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Archive for October, 2012

Blog Vacation

October 26, 2012 Leave a comment

My wife and I are happy parents of a fourth child (third daughter), who was born earlier this week.  I am taking the week off to help out at home.

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Should credit reports include utility bills?

October 19, 2012 Leave a comment

The New York Times recently provided readers with an interesting discussion of the pros and cons of listing utility payments on credit reports.  The Times indicates that right now, most utilities do not furnish account data to the credit reporting agencies unless a consumer has fallen so far behind on payments that the utility has written off the account and turned it over to collections.

Because almost everyone has one or more utility accounts, listing the status of these accounts on all credit reports would provide a fuller picture of many consumers’ financial situation.  In particular, people who don’t have any debt have blank credit reports, which can make it difficult for them to borrow money when they wish to do so.  If utility bills were included on everyone’s credit report, people without debt would have some kind of credit score (based on whether they paid their utility bills on time or not), which might enable them to get credit when they wished.

Then again, it might not.  The Times suggests that many people who have no debt, but who do have utility bills, often pay those bills late.  If so, adding utility bills to credit reports would not help them get credit:  it would hinder them from doing so, because their only “credit” history would be a largely negative one.

The issue in the background here is whether the credit reporting agencies and other participants in the retail credit market should take affirmative steps to try and bring people who don’t have any credit accounts into the market for credit accounts.  Several years ago, Fannie Mae and Freddie Mac, as part of their mandate to help low-income and minority individuals buy homes, encouraged the credit reporting agencies to create special credit reports for people who didn’t have credit:  these reports used letters from local businesses, who had given someone an item on layaway or on informal credit, to establish a kind of credit score that might enable some people to take out mortgages and buy their first home.  Defaults on these mortgages spurred lawsuits and posed the question of whether Fannie and Freddie should have encouraged these “special” reports in the first instance.  One could ask the same question about credit scores based on utility bills.

One final note:  the Times doesn’t mention this, but people who sign up for a “budget plan” with a utility are more likely to see that utility bill appear on their credit reports.  A consumer who starts a budget plan with a gas company in November may agree to pay $100 per month year round.  This consumer would therefore pay $100 per month in December and January, when gas bills might reach $200 per month, and continue to pay $100 per month in June and July, when gas bills might be $0 or close to it.  The utility would in essence be extending credit in the winter months to be repaid in the summer months, and it would therefore be more likely to list the “budget plan” account on a credit reporting agency’s credit report.

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Supreme Court hears FCRA Lawsuit about Credit Card Receipts

October 12, 2012 Leave a comment

The Supreme Court recently heard oral argument in the case of U.S. v. Bormes.  This is the most recent attempt to exploit a provision – 15 U.S.C. §1681c(g) – that was added to the FCRA in 2003 and became effective in 2006.  It prohibits anyone who accepts a credit card as payment from printing “more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder.”  Mr. Bormes is a lawyer who used his credit card to pay fees when he used PACER – the electronic filing system in the federal courts.  He alleges that PACER’s receipts contained the expiration date of his card, which would make the government liable to him under § 1681c(g).

Argument in the Supreme Court appears to have focused on whether the government can be liable to Mr. Bormes at all – i.e., whether the government is not liable, even though a private business might be, due to the doctrine of sovereign immunity.  That issue is outside the scope of this blog, and I won’t attempt to address it.  The district court held that the government couldn’t be liable; the appeals court held that it could be; and now the Supreme Court is going to get the last word.

What I would like to note is that even if Mr. Bormes convinces the Supreme Court that the government could be liable to him, he will still have a mountain to climb to actually get any money.  There was a slew of FCRA class actions involving credit card receipts and §1681c(g) a few years back – I even co-wrote an article about it that is now out of print.  To summarize, the plaintiffs in these actions (including Mr. Bormes here) will only be able to recover if either:  a) they demonstrate that the presence of an expiration date on their receipt actually harmed them; or b) they demonstrate that the government acted “willfully,” in which case they will get statutory damages of $100 to $1000 per receipt.

Nearly all of these cases were either settled for relatively small sums or else dismissed outright by the courts.  There is no evidence that printing an expiration date on a credit card receipt has ever harmed anyone or could ever harm anyone, so there are no “actual damages” to compensate.  And there is no evidence that the defendants in these cases (including the government here) acted willfully – at most they dropped the ball when this little-known provision of the FCRA became active.  Moreover, the stark contrast between the actual damages ($0) and the statutory damages (millions or even billions of dollars, if there are thousands of receipts multiplied by $100 or $1000 each) convinced many courts to refuse to award statutory damages even though the FCRA would have permitted them.

Of all the trial court opinions that dismissed these lawsuits, my favorite is Howard v. Hooters, No. H-07-3399, 2008 U.S. Dist. LEXIS 30776 (S.D. Tex. April 5, 2008).  The judge there wrote this:

“Steve Howard complains that Hooters printed a receipt that included the expiration date of his credit card. While he says this exposed him — and many others — to an increased risk of credit fraud, he only knows that the Fair and Accurate Transaction Act prohibits receipts’ having expiration dates of a consumer’s credit card. See 15 U.S.C. § 1681c(g).

“Howard was not injured as a consequence of the data shown on his receipt from Hooters — no fraud, no sleepless nights, nothing.

“He sues for himself and everyone else who has been similarly not victimized. His facts consist entirely of this single, individual error. Howard insists that many other customers were similarly exposed. If so, they too were simply not injured. Further, Hooters has already changes its procedures and is no longer printing expiration dates on its receipts. In essence, Howard wants this court to certify a class that has suffered no injury from a statutory violation that is no longer occurring. No class will be certified.”

Even if the Supreme Court agrees with the appellate court that the government could in theory be liable to Mr. Bormes, and sends his lawsuit down to the trial court for further proceedings, the government will be able to point to this Hooters case and to other, similar cases and likely settle for a pittance or get the suit thrown out.  Lawsuits like this – clearly driven by lawyers who are attempting to exploit a provision in the law to collect money even though nobody has been or could be harmed – are what give law and lawyers a bad name.

 

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Can lawyers obtain consumer reports about you for use in lawsuits?

October 5, 2012 Leave a comment

This post will address an issue that just came up in my FCRA practice:  can I, in the course of defending a client in a lawsuit that alleges violations of the FCRA, obtain a copy of the consumer reports that are at issue in the lawsuit?

The FCRA has a provision that regulates who can obtain a consumer report and under what circumstances they may do so.  It is the “permissible purpose” provision at 15 USC Sec. 1681b.  To summarize, you are allowed to get someone’s consumer report if:  a) a court says that you can; b) the consumer says that you can; or c) you have a business purpose for doing so.  The statute lists a number of specific business purposes and then has a catch-all at the end which says that someone may obtain a consumer report if he “otherwise has a legitimate business need for the information – (i) in connection with a business transaction that is initiated by the consumer; or (ii) to review an account to determine whether the consumer continues to meet the terms of the account.”

Normally, when I am defending an FCRA lawsuit, the first thing I do is ask the consumer’s lawyer for permission to obtain a copy of his/her report.  That is acceptable under Section 1681b because the consumer, through his/her lawyer, has consented.

But suppose that I don’t ask the consumer’s lawyer for permission to obtain a copy of his/her report.  Suppose that I am defending one of several defendants, all of whom created consumer reports about the plaintiff, and I want to ask the other defendants to give me their copies without telling the plaintiff about this request?  Can I do that?

As is usually the case with legal questions, the answer here is “maybe.”  There is case law from one federal court of appeal – the Sixth Circuit – which helps to illustrate when a lawyer can and can’t get a consumer report for use in defending a case.  In Spence v. TRW, Inc., 92 F.3d 380 (6th Cir. 1996), the plaintiff sued his gas company and a consumer reporting agency, and the gas company’s lawyer asked the agency to provide a copy of the underlying report for use in defending the case, which it did.  The plaintiff claimed that this was a violation of the FCRA, but the court disagreed, stating that the defense lawyer had a “legitimate business need” to obtain the report for use in his defense of an FCRA case.  However, in Duncan v. Handmaker, 149 F.3d 424 (6th Cir. 1998), the same court – the Sixth Circuit – held that a lawyer who was defending a company in a negligence case involving a real estate closing that went awry did NOT have a legitimate business need to obtain the consumer report.  More specifically, the trial court had granted the lawyer summary judgment on the grounds that he had a permissible purpose, but the Sixth Circuit reversed that and remanded it to the trial court, to determine what the lawyer’s motivations were (negligent or wilful) and what impact they might have on his liability.

In other words, while there isn’t much law on this issue, it seems as though lawyers CAN get consumer reports for use in defending FCRA cases, but they CANNOT necessarily get consumer reports for use in defending other kinds of cases.

Note:  the Supreme Judicial Court of Maine also found that lawyers who are defending FCRA cases have a legitimate business need for consumer reports.  Myshrall v. Key Bank Nat’l Ass’n, 802 A.2d 419 (Me. 2002).  This is a persuasive opinion, but not a binding one, in the federal courts that handle most FCRA cases.

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