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The FCRA’s two-year statute of limitations clause doesn’t impose much of a limitation.

August 26, 2011 3 comments

UPDATE: this 2011 post discussed some then-recent district court cases interpreting the FCRA’s statute of limitations.  Since then, other courts, including at least one appeals court, have interpreted the statute in a different (and more defense-friendly) way.  See my posts in January 2016; December 2015; and November 2015 for commentary. 

The FCRA was extensively amended by the “Fair and Accurate Credit Transactions Act” or FACTA in 2003.  Some of the amendments received a great deal of attention when they were made; others didn’t.  One of the amendments that didn’t get much attention made a change to the FCRA’s statute of limitations provision, at 15 USC 1681p.

Before the amendment, 1681p stated that a claim for an FCRA violation had to be brought “within two years from the date on which the liability arises” unless the defendant had knowingly or willfully failed to disclose something it should have disclosed, in which case the claim could be brought within two years of the discovery of the misrepresentation.

Now, after the amendment, 1681p states that a claim for an FCRA violation must be brought either: 1) within two years of the plaintiff’s discovery of the violation; or b) within five years of the date of the violation, whichever is earlier.  Not many cases have interpreted the new language, but the ones that have suggest that the FCRA effectively has a five-year limitations period, because it is not easy for a defendant to show when a plaintiff discovered a violation.

A good example is a recent decision in Andrews v. Equifax Info. Servs. LLC, 700 F. Supp. 2d 1276 (W.D. Wash. 2010).  Plaintiff Andrews sued Equifax for mixing another person’s credit information with her own and printing both sets of information in a credit report about her.  Her claims were for failure to use reasonable procedures (1681e(b)) and failure to reinvestigate (1681i).  Evidence, including her deposition, showed that plaintiff called Equifax with credit report disputes in September 2004 and October 2005, and that Equifax conducted reinvestigations and sent her three new credit reports, the last of which was sent in November 2005.  Plaintiff was also denied credit in early 2006.  Equifax moved for summary judgment and argued that these events demonstrated that plaintiff had “discovered” a violation, which meant that her lawsuit – which she filed in 2008 – was time-barred under the two-year limitations provision.

The court  denied Equifax’s motion.  The court found that none of the events of late 2005 and early 2006 clearly indicated that plaintiff knew that Equifax had violated the FCRA at that point.  She knew that her credit reports contained inaccuracies, and that she’d been denied credit, but she didn’t necessarily know – so the court found – that these issues were due to Equifax’s alleged failure to use reasonable procedures or to reinvestigate.  The court also noted that there was no clear evidence that plaintiff received the revised credit reports that Equifax sent her – she testified at her deposition that she didn’t remember if she received them, and Equifax could only show that it sent them, not that they were delivered to her (it used regular mail and not certified mail).

Because most consumer reporting agencies and credit furnishers send consumers form letters, not personalized records of disputes or credit denials, and because they send these form letters via regular mail, not certified mail, the Andrews decision suggests that it will be somewhere between difficult and impossible for a defendant agency or furnisher to show that a typical consumer ever “discovered” an FCRA violation.  It is too easy for the plaintiff to create a dispute of fact about the discovery date, by giving vague testimony about whether he or she ever received certain documents or understood them.

If Andrews is followed by other courts, the FCRA will essentially be a statute with a five-year limitations period, as it will be the rare case in which a defendant can establish that the plaintiff “discovered” a violation and triggered the two-year period.

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Is reinserting inaccurate information always a violation of 15 USC 1681e(b)? It shouldn’t be.

August 19, 2011 Leave a comment

The FCRA tells us that consumer reporting agencies must “follow reasonable procedures to assure maximum possible accuracy of the information” in their reports.  15 USC 1681e(b).  In doing a little research on this provision, I noticed that courts have applied it differently to a common fact pattern.

The fact pattern is this:  suppose an agency reports information from an underlying source (say a bank) that turns out to be inaccurate.  The consumer notices the error, disputes it, and the agency agrees with the consumer and removes the inaccurate information.  But a year later, the inaccurate information reappears on the consumer’s report.  Is that an automatic violation of 1681e(b)?

Some courts have suggested that allowing inaccurate information to reappear is, in fact, an automatic violation of 1681e(b).  But at least one court has bucked the trend and held otherwise.  This post is going to try and explain how the “automatic violation” idea took root and why it is mistaken.

The seed of the “automatic violation” idea comes from the case of Morris v. Credit Bureau of Cincinnati, 563 F. Supp. 962 (S.D. Ohio 1983).  In that case, plaintiff Joe T. Morris married Loraine Schreve, who had filed for bankruptcy before the wedding.  When plaintiff tried to borrow money, he was denied because defendant’s credit report included some of his wife’s information and thus indicated that he had filed for bankruptcy.  Plaintiff disputed the bankruptcy, and defendant deleted it.  But later, plaintiff again had a loan denied because his wife’s bankruptcy information reappeared on his credit report.  The data reappeared because the creditor had asked defendant for a credit report about “Joseph T. Morris” (plaintiff had always gone by Joe) with a social security number that included a 9 (plaintiff’s had a 4) who nevertheless lived at plaintiff’s address and shared other characteristics.  This caused defendant to create a completely new credit file, in which it repeated the mistake of including the wife’s bankruptcy information.

Defendant had procedures in place to determine if the completely new credit file resembled any existing files.  If they had worked in this case, the procedures would have noted that the new file resembled plaintiff’s existing file, which contained a note that the bankruptcy information did not belong to plaintiff and shouldn’t appear on his credit reports.  But the procedures didn’t work.  The court held, following a bench trial, that defendant’s procedures were insufficient, and that defendant had negligently violated 15 USC 1681e(b).

The Fifth Circuit later summarized the Morris court’s holding as follows:  “Allowing inaccurate information back onto a credit report after deleting it because it is inaccurate is negligent.”  Stevenson v. TRW, Inc., 987 F.2d 288 (5th Cir. 1993) (citing Morris).  That summarized holding has since been quoted in other court opinions.  See, e.g., Philbin v. Trans Union Corp., 101 F.3d 957 (3d Cir. 1996) (“As other courts have held, ‘allowing inaccurate information back onto a credit report after deleting it because it is inaccurate is negligent'”) (quoting Stevenson).

In this way, the Morris court’s specific finding, on facts presented in a bench trial, that one consumer reporting agency was negligent when it allowed inaccurate data to reappear on one plaintiff’s credit report, has morphed into the holding that if any agency allows any data to reappear on anyone‘s credit report, it is always negligent.

This “automatic violation” theory is problematic because it overstates the underlying decision in Morris, and because it doesn’t make sense in light of other FCRA opinions (which will likely be discussed in a future post) holding that consumer reporting agencies aren’t “strictly liable” for errors in their reports.

The good news for FCRA defendants is that one court ignored the “automatic violation” theory and held, on summary judgment no less, that a defendant which allowed inaccurate information to reappear on a plaintiff’s credit report was nevertheless not negligent under 1681e(b).  Anderson v. Trans Union, 367 F. Supp. 2d 1225 (W.D. Wisc. 2005).

In Anderson, plaintiff had a credit card with a local bank.  When plaintiff’s street was renamed, a bank employee changed the credit card account to reflect the new name and, in doing so, inserted a “flag” which told consumer reporting agencies that plaintiff was deceased.  Plaintiff noted the error on subsequent credit reports, and the agencies used a procedure to ignore the flag with the deceased notation while continuing to report the other information about the account.  But when the bank later converted the credit card from Mastercard to Visa, that change caused the agencies to “see” the flag once again and so to report the plaintiff as deceased.  Plaintiff alleged by allowing the inaccurate data to reappear, the agencies had violated 1681e(b).

The court held otherwise, at least as to Trans Union.  I’m going to quote its opinion at length:

“It is evident that the mistakes that haunted the parties were anomalies and were not the kind of mistakes that a furnisher would make regularly or even frequently. It would be unreasonable to require a consumer reporting agency to develop systems that would catch infrequent and irregular mistakes that furnishers might make. The Act does not impose such requirements. Its goal is to have consumer reports that are fair and accurate; it does not demand perfection from an industry that deals in billions of pieces of information.

“Although courts should not countenance sloppy performance from consumer reporting agencies or tolerate inadequate procedures, they cannot hold consumer reporting agencies responsible for every problem a system can develop, including those that are novel and unanticipated. Doing so would be a misreading of the statutory obligations imposed by the Act.”

I think that Anderson is right and that the Stevenson and Philbin courts’ summarizes of Morris are misleading.  Reinserting inaccurate information into a consumer’s credit report may be a violation of 1681e(b).  Or it might not be.

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The FCRA at car dealerships: the FTC’s curious conclusions about “permissible purpose”

August 12, 2011 Leave a comment

I’ve handled a number of lawsuits that involved a car dealer’s decision to obtain a credit report about a consumer who’d expressed interest in buying a car.  Several of these suits involved claims that the dealer didn’t get the consumer’s permission before obtaining the report.  These claims have always seemed surprising to me – it’s hard for me to fathom how a consumer could provide his or her personal information to a dealer (e.g., full name, address, social security number, etc.) without suspecting that the dealer wanted to use it to pull a credit report.

But put my suspicions aside.  The FCRA states that before a car dealer can obtain a credit report about a consumer, the dealer must have a “permissible purpose” under 15 USC Sec. 1681b.  A dealer can (and probably should) show permissible purpose by obtaining the consumer’s written consent.  Sec. 1681b(a)(2).

But suppose that a car dealer doesn’t obtain a consumer’s consent in writing.  What then?  Well, things are murky.  The dealer can argue that it needed the report “in connection with a credit transaction involving the consumer” (1681b(a)(3)(A)) or “has a legitimate business need for the information in connection with a business transaction that is initiated by the consumer” (1681b(a)(3)(F)(i)).  But under either argument, the dealer will have to establish facts suggesting that its decision to obtain a credit report was reasonable under the circumstances.

The FTC’s new commentary on the FCRA attempts to provide dealers with some guidance on when it would be reasonable under the circumstances to pull a consumer’s credit report.  The FTC opines that:

“The dealer would thus have a permissible purpose to obtain a credit report on a consumer who offers to pay for an automobile with a personal check or asks about credit options to finance a specific purchase.  However, this section would not allow the salesperson to obtain a report on “window shoppers” for bargaining purposes, deciding whether to spend time with consumers, or to respond to general questions about available products or financing, because there is no “transaction … initiated by the consumer” in those scenarios. For the same reason, a consumer’s request to “test drive” a vehicle, where he or she has not demonstrated an intent to initiate the purchase or lease of a vehicle, does not give rise to a permissible purpose under this section.”

None of this is supported by case law; it’s just the FTC’s opinion.  Some of it strikes me as reasonable – it’s hard to understand how it would be acceptable for a dealer to obtain credit reports for use in deciding whom to let window shop or whom to target as a serious buyer.  But two bits of it strikes me as off the mark.  They are:

1.  The FTC suggests that a dealer can obtain a credit report if a consumer offers to pay for a car by personal check.  Wouldn’t it be more reasonable for the dealer to call the bank and confirm that there’s enough money in the account to make the check good?  I don’t see how a credit report is going to answer that question, which is really what the dealer wants to know.  And I don’t think that calling a bank regarding a specific account qualifies as obtaining a credit report under the FCRA definitions at Sec. 1681a(d).  Because a credit report is about credit, not about money in the bank, I don’t see why a car dealer would be justified in seeking a credit report before accepting a personal check from a consumer.

2.   The FTC suggests that a car dealer does not have a “permissible purpose” to obtain a credit report about a consumer who wants to test drive a car.  It’s hard to understand this position.  Insurance companies are permitted to use credit reports in deciding whether and on what terms to offer insurance, on the grounds that a consumer’s use of credit sheds some light on what sort of driver he or she might be.  A car dealer is likely going to be liable for damage that a consumer does during a test drive, so it seems reasonable for the dealer, as the “insurer” of its test car(s), to obtain credit reports before allowing consumers to drive them.

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Happy Anniversary: FTC celebrates 40 years of interpreting the FCRA

August 5, 2011 Leave a comment

After the FCRA became law in 1970, the Federal Trade Commission had the responsibility of enforcing and interpreting it.  Recently, however, the Obama administration and Congress created a new agency – the Consumer Financial Protection Bureau – whose jobs include interpreting and enforcing the FCRA going forward.

To celebrate its history with the FCRA and to give the new CFPB a bit of a head start, the FTC recently released a report called “40 Years of Experience with the Fair Credit Reporting Act:  An FTC Staff Report with Summary of Interpretations.”  Forty years is a long time, and the document reflects that, weighing in at 110 pages with more than 300 footnotes.

This new treatise may give me some posting material in the weeks ahead.  For now, two thoughts:

1.  Courts are generally willing to defer to an agency’s interpretation of a statute that it administers.  Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  But the FTC no longer administers the FCRA.  Is this new document entitled to any deference?

2.  The FTC report cites a number of opinion letters that it issued in the 1990s, in which a lawyer would pose a question regarding interpretation of the FCRA to the FTC, and an FTC employee would respond with guidance.  See report at notes 55-56.  The FTC discontinued this practice in recent years, and it formally withdrew all existing letters when it published this new report.  Will the CFPB revive the practice and start issuing opinion letters?  The CFPB’s task is to clarify statutes, so the possibility appears to be there.

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