clarification that: (i) the definition of military annual percentage rate (MAPR) does not include certain taxes or fees prescribed by law, (ii) the definition of "consumer credit" is limited to closed-end transactions, so that the rules are not unintentionally interpreted to include credit cards, (iii) disclosure of the MAPR in advertisements is not required, and (iv) the refinancing or renewal of a covered loan requires new disclosures under Section 232.6 of the rule only when the transaction would be considered a new transaction that requires Truth In Lending Act disclosures. Further, with respect to refinancings and renewals, the final rule allows a creditor to rely on its original determination that a borrower was not a covered borrower under the Act. The final rule also removes an inadvertent reference in the proposed rule that would have prohibited covered borrowers from using a vehicle title as security for a loan even if the loan otherwise complied with the rule. In its Federal Register description of the final rule, the DOD states that, based on its belief that the penalties and remedies expressly provided in the Act and incorporated into the rule may be insufficient to ensure uniform compliance with the rule by all creditors, the DOD has contacted state regulatory agencies to determine which states plan to enforce the rule and to determine how best to work with all 50 states on enforcement. The effective date of the rule is October 1, 2007. For a copy of the rule, please contact .
FACTA Card Truncation Claim Survives Safeco “Willfulness” Standard. On August 28, a U.S. District Court ruled that a company accused of failing to truncate credit card information under the Fair and Accurate Credit Transactions Act (FACTA) could be accused of a willful violation of the act, despite the Supreme Court decision in Safeco Ins. Co. v. Burr, because the company’s reading of FACTA was “not reasonable.” Korman v. Walking Co., No. 07-1557 2007 WL 2437958 (E.D. Pa. Aug. 28, 2007). The company, accused of failing to comply with FACTA by printing more than five digits of the credit card number or the card’s expiration date on receipts, moved to dismiss claiming (i) the plaintiff lacked standing without having suffered “injury”, (ii) the plaintiff’s reading of the truncation language was incorrect, and (iii) citing Safeco, the defendant could not have “willfully” violated FACTA as its reading was “a reasonable one” (for further discussion of Safeco, see the June 4th InfoBytes Special Alert). The court held that the plaintiff clearly did have standing, noting that “she has a legally protected interest” in the omission of credit card information by merchants under FACTA. The court also held the defendant’s reading of FACTA, that a merchant could comply by only omitting the credit card numbers or only omitting the expiration date, was “tortured” and was clearly invalidated by guidance from the Federal Trade Commission. In ruling on the issue of willfulness, the court noted that the Supreme Court had predicated its decision in Safeco on Safeco’s reading of FCRA being “not objectively unreasonable” and having “a foundation in the statutory text.” The district court found that the defendant’s reading did not meet these criteria, and that the plaintiff’s claim of a willful violation of FACTA had been adequately pled to survive a motion to dismiss. For a copy of this decision, please contact .
Safeco FCRA “Willfulness” Standard Does Not Help Defendant in Credit-Card Truncation Case. On August 22, the U.S. District Court for the Northern District of Illinois denied the defendant’s motion to dismiss a complaint alleging willful violations of the requirement, added by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), to truncate credit card numbers and remove the expiration date from card receipts. Iosello v. Leiblys, Inc., No. 07 C 2454, 2007 WL 2398474 (N.D. Ill. Aug. 22, 2007). The court followed the standard for finding a willful violation of FCRA set forth in Safeco Ins. Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), quoting Safeco to the effect that “’willfully fail[ing] to comply’ with FCRA covers both knowing and reckless violations of the statute and that ‘a company subject to the FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute’s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.’” (For more details on Safeco, see the June 4th InfoBytes Special Alert.) The court found the allegations in the complaint sufficient to “plausibly suggest” a willful violation of FACTA at the motion to dismiss stage, but noted that its decision did not preclude the defendant from ”raising the issue of willfulness in the summary judgment stage.” In finding that FACTA was not void for vagueness, the court explained that FACTA’s language “has only one reasonable meaning,” and that “[t]he plain meaning of the statute is that a merchant shall not print more than the last 5 digits of the credit card number upon any receipt and a merchant shall not print the expiration date upon any receipt.” Please contact for a copy of the decision.
Missouri Federal Court Reiterates Its Previous Firm Offer Decisions. On August 21, the Federal District Court for the Eastern District of Missouri ruled that a mailing that did not include an interest rate, method of interest accrual, nor amortization period, but did list a $10,000 to $30,000 range of credit to be extended constituted a firm offer of credit under the Fair Credit Reporting Act (FCRA). Ludditt-Poehl v. Capital One Auto Finance, Inc., No. 06-888, 2007 WL 2428044 (E.D. Mo. Aug. 2, 2007). Ruling in favor of the defendant on a motion for judgment on the pleadings, the court cited its previous decisions in Pohl v. Countrywide Home Loans and Klutho v. Home Loan Center (both reported in the November 11, 2006 issue of InfoBytes). In its decision, the court stated that “the [solicitation] letters do offer something of value” because “even absent a specific amount of money… the consumer can determine… [they] will be extended a minimum of $10,000.” For a copy of this opinion, please contact .
Reliance by Reporting Agency on Automated Dispute Verification May Violate FCRA. On August 15, the U.S. District Court for the District of Oregon issued an opinion denying summary judgment to Trans Union, a credit reporting agency, in an action claiming that Trans Union negligently and willfully violated the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable reinvestigation of the information contained in the consumer's report. Saenz v. Trans Union, LLC, No. CV 05-1206-PK, 2007 WL 2401745 (D. Or. Aug. 15, 2007). The plaintiff, George H. Saenz, settled an outstanding debt to NCO Financial Systems, Inc.(NCO) and requested that Trans Union remove the reference to that debt on his credit report. Saenz made several requests to Trans Union to remove the reference, and at one point, he sent documentation evidencing the payment of the debt. However, in response to each request by Saenz, Trans Union initiated an automated consumer dispute verification (ACDV) procedure, which did not indicate that the debt had been paid. The ACDV procedure matches the electronic data in Trans Union's records with electronic data provided by a creditor. At no time did Trans Union contact NCO to inquire about possible payment of the debt, nor did Trans Union forward copies of the documentation it had from the consumer. According to the District Court, "FCRA requires that consumer reporting agencies conduct 'reasonable reinvestigation[s]' of consumer information whenever information contained in a consumer report is disputed by the consumer." The court stated that "where a reporting agency is affirmatively on notice that information received from a creditor may be suspect, it is not reasonable for the agency simply to verify the creditor's position without additional investigation." The court then concluded that "[a] reasonable jury could infer from Trans Union's failure to provide NCO with copies or a summary of the evidence it received, or to conduct any independent consideration or investigation of Saenz' assertion that the balance had been paid, that the agency's reinvestigation was unreasonable." The court denied Trans Union's motion for summary judgment stating that a jury could find Trans Union to have willfully violated FCRA (thus being liable for potentially higher damages) if the jury found that Trans Union acted in reckless disregard of the law. For a copy of this decision, please contact .
Defamation Claim Preempted by FCRA. A California federal court granted summary judgment to defendants in a case alleging defamation arising from negative credit information mistakenly provided to a credit reporting agency. Woods v. Protection One Alarm Monitoring, Inc., No. 1:06-CV-00398-SMS (E.D. Cal., opinion issued August 22, 2007). In their complaint, plaintiffs leveled a number of state law claims against defendants, but, following successful motions to dismiss, only the defamation claim remained. Defendants moved for summary judgment, arguing that FCRA preempted the defamation claim, and that plaintiff did not show that defendants violated FCRA. The court agreed, analyzing both FCRA preemption provisions, and finding that, because the complaint “addresses conduct that clearly falls within the duties of furnishers of information” described in FCRA, plaintiffs’ defamation claim was preempted. The court then held that plaintiff failed to show a FCRA violation. For a copy of this opinion, please contact .
Consumer and Consumer’s Attorney Treated Differently for Purposes of FDCPA. On August 23, the Ninth Circuit Court of Appeals confirmed that the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., requires a debt collector, upon receipt of notice that the consumer disputes the alleged debt, to cease its collection efforts until it has provided verification of the debt to the consumer. Guerrero v. RJM Acquisitions, CV-03-00038-HG (9th Cir. Aug. 23, 2007). However, the court further held that the FDCPA does not require a debt collector to verify a debt once the debt collector has ceased all collection efforts directed at the consumer, and thereafter only directs collection efforts at the consumer’s attorney. Consequently, communications that would violate the FDCPA if directed at a consumer do not violate the FDCPA when directed at the consumer’s legal counsel. The court noted that “[a] consumer and his attorney are not one and the same for purposes of the [FDCPA].” The FDCPA “was meant to shield debtors from abusive collection practices, but it was never intended to shift the balance of power between debtors and creditors such that a debt collector cannot work with a debtor’s attorney to settle claims without exposing itself to liability out of proportion to the debt allegedly owed.” The Ninth Circuit’s decision reversed the District Court for the District of Hawaii’s ruling that the defendant debt collector violated the FDCPA when it (i) sent plaintiff consumer two collection letters containing slightly different account and file numbers, in an attempt to collect one debt; (ii) continued collection efforts after receiving notice that plaintiff disputed the debt and before providing verification of the debt; and (iii) misrepresented to plaintiff’s counsel that it was not a debt collection agency and not subject to FDCPA. The decision is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Mortgage Insurer Found to Take FCRA Adverse Action When Coverage Provided at Higher Rate. On August 30, the U.S. Court of Appeals for the Third Circuit held that the Fair Credit Reporting Act (FCRA) requires a mortgage insurance company that provides mortgage insurance at a rate higher than the best available to provide an adverse action notice to the consumer. Whitfield v. Radian Guaranty, Inc., No. 05-5017 (3rd Cir. Aug. 30, 2007). The court of appeals first noted that the Supreme Court, in Safeco Insurance Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), disposed of one issue that arose in the district court but was not at issue in the appeal, by holding that an initial insurance premium at higher than the best rate can be “adverse action” under FCRA. (For more details on Safeco, see the June 4th InfoBytes Special Alert.) After first agreeing with the district court that mortgage insurance falls under the “insurance prong” of FCRA’s definition of adverse action, the court of appeals rejected the district court’s conclusion that the mortgage insurer did not take adverse action against the consumer because the insurance transaction was between the mortgage insurer and the lender, not the insurer and the borrower. Citing Broessel v. Triad Guaranty Insurance Corp., 2005 WL 2260498 (W.D. Ky. Sept. 15, 2005, reported in September 30, 2005 issue of InfoBytes), the court indicated that the mortgage insurer took adverse action because the premium was based on the consumers’ credit score, which was based on their credit report. The court also cited portions of the opinion of the U.S. Court of Appeals for the Ninth Circuit in Reynolds v. Hartford Financial Services Group, 453 F.3d 1093 (9th Cir. 2006) that were not overruled by Safeco to the effect that a “variety of entities,” including, in this case, the mortgage insurance company, may be liable for taking adverse action against a consumer. Finally, the court remanded to the district court the question of whether the mortgage insurer’s conduct met the willfulness standard set out in Safeco, holding that that is a factual rather than a legal question. For a copy of the opinion, please contact .
Mortgage Broker Found to Be a FCRA Creditor in Adverse Action Claim. A Connecticut federal court, holding a mortgage broker to be a “creditor” under the Equal Credit Opportunity Act (ECOA), found the broker liable for having failed to provide plaintiff with a notice of adverse action. Cochran v. Northeast Mortgage, LLC, Civil No. 3:06-CV-01131, 2007 WL 2412299(D. Conn., August 21, 2007). The plaintiff in Cochran sued her broker for violations of FCRA and ECOA, alleging that the broker did not provide her with notice after deciding not to forward her residential mortgage loan application to any lenders after obtaining and evaluating her credit report. After the broker admitted that this decision constituted an adverse action, plaintiff moved for summary judgment on the remaining issue of whether the broker was a “creditor.” The Court, relying on Treadway v. Gateway Chevrolet Oldsmobile Inc. (reported in the September 17, 2004 issue of InfoBytes), found that that the broker was “a person who, in the ordinary course of business regularly participates in a credit decision,” and therefore a creditor under ECOA. Indeed, the decision not to forward plaintiff’s loan application was just such a “credit decision” contemplated by ECOA. Noting that the defendant had admitted in its answer that it took adverse action against the consumer under FCRA, the court held that adverse action occurred under FCRA without addressing the repeal of FCRA’s private right of action. For a copy of this decision, please contact .
FACTA Card Truncation Claim Survives Safeco “Willfulness” Standard. On August 28, a U.S. District Court ruled that a company accused of failing to truncate credit card information under the Fair and Accurate Credit Transactions Act (FACTA) could be accused of a willful violation of the act, despite the Supreme Court decision in Safeco Ins. Co. v. Burr, because the company’s reading of FACTA was “not reasonable.” Korman v. Walking Co., No. 07-1557 2007 WL 2437958 (E.D. Pa. Aug. 28, 2007). The company, accused of failing to comply with FACTA by printing more than five digits of the credit card number or the card’s expiration date on receipts, moved to dismiss claiming (i) the plaintiff lacked standing without having suffered “injury”, (ii) the plaintiff’s reading of the truncation language was incorrect, and (iii) citing Safeco, the defendant could not have “willfully” violated FACTA as its reading was “a reasonable one” (for further discussion of Safeco, see the June 4th InfoBytes Special Alert). The court held that the plaintiff clearly did have standing, noting that “she has a legally protected interest” in the omission of credit card information by merchants under FACTA. The court also held the defendant’s reading of FACTA, that a merchant could comply by only omitting the credit card numbers or only omitting the expiration date, was “tortured” and was clearly invalidated by guidance from the Federal Trade Commission. In ruling on the issue of willfulness, the court noted that the Supreme Court had predicated its decision in Safeco on Safeco’s reading of FCRA being “not objectively unreasonable” and having “a foundation in the statutory text.” The district court found that the defendant’s reading did not meet these criteria, and that the plaintiff’s claim of a willful violation of FACTA had been adequately pled to survive a motion to dismiss. For a copy of this decision, please contact .
Safeco FCRA “Willfulness” Standard Does Not Help Defendant in Credit-Card Truncation Case. On August 22, the U.S. District Court for the Northern District of Illinois denied the defendant’s motion to dismiss a complaint alleging willful violations of the requirement, added by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), to truncate credit card numbers and remove the expiration date from card receipts. Iosello v. Leiblys, Inc., No. 07 C 2454, 2007 WL 2398474 (N.D. Ill. Aug. 22, 2007). The court followed the standard for finding a willful violation of FCRA set forth in Safeco Ins. Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), quoting Safeco to the effect that “’willfully fail[ing] to comply’ with FCRA covers both knowing and reckless violations of the statute and that ‘a company subject to the FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute’s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.’” (For more details on Safeco, see the June 4th InfoBytes Special Alert.) The court found the allegations in the complaint sufficient to “plausibly suggest” a willful violation of FACTA at the motion to dismiss stage, but noted that its decision did not preclude the defendant from ”raising the issue of willfulness in the summary judgment stage.” In finding that FACTA was not void for vagueness, the court explained that FACTA’s language “has only one reasonable meaning,” and that “[t]he plain meaning of the statute is that a merchant shall not print more than the last 5 digits of the credit card number upon any receipt and a merchant shall not print the expiration date upon any receipt.” Please contact for a copy of the decision.
Seventh Circuit Upholds Dismissal of Data Breach Suit over Credit Monitoring. The Seventh Circuit Court of Appeals upheld the dismissal of a potential class-action data breach lawsuit where the plaintiffs were seeking credit monitoring for potential future economic damages as the damages sought are not compensable as a matter of Indiana law. Pisciotta v. Old National Bancorp, No. 06-3817, 2007 WL 2389770 (7th Cir. Aug. 23, 2007). In this case, Old National Bancorp (ONB) had solicited personal information from applicants for banking services through its website. A third-party computer hacker was able to access the confidential information of the named plaintiffs, along with the information of tens of thousands of other users. The plaintiffs filed suit on behalf of these users as a result of the security breach, alleging potential economic damages and emotional distress. The plaintiffs did not allege any “completed direct” financial loss as a result of the breach, and no putative class member alleged already having been the victim of identity theft. ONB moved for judgment on the pleadings, and the district court dismissed the case, finding that the plaintiffs failed to state a claim. The Seventh Circuit affirmed the dismissal, holding, in a case of first impression under Indiana law, that “no cause of action for credit monitoring is available.” A copy of the opinion is available at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-3817_024.pdf.
Missouri Federal Court Reiterates Its Previous Firm Offer Decisions. On August 21, the Federal District Court for the Eastern District of Missouri ruled that a mailing that did not include an interest rate, method of interest accrual, nor amortization period, but did list a $10,000 to $30,000 range of credit to be extended constituted a firm offer of credit under the Fair Credit Reporting Act (FCRA). Ludditt-Poehl v. Capital One Auto Finance, Inc., No. 06-888, 2007 WL 2428044 (E.D. Mo. Aug. 2, 2007). Ruling in favor of the defendant on a motion for judgment on the pleadings, the court cited its previous decisions in Pohl v. Countrywide Home Loans and Klutho v. Home Loan Center (both reported in the November 11, 2006 issue of InfoBytes). In its decision, the court stated that “the [solicitation] letters do offer something of value” because “even absent a specific amount of money… the consumer can determine… [they] will be extended a minimum of $10,000.” For a copy of this opinion, please contact .
Reliance by Reporting Agency on Automated Dispute Verification May Violate FCRA. On August 15, the U.S. District Court for the District of Oregon issued an opinion denying summary judgment to Trans Union, a credit reporting agency, in an action claiming that Trans Union negligently and willfully violated the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable reinvestigation of the information contained in the consumer's report. Saenz v. Trans Union, LLC, No. CV 05-1206-PK, 2007 WL 2401745 (D. Or. Aug. 15, 2007). The plaintiff, George H. Saenz, settled an outstanding debt to NCO Financial Systems, Inc.(NCO) and requested that Trans Union remove the reference to that debt on his credit report. Saenz made several requests to Trans Union to remove the reference, and at one point, he sent documentation evidencing the payment of the debt. However, in response to each request by Saenz, Trans Union initiated an automated consumer dispute verification (ACDV) procedure, which did not indicate that the debt had been paid. The ACDV procedure matches the electronic data in Trans Union's records with electronic data provided by a creditor. At no time did Trans Union contact NCO to inquire about possible payment of the debt, nor did Trans Union forward copies of the documentation it had from the consumer. According to the District Court, "FCRA requires that consumer reporting agencies conduct 'reasonable reinvestigation[s]' of consumer information whenever information contained in a consumer report is disputed by the consumer." The court stated that "where a reporting agency is affirmatively on notice that information received from a creditor may be suspect, it is not reasonable for the agency simply to verify the creditor's position without additional investigation." The court then concluded that "[a] reasonable jury could infer from Trans Union's failure to provide NCO with copies or a summary of the evidence it received, or to conduct any independent consideration or investigation of Saenz' assertion that the balance had been paid, that the agency's reinvestigation was unreasonable." The court denied Trans Union's motion for summary judgment stating that a jury could find Trans Union to have willfully violated FCRA (thus being liable for potentially higher damages) if the jury found that Trans Union acted in reckless disregard of the law. For a copy of this decision, please contact .
Defamation Claim Preempted by FCRA. A California federal court granted summary judgment to defendants in a case alleging defamation arising from negative credit information mistakenly provided to a credit reporting agency. Woods v. Protection One Alarm Monitoring, Inc., No. 1:06-CV-00398-SMS (E.D. Cal., opinion issued August 22, 2007). In their complaint, plaintiffs leveled a number of state law claims against defendants, but, following successful motions to dismiss, only the defamation claim remained. Defendants moved for summary judgment, arguing that FCRA preempted the defamation claim, and that plaintiff did not show that defendants violated FCRA. The court agreed, analyzing both FCRA preemption provisions, and finding that, because the complaint “addresses conduct that clearly falls within the duties of furnishers of information” described in FCRA, plaintiffs’ defamation claim was preempted. The court then held that plaintiff failed to show a FCRA violation. For a copy of this opinion, please contact .
Consumer and Consumer’s Attorney Treated Differently for Purposes of FDCPA. On August 23, the Ninth Circuit Court of Appeals confirmed that the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., requires a debt collector, upon receipt of notice that the consumer disputes the alleged debt, to cease its collection efforts until it has provided verification of the debt to the consumer. Guerrero v. RJM Acquisitions, CV-03-00038-HG (9th Cir. Aug. 23, 2007). However, the court further held that the FDCPA does not require a debt collector to verify a debt once the debt collector has ceased all collection efforts directed at the consumer, and thereafter only directs collection efforts at the consumer’s attorney. Consequently, communications that would violate the FDCPA if directed at a consumer do not violate the FDCPA when directed at the consumer’s legal counsel. The court noted that “[a] consumer and his attorney are not one and the same for purposes of the [FDCPA].” The FDCPA “was meant to shield debtors from abusive collection practices, but it was never intended to shift the balance of power between debtors and creditors such that a debt collector cannot work with a debtor’s attorney to settle claims without exposing itself to liability out of proportion to the debt allegedly owed.” The Ninth Circuit’s decision reversed the District Court for the District of Hawaii’s ruling that the defendant debt collector violated the FDCPA when it (i) sent plaintiff consumer two collection letters containing slightly different account and file numbers, in an attempt to collect one debt; (ii) continued collection efforts after receiving notice that plaintiff disputed the debt and before providing verification of the debt; and (iii) misrepresented to plaintiff’s counsel that it was not a debt collection agency and not subject to FDCPA. The decision is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Mortgage Insurer Found to Take FCRA Adverse Action When Coverage Provided at Higher Rate. On August 30, the U.S. Court of Appeals for the Third Circuit held that the Fair Credit Reporting Act (FCRA) requires a mortgage insurance company that provides mortgage insurance at a rate higher than the best available to provide an adverse action notice to the consumer. Whitfield v. Radian Guaranty, Inc., No. 05-5017 (3rd Cir. Aug. 30, 2007). The court of appeals first noted that the Supreme Court, in Safeco Insurance Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), disposed of one issue that arose in the district court but was not at issue in the appeal, by holding that an initial insurance premium at higher than the best rate can be “adverse action” under FCRA. (For more details on Safeco, see the June 4th InfoBytes Special Alert.) After first agreeing with the district court that mortgage insurance falls under the “insurance prong” of FCRA’s definition of adverse action, the court of appeals rejected the district court’s conclusion that the mortgage insurer did not take adverse action against the consumer because the insurance transaction was between the mortgage insurer and the lender, not the insurer and the borrower. Citing Broessel v. Triad Guaranty Insurance Corp., 2005 WL 2260498 (W.D. Ky. Sept. 15, 2005, reported in September 30, 2005 issue of InfoBytes), the court indicated that the mortgage insurer took adverse action because the premium was based on the consumers’ credit score, which was based on their credit report. The court also cited portions of the opinion of the U.S. Court of Appeals for the Ninth Circuit in Reynolds v. Hartford Financial Services Group, 453 F.3d 1093 (9th Cir. 2006) that were not overruled by Safeco to the effect that a “variety of entities,” including, in this case, the mortgage insurance company, may be liable for taking adverse action against a consumer. Finally, the court remanded to the district court the question of whether the mortgage insurer’s conduct met the willfulness standard set out in Safeco, holding that that is a factual rather than a legal question. For a copy of the opinion, please contact .
FTC Announces Settlement with Telemarketers Targeting Spanish Speakers. On August 30, the Federal Trade Commission (FTC) announced that a group of Miami area telemarketers who were charged with deceiving Spanish-speaking consumers through the marketing of pre-approved, advanced fee credit cards, ATM cards, and phone cards has settled in connection with the FTC charges stemming from this alleged activity. As part of the final order the Miami area telemarketers have been banned from telemarketing activities and from selling similar products in the future. The defendants, who advertised on Spanish-speaking television stations, allegedly offered pre-approved and guaranteed credit cards (and various other incentive items, including phone cards and vacation vouchers) to consumers for a pre-set fee between $138 and $200, and then failed to deliver some or all of the items, or delivered items that did not work. In total, the FTC alleged that more than 30,000 consumers have been cheated out of more than $4 million. The court order also assessed $4,164,588 in judgments against each individual defendant. For the official FTC press release, please see http://www.ftc.gov/opa/2007/08/advancefeecc.shtm.
Seventh Circuit Upholds Dismissal of Data Breach Suit over Credit Monitoring. The Seventh Circuit Court of Appeals upheld the dismissal of a potential class-action data breach lawsuit where the plaintiffs were seeking credit monitoring for potential future economic damages as the damages sought are not compensable as a matter of Indiana law. Pisciotta v. Old National Bancorp, No. 06-3817, 2007 WL 2389770 (7th Cir. Aug. 23, 2007). In this case, Old National Bancorp (ONB) had solicited personal information from applicants for banking services through its website. A third-party computer hacker was able to access the confidential information of the named plaintiffs, along with the information of tens of thousands of other users. The plaintiffs filed suit on behalf of these users as a result of the security breach, alleging potential economic damages and emotional distress. The plaintiffs did not allege any “completed direct” financial loss as a result of the breach, and no putative class member alleged already having been the victim of identity theft. ONB moved for judgment on the pleadings, and the district court dismissed the case, finding that the plaintiffs failed to state a claim. The Seventh Circuit affirmed the dismissal, holding, in a case of first impression under Indiana law, that “no cause of action for credit monitoring is available.” A copy of the opinion is available at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-3817_024.pdf.
DOD Issues Final Rule on Extension of Credit to Service Members. Recently, the Department of Defense (DOD) issued a final rule implementing the consumer protection provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007 that put a 36% usury ceiling on consumer credit products offered to active duty service members and their dependents (most recently covered in the April 13th issue of InfoBytes). The final rule largely tracks the rule as proposed in April, including the definition of "consumer credit" that was narrowed in April's proposed rule to limit coverage to payday loans, vehicle title loans and refund anticipation loans after concerns raised by industry and trade groups about a potential unintended chilling effect on the credit availability in non-predatory situations. Revisions to the proposed rule include clarification that: (i) the definition of military annual percentage rate (MAPR) does not include certain taxes or fees prescribed by law, (ii) the definition of "consumer credit" is limited to closed-end transactions, so that the rules are not unintentionally interpreted to include credit cards, (iii) disclosure of the MAPR in advertisements is not required, and (iv) the refinancing or renewal of a covered loan requires new disclosures under Section 232.6 of the rule only when the transaction would be considered a new transaction that requires Truth In Lending Act disclosures. Further, with respect to refinancings and renewals, the final rule allows a creditor to rely on its original determination that a borrower was not a covered borrower under the Act. The final rule also removes an inadvertent reference in the proposed rule that would have prohibited covered borrowers from using a vehicle title as security for a loan even if the loan otherwise complied with the rule. In its Federal Register description of the final rule, the DOD states that, based on its belief that the penalties and remedies expressly provided in the Act and incorporated into the rule may be insufficient to ensure uniform compliance with the rule by all creditors, the DOD has contacted state regulatory agencies to determine which states plan to enforce the rule and to determine how best to work with all 50 states on enforcement. The effective date of the rule is October 1, 2007. For a copy of the rule, please contact .
FACTA Card Truncation Claim Survives Safeco “Willfulness” Standard. On August 28, a U.S. District Court ruled that a company accused of failing to truncate credit card information under the Fair and Accurate Credit Transactions Act (FACTA) could be accused of a willful violation of the act, despite the Supreme Court decision in Safeco Ins. Co. v. Burr, because the company’s reading of FACTA was “not reasonable.” Korman v. Walking Co., No. 07-1557 2007 WL 2437958 (E.D. Pa. Aug. 28, 2007). The company, accused of failing to comply with FACTA by printing more than five digits of the credit card number or the card’s expiration date on receipts, moved to dismiss claiming (i) the plaintiff lacked standing without having suffered “injury”, (ii) the plaintiff’s reading of the truncation language was incorrect, and (iii) citing Safeco, the defendant could not have “willfully” violated FACTA as its reading was “a reasonable one” (for further discussion of Safeco, see the June 4th InfoBytes Special Alert). The court held that the plaintiff clearly did have standing, noting that “she has a legally protected interest” in the omission of credit card information by merchants under FACTA. The court also held the defendant’s reading of FACTA, that a merchant could comply by only omitting the credit card numbers or only omitting the expiration date, was “tortured” and was clearly invalidated by guidance from the Federal Trade Commission. In ruling on the issue of willfulness, the court noted that the Supreme Court had predicated its decision in Safeco on Safeco’s reading of FCRA being “not objectively unreasonable” and having “a foundation in the statutory text.” The district court found that the defendant’s reading did not meet these criteria, and that the plaintiff’s claim of a willful violation of FACTA had been adequately pled to survive a motion to dismiss. For a copy of this decision, please contact .
Safeco FCRA “Willfulness” Standard Does Not Help Defendant in Credit-Card Truncation Case. On August 22, the U.S. District Court for the Northern District of Illinois denied the defendant’s motion to dismiss a complaint alleging willful violations of the requirement, added by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), to truncate credit card numbers and remove the expiration date from card receipts. Iosello v. Leiblys, Inc., No. 07 C 2454, 2007 WL 2398474 (N.D. Ill. Aug. 22, 2007). The court followed the standard for finding a willful violation of FCRA set forth in Safeco Ins. Co. of America v. Burr, 127 S. Ct. 2201, 2208-10 (2007), quoting Safeco to the effect that “’willfully fail[ing] to comply’ with FCRA covers both knowing and reckless violations of the statute and that ‘a company subject to the FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute’s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.’” (For more details on Safeco, see the June 4th InfoBytes Special Alert.) The court found the allegations in the complaint sufficient to “plausibly suggest” a willful violation of FACTA at the motion to dismiss stage, but noted that its decision did not preclude the defendant from ”raising the issue of willfulness in the summary judgment stage.” In finding that FACTA was not void for vagueness, the court explained that FACTA’s language “has only one reasonable meaning,” and that “[t]he plain meaning of the statute is that a merchant shall not print more than the last 5 digits of the credit card number upon any receipt and a merchant shall not print the expiration date upon any receipt.” Please contact for a copy of the decision.
Reliance by Reporting Agency on Automated Dispute Verification May Violate FCRA. On August 15, the U.S. District Court for the District of Oregon issued an opinion denying summary judgment to Trans Union, a credit reporting agency, in an action claiming that Trans Union negligently and willfully violated the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable reinvestigation of the information contained in the consumer's report. Saenz v. Trans Union, LLC, No. CV 05-1206-PK, 2007 WL 2401745 (D. Or. Aug. 15, 2007). The plaintiff, George H. Saenz, settled an outstanding debt to NCO Financial Systems, Inc.(NCO) and requested that Trans Union remove the reference to that debt on his credit report. Saenz made several requests to Trans Union to remove the reference, and at one point, he sent documentation evidencing the payment of the debt. However, in response to each request by Saenz, Trans Union initiated an automated consumer dispute verification (ACDV) procedure, which did not indicate that the debt had been paid. The ACDV procedure matches the electronic data in Trans Union's records with electronic data provided by a creditor. At no time did Trans Union contact NCO to inquire about possible payment of the debt, nor did Trans Union forward copies of the documentation it had from the consumer. According to the District Court, "FCRA requires that consumer reporting agencies conduct 'reasonable reinvestigation[s]' of consumer information whenever information contained in a consumer report is disputed by the consumer." The court stated that "where a reporting agency is affirmatively on notice that information received from a creditor may be suspect, it is not reasonable for the agency simply to verify the creditor's position without additional investigation." The court then concluded that "[a] reasonable jury could infer from Trans Union's failure to provide NCO with copies or a summary of the evidence it received, or to conduct any independent consideration or investigation of Saenz' assertion that the balance had been paid, that the agency's reinvestigation was unreasonable." The court denied Trans Union's motion for summary judgment stating that a jury could find Trans Union to have willfully violated FCRA (thus being liable for potentially higher damages) if the jury found that Trans Union acted in reckless disregard of the law. For a copy of this decision, please contact .
FTC Announces Settlement with Telemarketers Targeting Spanish Speakers. On August 30, the Federal Trade Commission (FTC) announced that a group of Miami area telemarketers who were charged with deceiving Spanish-speaking consumers through the marketing of pre-approved, advanced fee credit cards, ATM cards, and phone cards has settled in connection with the FTC charges stemming from this alleged activity. As part of the final order the Miami area telemarketers have been banned from telemarketing activities and from selling similar products in the future. The defendants, who advertised on Spanish-speaking television stations, allegedly offered pre-approved and guaranteed credit cards (and various other incentive items, including phone cards and vacation vouchers) to consumers for a pre-set fee between $138 and $200, and then failed to deliver some or all of the items, or delivered items that did not work. In total, the FTC alleged that more than 30,000 consumers have been cheated out of more than $4 million. The court order also assessed $4,164,588 in judgments against each individual defendant. For the official FTC press release, please see http://www.ftc.gov/opa/2007/08/advancefeecc.shtm.
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