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FCRA Presentation October 29, 2015

Adam G. Singer

Law Office of Adam G. Singer, PLLC NYC: 60 E. 42nd Street, Suite 4600, New York, NY 10165

Rockland: 254 S. Main Street, Suite 516, New City, NY 10956

Westchester: 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601

T: 212.842.2428

F: 212.658.9682

E: asinger2@alumni.law.upenn.edu

L: www.linkedin.com/in/adamgsinger

Summary:

A. The Statute • Fair Credit Reporting Act

• (15 U.S.C. §§1681 et seq.)

• Regulates content of consumer reports, especially including the accuracy of data contained in those reports

• Like it or not, every consumer has at least one, if not several, “report” cards that purport to assess the consumer about a variety of qualities such as creditworthiness

• full text of statute is available here: http://www.consumer.ftc.gov/articles/pdf-0111-fair-credit-reporting-act.pdf

• powerful federal consumer statute that often works in conjunction with other federal consumer statutes (FDCPA, FCBA, TCPA).

• originally enacted in 1970

Summary: A. The Statute

• Two purposes: – For credit industries including banking system

• "The banking system is dependent upon fair and accurate credit reporting. Inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods undermine the public confidence which is essential to the continued functioning of the banking system." §1681(a)(1).

– For consumers: • "a need to insure that consumer reporting agencies exercise

their grave responsibilities with fairness, impartiality, and a respect for the consumer’s right to privacy." §1681(a)(4).

• Intended to protect consumers from the willful and/or negligent inclusion of inaccurate information in their credit reports.

• To that end, the FCRA regulates the collection, dissemination, and use of consumer information, including consumer credit information

• Enforced by the US Federal Trade Commission, the Consumer Financial Protection Bureau and private litigants.

Summary:

B. FCRA and Consumer Reports 1. What are consumer reports?

• See §1681a(d)(1)

• Very broad scope

• Any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for: – A. credit or insurance to be used primarily for personal, family, or

household purposes;

– (B) employment purposes; or

– (C) any other purpose authorized under section 604 [§ §1681b].

Summary:

B. FCRA and Consumer Reports Importance of consumer reports

• Potential to substantially affect consumer's lives in fundamental ways

• Three primary areas: assessing credit worthiness, employment background checks, and tenant / housing background checks. – access to credit: two scenarios

• prime credit -- ability to borrow at prime rates

• access to credit altogether -- outright credit denials

– employee screening • negative information on background report can prevent consumer from

being employed in large sectors of the economy

– tenant screening • similarities to both credit reports and employment background checks

• in addition to credit, factors include prior rental payment history, lawsuits involving that tenant and landlord

Summary: B. FCRA and Consumer Reports

3. Data Standard for Consumer Reports -- Maximum Possible Accuracy

• Accordingly, Congress created FCRA to implement an especially high standard of accuracy -- Maximum Possible Accuracy

• Accuracy is the Hallmark and starting place for most claims under FCRA

• When assessing accuracy or errors, keep this standard in mind

Summary: B. FCRA and Consumer Reports

4. A System with Widespread Errors a. How Widespread Is Erroneous Information on

Consumer Reports? • Millions of consumers have substantial errors on

their credit reports. A Federal Trade Commission study of the U.S. credit reporting industry concluded:

• Five percent of consumers' reports showed negative inaccurate information -- credit report errors -- serious enough to cause they to pay more for credit.

• One in four consumers identified errors on their credit reports that might affect their credit scores

• One in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports

• Four out of five consumers who filed disputes experienced some modification to their credit report

• Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report

Summary:

B. FCRA and Consumer Reports b. Why Don't CRAs Just Get it Right?

• Overinclusive -- root of the problem – no system is perfect -- either underinclusive or

overinclusive

– CRAs choose overinclusive. • Why?

• because their customers are the banks and other potential creditors.

• those customers want a better-safe than sorry approach.

1. less likely to overlook lending risk

2. more negative information means they can charge more for credit, backed by an objective excuse

• How do they accomplish over-inclusiveness? – use loose identifiers

– one example: 7 of 9 digits on SSN is a match

Time Out to Review

• At this point, let's pause and review what we have considered so far:

• Consumer reports affect almost every consumer, usually in multiple arenas

• FCRA holds those reports to a very high level accuracy

• Inaccuracies are rampant and consumers are being harmed

• Creditors stand to make more money from consumers with a negative credit rating, especially if that negative rating actually does not reflect a higher lending risk !!!

• Putting that all together: – Are we clear on the need for well-informed legal

service attorneys to assist consumers with errors on their credit report errors?

Summary:

B. FCRA and Consumer Reports 5. Litigating Inaccuracies

• No Strict Liability for Accuracy – in other words, mere fact that there is an

accuracy does not equal liability

– rather, issue always is reasonableness of procedures to ensure used to ensure accuracy

• Reasonableness of Procedures arises in two instances: – in first instance, reasonable procedures

to ensure maximum possible accuracy

– after a consumer dispute an error, reasonableness of investigation of that dispute

• More about disputes and accuracy later . . .

Players in the Consumer Reporting Game

Creditor #1

Pot. Creditor #2

Consumer CRA

Potential creditor requests report from CRA

Players in the Consumer Reporting Game

A. Consumer Reporting Agencies (CRAs)

• Consumer Reporting Agency – any person which, for monetary fees, dues, or on a cooperative

nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports. §1681a(f).

• 3 national CRAs: Equifax, Experian, and TransUnion – sometimes referred to as:

• credit bureaus

• credit reporting agency

– a consumer reporting agency that regularly engages in the practice of assembling or evaluating, and maintaining, for the purpose of furnishing consumer reports to third parties bearing on a consumer’s credit worthiness, credit standing, or credit capacity, each of the following regarding consumers residing nationwide. §1681a(p).

Players in the Consumer Reporting Game

• National Speciality CRAs – “nationwide specialty consumer reporting agency”

means a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis relating to--

• (1) medical records or payments;

• (2) residential or tenant history;

• (3) check writing history;

• (4) employment history; or

• (5) insurance claims. §1681a(x).

– For more information:

– List of Speciality CRAs: http://files.consumerfinance.gov/f/201501_cfpb_list_consumer-reporting-agencies.pdf

– Account Screening CRAs: http://cfefund.org/sites/default/files/Account%20Screening%20CRA%20Agencies%20Banking%20Access%20report.pdf

Players in the Consumer Reporting Game

B. Furnishers of Information: Who reports and Why?

• In FCRA terminology, "furnishers" are entities that furnish information to CRAs – Original creditors (Creditor #1 in graph

above)

– Third party debt collectors

– Resellers of public record information (like Lexis Nexis)

– Past landlords

• Motive: Why do furnishers bother reporting this information? – low cost collection tool

– subscriber agreement may obligate furnishers

Players in the Consumer Reporting Game

C. Users of Consumer Reports: Who buys reports and why?

• potential creditors, employers, banks, and landlords (Creditor #2 in graph above)

• permissible purposes for a CRA to furnish a consumer report to a user – §1681b(a)

– when a user "pulls" a report without a permissible purpose, there may be a claim for an "impermissible pull"

– hard "pulls" for credit -- usually when consumer authorizes it in conjunction with an application for credit

• these lower credit scores because it shows that the person is in need of credit and lacks sufficient resources at the time

– soft "pulls" for credit do not lower credit scores • one example: credit card bank inquires about a consumer's

credit score to assess whether to offer a pre-approved credit card

Powerful Rights: Private Causes of

Action Pursuant to FCRA • Liability:

• Determine the Source of the Problem to Assess Appropriate Statutory Provision for Liability

• Refresher:

– Hallmark of many FCRA claims is inaccurate information

– That inaccurate information may originate either with a CRA or a Furnisher

– In each scenario below, the consumer may be able to sue for damages

Powerful Rights: Private Causes of Action Pursuant to FCRA

Inaccurate Information Originating with the CRA

• Accuracy of report. Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates. §1681e(b). – Nothing here about a dispute. – §1681e(b) obligation on CRAs exists without

regard to any dispute.

Powerful Rights: Private Causes of Action Pursuant to FCRA

Typical Problems Entity to Sue & Statute Violated

Mixed File -- one consumer has

info on his report belonging to

another

Merged File -- took consumers

with separate files and merged

them onto one single file. Frank

and John are now one entity

Multiple Files -- consumer has

multiple files

CRA

15 U.S.C. §§1681e(b)

failure to follow reasonable

procedures to assure maximum

possible accuracy

Powerful Rights: Private Causes of Action Pursuant to FCRA

Inaccurate Information Originating with the Furnisher

• CRA's Obligations: – §1681i(a)(1)(A): Subject to subsection (f), if the completeness

or accuracy of any item of information contained in a consumer’s file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly, or indirectly through a reseller, of such dispute, the agency shall, free of charge, conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate and record the current status of the disputed information, or delete the item from the file in accordance with paragraph (5), before the end of the 30-day period beginning on the date on which the agency receives the notice of the dispute from the consumer or reseller.

– §1681i(a)(2)(A): Before the expiration of the 5-business-day

period beginning on the date on which a consumer reporting agency receives notice of a dispute from any consumer or a reseller in accordance with paragraph (1), the agency shall provide notification of the dispute to any person who provided any item of information in dispute, at the address and in the manner established with the person.

Powerful Rights: Private Causes of Action Pursuant to FCRA

• Furnisher's Obligation:

1681s-2(b) Duties of Furnishers of Information upon Notice of Dispute (1) In general.

After receiving notice pursuant to section 611(a)(2) [§ 1681i] of a dispute with regard to the completeness or accuracy of any information provided by a person to a consumer reporting agency, the person shall (A) conduct an investigation with respect to the disputed information; (B) review all relevant information provided by the consumer reporting agency pursuant to section 611(a)(2) [§ 1681i]; (C) report the results of the investigation to the consumer reporting agency; (D) if the investigation finds that the information is incomplete or inaccurate, report those results to all other consumer reporting agencies to which the person furnished the information and that compile and maintain files on consumers on a nationwide basis; and (E) if an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after any reinvestigation under paragraph (1), for purposes of reporting to a consumer reporting agency only, as appropriate, based on the results of the reinvestigation promptly– (i) modify that item of information; (ii) delete that item of information; or (iii) permanently block the reporting of that item of information

Problems Originating with Furnisher

Typical Problems (here, possibilities are endless) Entity to Sue and Statute Violated

•reporting of non-existent debt altogether

• debt never incurred

debt incurred by another person (family)

•inaccurate date of first delinquency

•inaccurate amount of debt owed

•failure to mark as paid

• failure to mark as disputed *

•incomplete information

• technically accurate but misleading because

incomplete (such as reporting that sent to

collections but failing to report that has been paid

in full)

•bankruptcy -- continuing to report details about

the discharged debt rather than simply reporting

"discharged in bankruptcy"

•medical information -- may not report facts that

disclose private medical information

•Identity theft

Dispute process requires:

reasonable reinvestigation

parroting or automated verification not

sufficient

o must conduct “searching inquiry”

Once dispute made with CRA:

CRA [15 U.S.C. §§1681i]

CRA’s list of duties during reinvestigation

process

Furnisher [15 U.S.C. §§1681s-2(b)]

Furnisher’s list of duties during reinvestigation

process

Powerful Rights: Private Causes of

Action Pursuant to FCRA

dfadfad

Choose Wisely:

The FCRA Dispute Triangle

(a.k.a. The Rabbit Hole)

Furnisher (Creditor)

Consumer CRA Valid Dispute: Consumer Disputes Directly with CRA and CRA Transmits Creditor’s Response to Consumer

Powerful Rights: Private Causes of

Action Pursuant to FCRA • CRITICAL POINT: THERE IS NO PRIVATE CAUSE OF ACTION

AGAINST A FURNISHER UNLESS AND UNTIL 30 DAYS AFTER A

DISPUTE IS FILED WITH A CREDIT BUREAU

• What Actually Happens in a Dispute?

– CRA reduces dispute to a code according to the METRO 2 guidelines

– That code is transmitted to furnisher via E-OSCAR system

– Furnisher typically does a cursory review to confirm that the

information being reported is the same as what furnisher intended to

report

• essentially parroting back the information to CRA

• case after case has held that this is not a reasonable reinvestigation

Damages

• Actual Damages – pecuniary damages

• examples: – paying more for mortgage

– losing job offer and resulting lost wages

– non-pecuniary damages • emotional distress

• need not corroborate with medical evidence

• consumer's family/friends may testify

– causation remains a requirement • the error must be shown to have caused the

damage

• thus, causation may not exist where consumer has accurate negative information

– Defendant will argue that, even if it violated statute, consumer's credit score was already damaged and consumer would have suffered credit denials regardless

Damages

• Statutory Damages

• (in the alternative to actual damages)

– Spokeo, Inc. v. Robins, No. 13-1339 (cert. granted, April 27, 2015)

– whether a plaintiff who cannot show any actual harm from a violation

of the Fair Credit Reporting Act (FCRA) nevertheless has standing

under Article III of the U.S. Constitution to sue for statutory damages

in federal court – Reversing the district court, the U.S. Court of Appeals for the Ninth Circuit ruled that the defendant’s

alleged violation of the plaintiff’s FCRA statutory rights established an injury sufficient to satisfy

Article III. According to the Ninth Circuit, because the FCRA does not require proof of actual

damages when a plaintiff sues for willful violations, a plaintiff’s statutory FCRA rights can be

violated without the plaintiff suffering any actual damages. The court concluded that it was

constitutionally permissible for Congress to treat violations of such rights as “concrete, de facto

injuries” and elevate such injuries “to the status of legally cognizable injuries.”

Attorney’s Fees

• Attorney's Fees

– wrongdoer pays Plaintiff's fees

– lodestar method

– Attorney’s fees can and sometimes do exceed the consumer’s recovery

– This allows “small” violations to be vigorously prosecuted

Damages

• Punitive Damages

– willful misconduct

– even reckless misconduct. See Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007)

Issue spotting and Legal Assistance

Legal Services Approach -- Path to Ensure that Either You Will Help or Set up Case for a Good Lawsuit in Federal Court

Step 1: Obtain credit reports • annualcreditreport.com • FCRA requires 3 national CRAs to provide one

free report per year • for rolling status, check 1 report every four

months • See sample credit reports

Issue spotting and Legal Assistance

Step 2: Review Consumer Report for Violations

• accuracy issues -- most common issue

• failure to report bankruptcy as "discharged in

bankruptcy"

• private medical information

Issue spotting and Legal Assistance

• Step 3: File Dispute if Error Originates from a Furnisher. (You may skip this step if dispute originates with CRA (mixed file, inaccurate criminal record)

How-To of Contesting Credit Errors.

• The minimum information is as follows: (1) Name of the company reporting the inaccurate entry; (2) credit account number; (3) a statement that the account was in error; (4) why you believe the credit report is in error; (5) what you want done (i.e. whether you want the entire account deleted or corrected in a certain way); (6) that you want a statement from the CRA of the manner in which it investigated the claim including the name and phone number of anyone contacted in connection with the reinvestigation; (7) your name, social security number, address and date of birth; (8) attach relevant documents to your dispute.

• Also attach a copy of your credit report from that company or a copy of your driver’s license or utility bill that shows your current address if you moved recently.

• Consider adding requests for verification if you are dealing with a collection agency, statement of billing error if you are dealing with a credit card company; and a demand to send corrected information directly to a company that pulled your report if you were denied credit based on an error in a report.

• Mail the dispute via certified mail, return receipt to the CRAs – copy the furnisher -- provides actual (but not legal) notice

– examples of disputes a few slides ahead . . .

Issue spotting and Legal Assistance

Step 4: Obtain responses if dispute was made

Step 5: Contact private attorney if errors were

not corrected

Note: If need credit, apply after responses

• not before

• save evidence of credit denials

Dispute Addresses

Equifax To request an investigation by U.S. mail, please print and complete this form and mail to the following address:

Equifax Information Services LLC P.O. Box 740256 Atlanta, GA 30374 Please note, when you provide documents, including a letter,

to Equifax as part of your dispute, the documents may be

submitted to one or more companies whose information are the subject of your dispute.

Dispute Addresses

Experian

Experian's mailing address for dispute requests is:

P.O. Box 4500

Allen, TX 75013

• You can submit your dispute and any supporting documents more quickly at experian.com/upload.

• In order to help you to submit an accurate request, you may find it useful to first obtainyour personal Experian credit report.

• Please include all of the following when requesting your dispute:

• Your full name including middle initial (and generation such as JR, SR, II, III)

• Your date of birth

• Your Social Security number (if you have never been issued a social security number, please note that in your request)

• All addresses where you have lived during the past two years

• One copy of a government issued identification card, such as a driver's license or state ID card, etc.

• One copy of a utility bill, bank or insurance statement, etc.

• List each item on your report that you believe is inaccurate, the account number and the specific reason you feel the information is incorrect.

• There is no charge for submitting a dispute.

Dispute Addresses

TransUnion

Mail:

By mailing your dispute request to:

TransUnion LLC

Consumer Dispute Center

P.O. Box 2000

Chester, PA 19022

Please have the following information on hand to complete your dispute:

• Your TransUnion file number

• Social Security Number

• Date of birth

• Current address

• Company name of the disputed item (from your credit report)

• Account number of the disputed item (from your credit report)

• Reason for your dispute (such as, it is not your account; you have paid the account; etc.)

• Any corrections to your personal information (address, phone number, etc.)

Sample Dispute Letter •

Your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may

want to enclose a copy of your report with the items in question circled.

Send your letter by certified mail, “return receipt requested,” so you can document what the credit reporting company received. Remember to include copies of the applicable enclosures and save

copies for your files.

[Your Name]

[Your Address]

[Your City, State, Zip Code]

[Date]

Complaint Department

[Company Name]

[Street Address]

[City, State, Zip Code]

Dear Sir or Madam:

I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received.

This item [identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.] is [inaccurate or

incomplete]because[describe what is inaccurate or incomplete and why]. I am requesting that the item be removed [or request another specific change] to correct the information.

Enclosed are copies of [use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents] supporting my position. Please reinvestigate

this[these] matter[s] and [delete or correct] the disputed item[s] as soon as possible.

Sincerely,

Your name

Enclosures: [List what you are enclosing.] •

Employment Background checks

• Just like credit reports,

inaccuracy is also the

hallmark of employment

background checks

claims

• Common examples:

– wrong criminal history

(same or similar name)

– misdemeanor vs. felony

Employment Background checks

• Proper Procedure for Employment Background Check

– Purpose • obtain written consent by job applicant

• ensure applicant has an opportunity to dispute any erroneous information in report before employer takes adverse action based upon that report

– §1681b(b): Conditions for Furnishing and Using Consumer Reports for Employment

• – §1681b(b)(2): Disclosure to Consumer

• Must provide "a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes"; and

• Consumer authorizes in writing

– §1681b(b)(3): Pre-Adverse Action Notice • in using a consumer report for employment purposes, before taking any adverse action based in whole or in part on the

report, the person intending to take such adverse action shall provide to the consumer to whom the report relates – (i) a copy of the report; and (ii) a description in writing of the rights of the consumer under this title

• • class action potential

Thank You and Contact Me with Questions.

Adam G. Singer

Law Office of Adam G. Singer, PLLC

NYC: 60 E. 42nd Street, Suite 4600, New York, NY 10165

Rockland: 254 S. Main Street, Suite 516, New City, NY 10956

Westchester: 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601

T: 212.842.2428

F: 212.658.9682

E: asinger2@alumni.law.upenn.edu

L: www.linkedin.com/in/adamgsinger