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10.0 CLE Hours, Including 2.0 Ethics Hours in Missouri 10.0 CLE Hours, including 2.0 Ethics in Kansas
2300 Main Street, St. 100 ■ KC, MO 64108 ■ phone 816-474-4322 ■ fax 816-474-0103
45th Annual Bench-Bar & Boardroom Conference
Thursday, May 17, 2018
12:50 – 1:40 PM
The Credit Reporting Act:
Not Just About Credit
Michael Rapp, Stecklein & Rapp Chartered
Michael is a licensed attorney in the state of Kansas and Missouri. He is a member of the American Bar Association, Kansas City Metropolitan Bar Association, Wyandotte County Bar Association, as well as the National Association of Consumer Advocates. Since graduating law school, Michael has focused his practice exclusively on Consumer Law with a concentration on Fair Debt Collection Practices (FDCPA), Credit Reporting (FCRA) and Telephone Consumer Protection (TCPA).
Michael regularly gives talks around the Kansas City area to community groups on the topics of Debt and Credit and blogs about FDCPA stories of interest providing short, good-to-know tips for those interested in keeping their finger on the pulse of consumer protection law.
Michael Rapp graduated from UMKC School of Law, where he served as Research Administrator for Friedman on Leases and was awarded the Sanford B. Ladd Award for his exceptional achievement in Real Estate Law. Prior to attending law school, Michael served his country, was decorated, and honorably discharged from the United States Air Force.
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What We Do: 2
We sue Credit Reporting Agencies
Background Check Companies
Banks
Debt Collectors/Debt Buyers
Employers
Shady Car Lots
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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
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).
State Counterpart (KSA §50-701)
Summary: The Statute
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Summary: The Statute
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, or quality as employee or tenant
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What is in the FICO Score? 5
35%
30%
15%
10% 10%
On Time Payments
Capacity Used
Length of History
New Credit
Types of Credit
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Credit score basics
FICO prepares the credit scores for each credit
bureau
Equifax = Beacon
Experian = Experian-Fair Isaac Risk Model
TransUnion = Empirica
FAKO
Individual lenders may have own internal scoring
process
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Credit score basics
Not everyone has a credit score:
Must have at least one account on your credit report
that has been open at least six months
that the creditor has updated at least once during that
six months
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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).
Summary: The Statute
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FCRA Guiding Principles 9
Privacy Limited third party access to consumer reports
Accuracy Responsibilities of consumer reporting
agencies and data furnishers
dispute resolution process
Fairness Adverse action notices to affected consumers
Obsolete information cannot be reported
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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 Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB) and private litigants.
Summary: The Statute
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What are consumer reports?
See §1681a(d)(1)
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:
credit or insurance to be used primarily for personal, family, or household purposes;
employment purposes; or
any other purpose authorized under section 604 [§ §1681b].
FCRA and Consumer Reports
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Credit reporting players
Consumer: An individual (not an entity).
Credit reporting agency (“CRA”): An entity that
provides consumer reports.
Furnisher: Not defined in Act. Can be anyone who
furnishes consumer information to a CRA.
User: One who accesses the report and views it.
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Credit reporting players
Subscriber: Many furnishers are also subscribers.
Subscription to a CRA enables a business to obtain
credit reports about potential customers.
Subscription contract also requires the business to
furnish the CRA with information about existing
customers’ accounts so that the CRA can include
them in its file for that person.
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Credit reporting players
Consumer Data Industry Association (CDIA)
Creator of Metro 2, a standard automated data
reporting format used by furnishers to report
information electronically to the CRA’s.
Data is uploaded electronically in an order specified
by the Metro 2 format and using Metro 2 codes.
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Credit reporting players
Online Data Exchange (OLDE)
Developed and administers e-OSCAR: Online Solution
for Complete and Accurate Reporting, a web-based
dispute notification system used by the CRA’s and
furnishers when a consumer disputes an account
appearing on a consumer report.
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What is a Consumer Reporting Agency?
16
Tenant screeners
Check verifiers
Background checking companies
Credit reporting Agencies
Resellers of all the above
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Importance of consumer reports
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
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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
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A System with Widespread Errors
How Widespread is it? Millions of consumers have substantial
errors on their credit reports. FTC study of the credit reporting industry concluded: One in four (25%) consumers identified
errors on their credit One in 20 (5%) of consumers‘ had
errors serious enough to cause they to pay more for credit.
After Disputes: 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
Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report
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Why Don't CRAs Just Get it Right?
Overinclusion
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.
How do they accomplish over- inclusiveness?
use loose identifiers
one example: 7 of 9 digits on SSN is a match
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Recognizing the FCRA 21
A credit pull was done
A background check was made
Client has a Credit Report
A high interest loan was made
A loan was denied
A job was denied
Simply… anything included in a
consumer’s financial reputation that is untrue!
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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, that cause credit scores to appear lower than they are, are rampant
Creditors make more money from consumers with a negative credit rating,
especially if that negative rating does not reflect an actually higher lending risk.
Putting that all together:
There is a need in the community. These cases are all around you.
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Litigating Inaccuracies
No Strict Liability for Accuracy
in other words, mere fact that there is an inaccuracy does not equal liability
the issue always is reasonableness of procedures to ensure used to ensure accuracy
Reasonableness of Procedures arises in two instances:
1. reasonable procedures to ensure maximum possible accuracy was not reported (CRA only)
2. after a consumer disputes an error, reasonableness of investigation of that dispute (both CRA and Furnisher)
More about disputes and accuracy later . . .
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Players in the Consumer Reporting Game
Creditor #1
Pot. Creditor #2
Consumer CRA
Potential creditor requests report from CRA
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Players in the Consumer Reporting Game
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).
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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
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Players in the Consumer Reporting Game
Furnishers of Information: Who reports
"furnishers" are
Original creditors (Creditor #1 in graph
above)
Third party debt collectors
Resellers of public record information (like
Lexis Nexis)
Past landlords
Why report?
low cost collection tool
subscriber agreement may obligate
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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
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Private Causes of Action Pursuant to FCRA
Liability:
Determine the Source of the Problem to Assess Appropriate Statutory Provision for Liability
Refresher:
Hallmark of an FCRA claim is inaccurate information
That inaccurate information may originate either with a CRA or a Furnisher
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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.
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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
Private Causes of Action Pursuant to FCRA
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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.
Private Causes of Action Pursuant to FCRA
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Private Causes of Action Pursuant to FCRA
Furnisher's Obligation:
1681s-2(b) Duties of Furnishers of Information upon Notice of Dispute (1). 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
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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
Problems Originating with Furnisher
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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
Private Causes of Action Pursuant to FCRA
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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
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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
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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.”
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Damages
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
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Punitive Damages
willful misconduct
even reckless misconduct.
See Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007)
Damages
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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
expungements
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Employment Background checks
Proper Procedure
Purpose
obtain written consent by job applicant
§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
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)(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
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What to worry about: 43
Attorney Fees
Levine v. JPMorgan Chase & Co., No. 13-C-498, 2014
WL 4410682 (E.D. Wis. Sept. 5, 2014)
Your client’s relatives
Anthony v. Equifax Info. Servs., LLC, No. 2:13-CV-
01424-TLN, 2015 WL 502857 (E.D. Cal. Feb. 5, 2015)
Credit Repair Organizations Act
Prohibiting taking money for a promise to fix credit.
15 U.S. Code § 1679b(b)
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Consumer Repair Companies 44
What they do:
File numerous disputes with the CRAs
Spam Disputes (Filing numerous disputes back to back)
Take advantage of the 30 day rule
Often get items deleted
The downside:
Often temporary
Tradelines often reinserted from other CRAs
Can get consumer banned from making disputes
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Why isn’t the FCRA used? 45
Wrongfully sued
focusing on the suing party
Identity theft
focusing on the thief
Declined employment
focusing on wrongful behavior of the employer
Declined loan
focusing on the party that has reported the wrong information
Debt collection
focusing on the creditor who is trying to collect money from your client
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Thank You and
Contact Me with Questions.
Michael Rapp
Stecklein & Rapp Chartered
748 Ann Ave
Kansas City, KS 66101
T: 913.371.0727
L: www.linkedin.com/in/aj-stecklein-562751137
L: www.linkedin.com/in/michael-rapp-8627452