Earlier this fall, a federal court granted a trade association’s motion for a declaratory judgment against the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection.  The litigation concerned amendments the Maine legislature enacted to the Maine Fair Credit Reporting Act.  Consumer Data Indus. Ass’n v. Frey, 2020 U.S. Dist. LEXIS 187061 (D. Me. 2020).

As readers of CPW already know, consumer credit reports matter as they can determine whether, and on what terms, a person may obtain a mortgage, a student loan, a credit card, or other financing.  The Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq., was enacted by Congress in 1970 to “ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy.”  Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (citing 15 U.S.C. § 1681).  To accomplish this objective, the FCRA regulates the creation and the use of consumer reports by consumer reporting agencies for certain specified purposes (such as credit transactions, insurance, licensing, consumer-initiated business transactions, and employment).

In 2013, the current version of the Maine Fair Credit Reporting Act was enacted for the purpose of supplementing the FCRA.  The Maine law required “consumer reporting agencies to adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance and other information in a manner that is fair and equitable to the consumer, with regard for confidentiality, accuracy, relevancy and proper use of this information . . . .”  10 M.R.S.A. § 1307.  The trade association in Frey, whose members include consumer credit reporting agencies (“CRAs”), commenced litigation in 2019 challenging two amendments to the Maine Fair Credit Reporting Act as preempted by the FCRA.

  • The first amendment, titled “An Act Regarding Credit Ratings Related to Overdue Medical Expenses,” placed restrictions on when a medical debt could be included in a consumer report. For instance, a CRA was precluding from reporting debt from medical expenses on a consumer’s consumer report when the date of the first delinquency of the debt was less than 180 days prior to the date that the debt was reported.
  • The second amendment, titled “An Act to Provide Relief to Survivors of Economic Abuse,” provided that under certain circumstances if a debt was the product of “economic abuse,” a CRA was required to remove references to the debt from the consumer’s report.

In resolving the challenges raised to these two amendments, the court in Frey was primarily concerned with how broadly preemption language in the FCRA should be construed.  The provision at issue provided that:

(b) General exceptions.  No requirement or prohibition may be imposed under the laws of any State

(1) with respect to any subject matter regulated under— . . .

(E) [15 U.S.C. § 1681c], relating to information contained in consumer reports, except that this subparagraph shall not apply to any State law in effect on the date of enactment of the Consumer Credit Reporting Reform Act of 1996 . . .

15 U.S.C. § 1681t(b)(1)(E) (emphasis added).  The trade association took the position that this language should be read to encompass all claims relating to information contained in consumer reports (with the phrase “relating to information contained in consumer reports” acting as a description of the subject matter § 1681c regulates).  Defendants, by contrast, argued for a more narrow interpretation.

The court sided with the trade association.  According to the court, this amendment (and others) reflected an affirmative choice by Congress to set “uniform federal standards” regarding the information contained in consumer credit reports.  As such, by seeking to exclude additional types of information, the court held that the Maine Amendments intrude upon a subject matter that Congress had sought to expressly preempt from state regulation.  The Maine amendments were preempted by the FCRA.

Some of the COVID-19 relief measures that have been adopted at the federal level included changes to the FCRA under the CARES Act.  As the second wave of infections continues to have a lasting impact on consumers, it is conceivable that states will be pressed to take measures into the their own hands—which may include additional state legislation in the credit reporting arena (with FCRA preemption a potential area of future litigation).  Stay tuned.

This week brought news of a Federal Trade Commission (“FTC”) complaint and proposed $4.25 million settlement with AppFolio, Inc. (“AppFolio”), a California-based company that provides “screening reports” to property management companies regarding potential tenants’ rental, credit, and criminal histories,. While the settlement bears a hefty price tag, it was Commissioner Rohit Chopra’s dissenting statement that caught CPW’s attention as it directly raised the question of whether aggregated violations of the Fair Credit Reporting Act (“FCRA”) may constitute unlawful discrimination.  With anticipated changes to administrations and enforcement priorities, Commissioner Chopra’s dissenting opinion may foreshadow a future enforcement priority for the FTC:  FCRA claims against tenant screening companies that report consumer financial and/or rental histories.

The complaint against AppFolio, a California-based company that provides “screening reports” to property management companies regarding potential tenants’ rental, credit, and criminal histories, alleges that AppFolio failed to follow reasonable procedures to ensure the accuracy of reported criminal record and eviction histories.  AppFolio allegedly obtained records from a third-party vendor that it failed to independently verify, relying instead on the third-party’s procedures.  This was allegedly done despite AppFolio’s “limited knowledge” of the third-party’s procedures and the third-party’s express disclaimer that it could not “guarantee the accuracy and/or completeness of the consumer information furnished.”

Targeting this practice, the complaint alleges that AppFolio provided inaccurate information for certain tenant applicants including:  records for individuals with a different name or birthdate; records with a missing or inaccurate offense name, type, or date; records with a missing or inaccurate disposition; and multiple entries for the same criminal or eviction action.  Due to these inaccuracies, some applicants allegedly may have been denied housing or other opportunities.

The proposed settlement includes a $4.25 million monetary penalty, mandates compliance reporting and monitoring, and enjoins AppFolio from reporting information that is more than seven years old and failing to maintain “reasonable procedures” to ensure the “maximum possible accuracy” of the information that it reported.  Notably, and as noted in the concurring statement of Commissioner Rebecca Kelly Slaughter, while the settlement aims to achieve deterrence, the penalty payment “benefits the U.S. Treasury, not [AppFolio’s] victims.”

Although the FTC voted 4-1 to authorize the suit and its proposed settlement, the real story is the lone dissent and its timing as the country observes changing administrations.  Commissioner Chopra’s dissenting statement raises numerous issues, including a question of whether AppFolio’s practices, as alleged, constitute unlawful housing discrimination in violation of the Fair Housing Act.

Commissioner Chopra pointed to guidance from the U.S. Department of Housing and Urban Development illustrating how the use of criminal history-based restrictions on accessing housing “have a disparate impact on protected classes.”  He opined that, “The shoddy practices alleged . . . against AppFolio may have contributed to decision-making that HUD has determined is presumptively unjustified.”  He listed three reasons:

  • AppFolio allegedly provided screening reports that included criminal records more than seven years old. This practice may have excluded applicants who were never actually convicted of any offense.
  • AppFolio also allegedly included multiple entries for the same convictions, which created reports that may have inaccurately portrayed the nature of tenants’ records.
  • By allegedly providing reports that failed to include offenses’ “name, type, or date,” AppFolio could have contributed to decision-making that ignored the “nature, severity, and recency of criminal conduct,” which is a practice that HUD has indicated is likely unjustified.

The Commissioner also chastised the proposed settlement’s provisions to discourage recidivism.  The proposed settlement only requires AppFolio to follow the FCRA, which it is already required to do, and provide “generalized reports,” which could lack qualitative data on specific metrics.

Finally, the Commissioner suggested increased accountability for individual executives and board directors.  He pointed to a CFPB order that required a defendant to establish a compliance committee on its board and ensure that directors bore the “ultimate responsibility” for fulfilling the company’s legal commitments.  Whether “ultimate responsibility” under these conditions could mean individual civil or criminal liabilities was not delineated.  The Commissioner concluded his statement with these remarks:  “I hope that the Commission will take steps to tighten its coordination with sister regulators, sharpen its approach to reducing the likelihood of recidivism, and its improve [sic] overall strategy to combat discriminatory practices in the market.”

As CPW has previously reported, the incoming Biden Administration may have a significant impact on the FTC’s enforcement priorities.  The AppFolio lawsuit and Commissioner Chopra’s dissenting statement may signal a changing tide in which companies find themselves facing increased FCRA enforcement.  Stay tuned for additional coverage as it may arise.

A recent case in the Northern District of Georgia confirms that when evaluating whether a tradeline in a consumer report is accurate, a court will consider the entire record in context and not focus on individual elements in isolation.  See Ellis v. Warehouse Home Furnishings Distribs., 2020 U.S. Dist. LEXIS 225572 (N.D. Ga. 2020).

The Plaintiff in this case contended that the Defendant inaccurately reported her tradeline to credit reporting agencies (“CRAs”).   Specifically, she alleged that Defendant inaccurately reported a scheduled monthly payment of $215 on her closed account, when Defendant should have been reporting a scheduled monthly payment of $0.00.  As a result, she claimed that Defendant committed negligent and willful violations of the Fair Credit Reporting Act (the “FCRA”).  In its motion for summary judgment, Defendant argued that Plaintiff’s claims against it fail because the information provided to the CRAs was accurate.

In order for a court to grant summary judgment, the movant must show that “…. there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).   A party arguing that a fact is or is not genuinely disputed must support that assertion by citing to particular parts of materials in the record.

The parties in this case agreed that they entered into a Retail Installment Contract/Security Agreement that required Plaintiff to make monthly payments in the amount of $215 for 24 months. They also agreed that Plaintiff purchased credit disability insurance for the loan, that she did not make all of the payments due, that she made a claim under the disability insurance, and that the insurance made a payment on Plaintiff’s behalf that left the loan with a zero balance.

The parties disagreed insofar as Plaintiff contended that the $215 notation shows a present monthly payment obligation, while Defendant argued that the $215 notation in the record is merely an accurate historical reference to the payment terms of the retail installment contract.

Reviewing the entire tradeline record, the court concluded that Plaintiff had not presented a fact dispute as to whether the tradeline reflected an ongoing monthly payment obligation of $215. The court noted that the $215 “Monthly Payment” notion must be viewed in the context of the entire record, which clearly reflected that the balance on the account was zero and that the account had been closed for quite some time. “Contrary to Ellis’s baseless argument, the report does not give the impression that there is any ongoing payment obligation. Ellis has provided no evidence whatsoever to support her contention that the reports should read differently than they do.”

Citing precedent that “… the mere inclusion of information about previous payment terms neither causes confusion nor creates an inaccuracy so as to maintain a claim under the FCRA,”[1] the court in this case granted Defendant’s motion for summary judgment, providing a helpful reminder that when facing claims of inaccurate reporting under the FCRA, furnishers and CRAs have strong arguments that tradelines and other records included in consumer reports must be considered in toto.

[1] Meeks v. Equifax Info. Servs., LLC, No. 1:18-cv-3666-TWT-WEJ, 2019 WL 1856411, at *5-6 (N.D. Ga. Mar. 4, 2019) (holding that the inclusion of historic payment terms was insufficient to state a claim).

Under the Federal Rules of Civil Procedure, including exhibits to a motion to dismiss may convert the motion into a motion for summary judgment.  Generally, there are exceptions to this rule, such as including as an exhibit a document that the plaintiff relied on in its complaint.  The decision whether to include an exhibit in a motion to dismiss is a strategic choice that depends on individual circumstances.  A recent decision, however, illustrates an opportunity when the decision whether to include an exhibit directly affected the court’s decision to deny a motion to dismiss.  In this case, the court denied a motion to dismiss a Fair Access to Credit Act (“FCRA”) when, due to the absence of a credit report, it was forced to view the allegations in the complaint in the light most favorable to the plaintiff.

In Fleming v. Ginny’s, Inc., No. 3:20-cv-00284, 2020 U.S. Dist. LEXIS 217736 (S.D. Miss. Nov. 20, 2020), the plaintiff filed suit against Ginny’s and Midnight Velvet, two retailers specializing in household and fashionable wares, alleging that they failed to conduct a reasonable investigation into alleged discrepancies in her credit report.  The disputed entries were a series of monthly payments of $25 to each defendant.  The plaintiff disputed these charges and argued that each account was closed and neither had a balance.

Under the FCRA, an entity that furnishes information to a consumer reporting agency has a duty to provide accurate information.  If a consumer disputes an item on his credit report, then the entity that furnished the disputed information has a duty to reasonably investigate the disputed items.  The FCRA provides consumers with a direct cause of action for failures to reasonably investigate disputed information.

In Fleming, the court noted that each party “offer[ed] differing descriptions of the disputed credit report in their memoranda,” but the credit report itself was not in the record.  Due to the absence of the credit report, the court stated that it was bound to “decide the issue based on the way [the p]laintiff described the credit report in her Complaint,” under the rule that, when evaluating a motion to dismiss, a court must view the well-pleaded facts in the light most favorable to the plaintiff.

The court noted that the plaintiff’s allegation sufficiently alleged “a plausible inference” that “would be inaccurate” if it was true that the plaintiff’s accounts were closed.  The plaintiff alleged that the defendants were “reporting a monthly payment of $25.00”.  In the absence of reviewing the actual credit report, those six words – “reporting a monthly payment of $25.00” – were a sufficient allegation.  Although the court concluded that the defendants “may ultimately have a strong argument at the summary-judgment stage,” it was reluctant to “pre-judge” the issue in a motion to dismiss.  Accordingly, the court denied the motion.

In the end, if the court were to review the credit report, it still could have denied the motion or even converted it into a motion for summary judgment.  Without the report, however, the court was forced to view the facts in the light most favorable to the plaintiff.  Fleming is a case to watch on summary judgment to see if the court’s predictions come true.

The Fair Credit Reporting Act (“FCRA”) permits consumers to dispute the details of their credit reports.  Upon receipt of a dispute, the credit reporting agency (“agency”) must notify the party that furnished the disputed information, which then has a duty to investigate.  15 U.S.C. § 1681i(a)(2).  The FCRA provides a private right of action to enforce those duties.  A recent case illuminates what could happen when the date that a consumer’s debt is recorded as uncollectible is amended and reported to an agency.

In Johnson v. Us Bank Home Mortg., et al., No. 20-cv-3433, 2020 U.S. Dist. LEXIS 216894 (N.D. Ill. Nov. 19, 2020), the plaintiff filed suit when its mortgagor reported two different dates for when part of its mortgage debt was “deemed uncollectible.”  Under the FCRA, once the party that furnished disputed information receives notice of a consumer dispute, a number of duties are triggered, which include:

  • An investigation of the disputed information;
  • Reviewing all relevant information provided by the consumer reporting agency;
  • Reporting the results of the investigation to the consumer reporting agency;
  • If the information is inaccurate, then reporting the inaccuracies to all other reporting agencies to which the person furnished the information; and
  • If the information proves inaccurate or unverified, either modifying, deleting, or permanently blocking the report of the information.

Id. § 1681s-2(b)(1).

The plaintiff received a mortgage loan from U.S. Bank.  Once the plaintiff began to fall behind on her payments, U.S. Bank reported that the mortgage was partially “charged off” because some of the debt had been “deemed uncollectible.”  The dispute arose regarding how U.S. Bank, as the furnisher of information concerning the plaintiff’s mortgage, allegedly furnished that information and failed to perform a reasonable investigation.

The plaintiff alleged that her “charged off” date was initially reported as August 2015.  Later on, however, the plaintiff alleged that this date changed to June 2016.  The plaintiff disputed the change with the agency, which forwarded the dispute to U.S. Bank.  U.S. Bank, however, continued to report the new date.

The plaintiff then filed suit.  The parties disagreed over how the date the plaintiff’s debt became “charged off” should be furnished to the credit reporting agency.  The plaintiff took the position that the date should not change, while the defendant argued that the date may, under some circumstances, be changed.  At the motion to dismiss stage, construing the pleadings in favor of the plaintiff, the court resolved the issue in favor of the plaintiff.

The court also found that the defendant’s conduct, at least as alleged by the plaintiff, willfully violated the FCRA.  Under the FCRA, a “reckless disregard of statutory duty” might prove willfulness.  Under that definition, the court stated that the defendant’s failure to investigate or fix the disputed date was alleged to be willful.  Further, the court stated that the defendant could not argue that it reasonably believed that its conduct was legal, pointing to a Seventh Circuit opinion that cautioned against amending a “charged off” date because it can “cause significant confusion and uncertainty for the consumer.”  Gillespie v. Equifax Info. Servs., L.L.C., 484 F.3d 938, 941 (7th Cir. 2007).  The court also stated that moving the “charged off” date by ten months was a plausible pecuniary harm, referencing the FCRA’s restriction on reporting information greater than seven years old.  Specifically, the court stated the plaintiff alleged “harm to her financial situation if it delayed the disappearance of the delinquent mortgage from her credit report.”

As CPW readers know, when a furnisher of credit information receives notice from a credit reporting agency (CRA) that a consumer has disputed the accuracy or completeness of information that the furnisher provided, the furnisher must investigate the dispute, review all relevant information it received from the CRA, and report the investigative results to the CRA.  See 15 U.S.C. § 1681s-2(b).  A consumer faces an exceedingly low bar to state a claim against a furnisher for a breach of this duty under the Fair Credit Reporting Act (“FCRA”), as illustrated by a Florida federal trial court’s November 6 ruling. [1]

Earlier this year, the plaintiff in Harris obtained her credit report from two CRAs, which indicated that she had an “account in dispute.”  The plaintiff then sent a letter to the CRAs, requesting that they remove the notation from her credit report, and the CRAs forwarded the plaintiff’s request to the furnisher of that information.  The furnisher verified that the notation was accurate.

When the plaintiff obtained another credit report and noticed that it still indicated an “account in dispute,” however, the plaintiff filed suit against the CRAs and the furnisher, alleging in relevant part that the furnisher had negligently and willfully violated the FCRA by failing to properly investigate her dispute or review the letters she sent the CRAs.  The plaintiff alleged injury due to damaged credit and emotional well-being.

The furnisher filed a motion to dismiss, on the ground that the complaint failed to state a claim against the furnisher under the FCRA, and that the plaintiff’s allegations regarding damages and causation were legally insufficient.  To survive a motion to dismiss, a complaint must meet the standards set forth in Rule 8(a) of the Federal Rules of Civil Procedure, which requires merely “a short and plain statement of the claim showing that the [plaintiff] is entitled to relief” and “a demand for the relief sought.”  Here, the U.S. District Court for the Middle District of Florida found that the plaintiff’s complaint met the Rule 8(a) standard, and therefore denied the furnisher’s motion.

In particular, the court noted that the plaintiff “explicitly allege[d] in her complaint” that:

  • The furnisher “failed to conduct a proper investigation”;
  • The furnisher “failed to review all relevant information available to it and provided by [third parties]”; and
  • Plaintiff suffered harm to her credit and personal wellbeing as a result.

As such, “[n]othing more is required to survive a motion to dismiss,” the court held.  Of course, whether the plaintiff’s claims have merit after surviving dismissal is a question for another day.  Stay tuned.

 

[1] Harris v. Equifax Information Services, LLC, et al.

In a new and critical ruling, the Eleventh Circuit Court of Appeals just held that business has a “legitimate business need” to pull a credit report any time it is responding directly to a consumer-initiated request—even if that consumer is not who he purports to be.  This ruling provides a much needed clarification to one of the Fair Credit Reporting Act’s (“FCRA”) most often used permissible purposes,  “legitimate business need.”

In Domante v. Dish Networks, L.L.C., No. 19-11100, 2020 U.S. App. LEXIS 28682, at *7-8 (11th Cir. Sept. 9, 2020), the Eleventh Circuit affirmed summary judgment for a satellite TV provider, finding that it had a “legitimate business need” for obtaining a consumer report to verify the identity of a person applying for satellite TV services.  This case, however, was not the first time the parties had encountered one another.  Prior to this suit, the plaintiff (a repeat victim of identity theft) and the defendant had settled a previous lawsuit stemming from the fraudulent use of the plaintiff’s identity to open an account with the defendant.  Pursuant to that settlement, the defendant agreed to flag any future applications using the plaintiff’s identity—specifically, the plaintiff’s first and last names, date of birth, and Social Security number—and preclude opening an account in plaintiff’s name.

Several years later, in the events that prompted this suit, someone attempted to fraudulently register for satellite TV services using a limited amount of the plaintiff’s personal information.  Specifically, the applicant provided only the last four digits of the plaintiff’s Social Security number, her date of birth, and her first name.  The applicant provided a different last name, address, and phone number.  The defendant’s automated system submitted this information to a consumer reporting agency, which matched the applicant’s information to the plaintiff’s information and returned to the defendant a consumer report for the plaintiff.  Upon receipt of the report and after realizing this connection, the defendant rejected the fraudulent application and requested that the consumer reporting agency delete the credit inquiry it made for the plaintiff.

In affirming summary judgment that the defendant did not violate the FCRA, the Eleventh Circuit followed the Sixth Circuit’s lead in Bickley v. Dish Networks, LLC, 751 F.3d 724 (6th Cir. 2014).  In Bickley, the Sixth Circuit affirmed summary judgment for the same on a similar factual pattern:  the defendant had requested a consumer report for that plaintiff after receiving a fraudulent application.  Upon receiving the report, the defendant detected that the application was fraudulent and cancelled it.  The Sixth Circuit found that the defendant had a “legitimate business need” for obtaining the consumer report, which was “verifying the identity of a customer and assessing his eligibility for a service.”

The Eleventh Circuit found that the defendant had a “legitimate business need” because a consumer (the fraudulent applicant) initiated the transaction.  In doing so, the court rejected the plaintiff’s argument that the defendant did not have a “legitimate business need” due to its requirement under the settlement agreement to deny any future applications using the plaintiff’s information.  The court observed that at the time of the application, the applicant did not provide sufficient information such that the defendant would be aware of what was occurring.  The applicant provided only a first name, the last four digits of a Social Security number, and a date of birth.  He did not provide the correct last name or a complete Social Security number.  The defendant required the information presented in the consumer report to realize that the pending application was fraudulent and involved the plaintiff.

Domante has a few takeaways.  First, in what may be a prelude for cases to come, the court stated in a footnote that the FCRA does not require a user of consumer reports to “confirm beyond doubt” the identity of potential consumers prior to requesting a consumer report.  With the issue of what constitutes a “legitimate business need” picking up within the circuits, courts may find themselves determining whether the FCRA requires a certain level of due diligence prior to requesting a consumer report.  Second, the consumer initiating a request does not necessarily have to be the person he purports himself to be in order for the user to have a permissible purpose under the FCRA.  Missing from the court’s opinion is any indication that the identity of the consumer for purposes of a consumer-initiated transaction was relevant to the outcome.  Given the hodgepodge of information fraudulent consumers may supply, Domante suggests that users of consumer reports do not face increased liability under these circumstances.

Kenn v. Eascare, Civil Action No. 20-cv-10070-ADB, 2020 U.S. Dist. LEXIS 158820 (D. Mass. Sep. 1, 2020) is a Fair Credit Reporting Act (“FCRA”) standing case. Here, the Court concluded that a mere technical violation of the FCRA (specifically, the disclosure requirement) does not automatically confer standing. The Court also discusses Plaintiff Nicole Kenn’s (“Plaintiff”) insufficient pleading of an informational injury or invasion of privacy; ultimately dismissing Plaintiff’s FCRA allegations. What follows is the case background and a more detailed analysis.

On December 5, 2019, Plaintiff sued her previous employer, Eascare, LLC (“Eascare”), an Eascare manager, Mark E. Brewster (“Brewster”), and her former supervisor, Joseph Hughes (“Hughes”) (collectively, “Defendants”). Plaintiff’s lawsuit alleged four counts; including, Eascare and Brewster violating Massachusetts’ wage laws under Mass. Gen. Laws ch. 149, §§ 148, 150 (“Count I”), Eascare and Brewster engaging in sexual discrimination in violation of Mass. Gen. Laws ch. 151B, § 4 (“Count II”), and two violations of the Fair Credit Reporting Act (“FCRA”) as a result of running a background check on Plaintiff and others during the hiring process (“Count III” and “Count IV”). Notably, Plaintiff seeks to bring a class action against Eascare as a result of its alleged FCRA violations; however, before the Court in Kenn v. Eascare is Eascare’s motion to dismiss Counts III and IV for failure to state a claim, and Plaintiff’s motion to remand Counts I and II to state court.

Regarding Counts III and IV, Plaintiff alleges that, “Eascare violated the FCRA … by including a liability waiver and other extraneous language on [a] stand-alone disclosure form and by subsequently running a background check without proper authorization.” Plaintiff believes this allegation is a violation of the FCRA sufficient to constitute an injury “because her privacy was invaded.” Eascare, believing the opposite, argued that Plaintiff lacked standing to bring a claim because her alleged FCRA violations failed to show she suffered “a sufficiently concrete or particularized injury.”

In its analysis, the Court recognized that Plaintiff’s FCRA allegations stem from “two distinct, substantive rights that Congress sought to protect: first, an informational right, and second, a right to privacy.” With a split of authority as to whether a violation of the FCRA’s standalone disclosure or authorization requirements are sufficient to constitute a concrete harm, the Court here was unconvinced that Plaintiff’s allegations rose to the level required of an “informational injury.” In particular, the Court noted that, “Plaintiff has not alleged that she was confused by, or unaware of, the document she was signing and  Plaintiff’s conclusory allegations are insufficient to allow the Court to infer confusion or misapprehension.” Ultimately, the Court noted, “Plaintiff’s allegation of an informational injury fails because she has not alleged that … extraneous information, allegedly contained in the Disclosure Form, caused any actual confusion about whether her personal information would be made available for a background check.” The Court similarly held that because Plaintiff “consented to the [background check] and has not sufficiently pled that she suffered an informational injury in that she misunderstood the form … or the subsequent authorization, Plaintiff cannot sustain an argument for an invasion of privacy.” Accordingly, the Court granted Eascare’s motion to dismiss Counts III and IV because Plaintiff did not sufficiently allege, “confusion, distraction, or misunderstanding of the form [that she signed].”

With Plaintiff’s federal law claims dismissed, the Court chose not to exercise supplemental jurisdiction over the remaining state law claims and remanded the remaining counts to state court pursuant to 28 U.S.C. § 1367(c)(3).

A recent decision in the Eastern District of Pennsylvania confirms Third Circuit precedent that an employer’s failure to provide a consumer with notice of their rights under the Fair Credit Reporting Act (“FCRA”), as required by the FCRA, does not cause an injury-in-fact where the plaintiffs ultimately became aware of their rights and timely brought suit against said employer.  Where there is no injury-in-fact, there is no standing in Federal court under Article III of the Constitution and the claim must be dismissed.

The FCRA provides that before a potential employer takes “any adverse action based in whole or in part” on a consumer report, it must provide the person who is the subject of that report with a notice that includes a copy of the report and a summary of the consumer’s rights under the FCRA.  A denial of employment is an “adverse action” for FCRA purposes.

In Davis v. C&D Sec. Mgmt., No. No. 2:20-cv-01758-MMB, 2020 U.S. Dist. LEXIS 132291 (E.D. Pa. July 27, 2020), the lead plaintiff twice applied for employment as a security guard with defendant. The defendant denied plaintiff’s application for employment, allegedly without providing her with notice, a copy of her report and a summary of her rights under the FCRA.  The plaintiff then filed this action on behalf of herself and all other similarly situated applicants.

In answering, defendant contended that the plaintiff lacked Article III standing to bring her claims, asserting that plaintiff suffered no injury-in-fact from the alleged FCRA violation because plaintiff ultimately became informed of her rights and timely filed suit.  Plaintiff countered that it was premature to strike the class allegations.

Under Article III of the United States Constitution, the power of the judiciary extends only to “cases” and “controversies.”  The standing doctrine identifies what constitutes a “case” or controversy.” Courts have found that “in order to have standing, all claims must demonstrate an injury-in-fact, which the Third Circuit has defined as the ‘invasion of a concrete and particularized legally protected interest’ resulting in harm ‘that is actual or imminent, not conjectural or hypothetical.'”[1]  The Third Circuit has held that a bare procedural violation, divorced from any concrete harm, cannot satisfy the injury-in-fact requirement of Article III.  In this case, the defendant argued that because the plaintiff became aware of her rights and brought a timely lawsuit, any harm suffered for the alleged FCRA was a “bare procedural violation.” The court in Davis agreed.

The court found that even assuming that defendant failed to provide plaintiff with a summary of her FCRA rights, plaintiff ultimately became informed in time to file suit. Thus, plaintiff suffered no injury-in-fact and the court must dismiss the claim for lack of subject matter jurisdiction.  The court found that because plaintiff failed to establish her own standing, she may not seek relief on behalf of the putative class.   The court saw delaying the issue until class certification would be futile given that no additional showing of facts or discovery could cure the deficiencies relating to a lack of standing.

[1] Finkelman v. Nat’l Football League, 810 F.3d 187, 193 (3d Cir. 2016) (quoting Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 278 (3d Cir. 2014)).

The latest entry in a nearly decade-long dispute between a plaintiff and his former employer and manager, Mattiaccio v. DHA Grp., Inc., 2020 U.S. Dist. LEXIS 129464 (D.D.C. July 21, 2020) is an in-depth analysis of standing under the FCRA in the face of unclear pleading by a pro se litigant.

The Mattiaccio plaintiff was terminated by the defendants based on alleged misconduct.  The defendants claims that they performed pre- and post-employment background checks to investigate employee misconduct, which is normally exempt from the FCRA.  However, the plaintiff alleged that these background checks were retaliation for a complaint he had filed against the defendants.

Relevant to our interests, plaintiff brought two FCRA claims.  The first was an allegation that the defendants lacked “proper authorization” under Section 1681b(b)(2)(A) of the FCRA to perform the background checks, because the authorizations for the checks were not clearly formatted.  The court determined that this was a bare procedural violation insufficient to give plaintiff standing to bring this claim, as he failed to allege any actual injury from this unclear formatting.

The second claim was construed by the court as an allegation that the plaintiff did not authorize a post-employment background check under § 1681b(b)(2)(A), and was not given a summary of rights or a chance to review his consumer report before he was terminated based on the post-employment background check, in violation of § 1681b(b)(3)(A).

Defendants had plaintiff sign separate authorizations for each background check, and provided signed copies of both as evidence.  The plaintiff claimed that the signed authorization for the post-employment background check (the results of which were used to justify his termination) was falsified.  Because there was still a material factual dispute regarding the validity (rather than the formatting) of this authorization, the court determined that a defendant’s unauthorized obtaining of a consumer report was an injury in fact, giving plaintiff standing.

Likewise, the court rejected defendants’ argument that their failure to provide a summary of rights or permit the plaintiff to review the report before defendants terminated him was another bare procedural violation.  Defendants apparently did not dispute the violation, but instead argued that a plaintiff could not be injured if he sought only statutory and punitive damages without alleging that the information was false.  The court rejected this argument, finding that the purpose of these protections is to provide a right of review, regardless of accuracy.  Accordingly, plaintiff had standing to pursue this claim.

This case is now headed to trial.  The lesson here for employers?  Ensure that your authorizations and disclosures are clear, contain the appropriate scope for all investigations you might perform, and that you provide your employees with the information obtained from consumer reports before taking adverse action based on that information.