The FCRA Merry-Go-Round: Worth a specialized lawyer?

In law as in most things, these days it pays to specialize.  As the world grows more complex, the law follows, to the point where lawyers won’t just specialize in litigation, but special kinds of litigation like collections suits, antitrust suits, and so on.

The FCRA is just one statute, and there are around 1000 FCRA lawsuits filed in the entire USA each year.  Is the FCRA worth specialization?

I think so, if only because the FCRA is so quirky.  It was initially made law in 1970, but it has been amended many times since then, and some of the amendments are sloppily drafted.  As a result, it is not the sort of statute that lends itself to casual review.  Here is just one example of a kind of circle or merry-go-round created by the way the statute is written:

When an employer obtains a background report about a potential or current employee, that employee is supposed to get a copy of the report along with the standard disclosures that are provided with all FCRA-regulated reports.  But the FCRA doesn’t make that clear at all, at least not in one place.  Instead, you have to piece together a puzzle, as follows:

1.  When a credit reporting agency creates a report regarding employment, 15 USC 1681b(b)(1)(B) states that the CRA must include with the report a copy of the disclosures mandated under 15 USC 1681g(c)(3).

2.  The reference to 15 USC 1681g(c)(3) is a drafting mistake.  The mandatory disclosures are actually listed at 1681g(c)(1), not 1681g(c)(3).  Hopefully you catch that or you see a footnote about it in some (but not all) references to the disclosure section which are provided in some (but not all) published copies of the FCRA.

3.  Before an employer takes action against an employee based on the report, 15 USC 1681b(b)(3)(A) states that the employer must provide the employee with a copy of the report and a copy of the mandatory disclosures at 1681g(c)(3) (which, again, really means 1681g(c)(1)).

4.  Accordingly, before the employer takes action against an employee based on a background report created by a CRA, the employer must, under 1681b(b)(3)(A), provide the employee with copies of the documents which the CRA gave to the employer pursuant to 1681b(b)(1)(B).

Make sense?  It does once it is pieced together.  But piecing it together is about as fun as doing taxes.  Which, come to think of it, is another specialized area of law.

What would the USA’s credit report look like?

Borrowers whose loan applications are rejected are entitled by the FCRA to receive notice of the reasons for the rejection.  Borrowers whose loans are approved, but not at the most favorable rates, must also get such notice.  These notices usually come in form letters which contain certain disclosures that are required by the FCRA and by underlying agency regulations.

Columnist Barton Hinkle recently wondered what sort of notice the USA would receive if it were subhect to the FCRA and tried to borrow.  His best guess is worth a read.

The FCRA class action sensation that’s sweeping the nation

A few years back, there were a spate of class action lawsuits which claimed that retailers systematically violated the FCRA.  How?  By printing receipts which contained a buyer’s entire credit card number instead of just the last few digits.  The FCRA had been amended to prohibit this in 2003, but the provision didn’t take effect until 2006, and a number of retailers were caught off guard when it did.  Within a few months, plaintiffs lawyers filed class actions around the country which alleged that retailers willfully breached the new law, which if true meant that they were subject to millions or sometimes even billions of dollars in statutory damages.  This was because the FCRA imposes damages of $100 to $1,000 per willful violation, with no cap, and most retailers print hundreds or even thousands of receipts per day.  I co-wrote an article about the whole phenomenon, which is available here.  The craze fizzled out after a few months:  the lawyers who filed the suits settled, and retailers quickly learned to print receipts which conformed to the new law.

Now there appears to be a new class action FCRA craze:  allege that an employer systematically obtained background checks about current or possible employees without first obtaining their consent as required by law.  One of the earliest such suits recently survived a motion to dismiss.

Time will tell whether these suits are as common as the old receipt suits.  My guess is that there will be fewer of them at any one time, but they will not fizzle out as the receipt suits did.  Why?  Because each time an employer starts a new business line or expands into a new location, it will be possible for it to forget to implement procedures like obtaining consent to an initial background check.  Moreover, many states have consent laws that can differ from the FCRA, and failure to comply with these laws can also give rise to a class action.

Credit reports – more accurate than you think?

It is an article of faith among many consumers and consumer-rights groups that credit reports created by the “big three” credit bureaus (Experian, Equifax, and Trans Union) are rife with errors.  Most news articles that discuss credit reports will at some point claim that a significant percentage of them are seriously inaccurate.  Here is a typical example:  an article which claims that 25% of credit reports have “a serious error”:

http://www.bankrate.com/brm/news/cc/20010906a.asp

The fact that credit reports can be inaccurate is not news.  When Congress passed the FCRA, it recognized that there were a whole host of reasons why credit reports could contain mistakes:  a data entry clerk could mistype something; a wife who takes her husband’s surname might get confused with someone else with her maiden name; fathers and sons who are junior and senior can get mixed; et cetera.  This is why the FCRA does not mandate a certain level of accuracy but instead just requires “maximum possible accuracy.”  15 USC Sec. 1681e(b).

What is news is that while credit reports may contain errors, few of them may in fact contain “serious errors” – far fewer than the 25% claimed in the article above.  A new study – albeit one funded by the credit reporting industry – suggests that only 0.93% of credit reports had an error that would have changed the credit score by 25 points or more:

http://www.mint.com/blog/trends/report-on-credit-report-accuracy-05232011/

If the older claims (that 25%  of reports have serious problems) were true, then the FCRA’s failure to mandate a certain level of accuracy might be seen as harmful to consumers.  But if the new claim (that less than 1% of reports have such problems) is true, then the FCRA’s focus on reasonableness and on “maximum possible accuracy” makes a great deal of sense.