Consumer Finance Class Actions: FCRA and FACTA Leveraging New - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Consumer Finance Class Actions: FCRA and FACTA Leveraging New Developments in Certification, Damages and Preemption WEDNESDAY, MARCH 21, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Barry Goheen, Partner, King & Spalding , Atlanta Donna L. Wilson, Partner, Buckley Sandler , Santa Monica, Calif. James A. Francis, Atty, Francis & Mailman , Philadelphia The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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FCRA AND FACTA CLASS ACTIONS Legal Counsel to the Financial Services Industry DONNA L. WILSON

GENERAL OVERVIEW: FCRA  The Fair Credit Reporting Act ( “ FCRA ” ), 15 U.S.C. § 1681 et seq ., protects consumer credit rights by regulating the collection, dissemination, and use of consumer credit information: – § 1681b(c)(1) prohibits consumer reporting agencies (“CRA”) from furnishing consumer credit information in transactions not initiated by, and without the consent of, the consumer except when the request is made in connection with a “ firm offer of credit or insurance. ” – § 1681m(d)(1) requires businesses obtaining consumer credit information to make certain disclosures to the consumer, including that the consumer satisfied the criteria for the credit or insurance offered at the time of solicitation and that the consumer may opt out. 6

GENERAL OVERVIEW: FACTA  The Fair and Accurate Credit Transactions Act ( “ FACTA ” ), enacted December 4, 2003, amended FCRA to add the “ truncation requirement ” : – § 1681c(g)(1): “ Except as otherwise provided in this subsection, no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of sale or transaction. ” (Emphasis added.) – § 1681n and § 1681o provide to individual consumers a cause of action for willful and negligent violations of the truncation requirement. 7

PREEMPTION OF STATE LAWS  Generally, FCRA preempts only those state laws dealing with collection, distribution, or use of information about consumers to the extent the state law is inconsistent with federal law ( § 1681t(a)).  Nevertheless, FCRA contains a number of exceptions to the general rule in which a state law is preempted although it is consistent with FCRA ( § 1681t(b)).  The relationship between § 1681t(b)(1)(F), added in 1996, and the prior-existing § 1681h(e) is frequently litigated. 8

PREEMPTION OF STATE LAWS (cont.)  Section 1681(b)(1)(F) vs. Section 1681h(e) – 15 U.S.C. § 1681(b)(1)(F): preempts all state law claims relating to the responsibilities of any persons who furnish information to consumer reporting agencies. – 15 U.S.C. § 1681h(e): expressly prohibits any defamation, invasion of privacy or negligence action by a consumer against a CRA, any user of information, or any person who furnishes information to a CRA with respect to reporting of information except as to false information furnished with malice or willful intent to injure consumer. – Different courts reconcile these sections in multiple ways, with three major approaches. 9

PREEMPTION OF STATE LAWS (cont.)  Approach 1: The Total Preemption View – Some courts have held that § 1681(b)(1)(F) rendered § 1681h(e) useless by subsuming it entirely, preempting all state claims against furnishers of credit information.  Purcell v. Bank of Am. , 659 F.3d 622 (7th Cir. 2011): – First appellate decision addressing issue squarely. – Held: § 1681h(e) created no right to recover for willfully false reports but merely did not preempt such claim, and the addition of § 1681(b)(1)(F) demonstrated Congressional intent to preempt all state claims. – But : other courts have noted the total preemption approach renders § 1681h(e) superfluous in violation of cardinal rule of statutory construction. 10

PREEMPTION OF STATE LAWS (cont.)  Approach 2: The Statutory View – Other district courts have found that § 1681(b)(1)(F) preempts only those state law claims arising from statute, while common law claims for defamation, invasion of privacy, and negligence are preempted by § 1681(h)(e) unless based on malicious or willful intent to injure the consumer. – But : courts criticizing this view note that the Supreme Court has held “state law” refers to both common and statutory law, and that the legislative history of § 1681(b)(1)(F) demonstrates intent to establish uniform regulations, which may arise from statute or common law. 11

PREEMPTION OF STATE LAWS (cont.)  Approach 3: The Temporal View – Still other district courts have held that § 1681(b)(1)(F) only preempts state-law claims arising from acts occurring after the credit information furnisher knew, or should have known, the information was inaccurate.  Based on § 1681s-2(b), which refers to duties after the furnisher is aware of a dispute regarding accuracy.  Claims arising before furnisher knew the information was inaccurate are subject only to qualified preemption under § 1681h(e). – But : courts criticizing this approach note it paradoxically immunizes furnishers with knowledge of the inaccuracy while leaving those acting without such knowledge exposed to potential common-law liability. 12

PREEMPTION OF STATE LAWS (cont.)  State laws are preempted by § 1681t(b) of FCRA if they impose requirements or prohibitions on: – Exchange of information among affiliated companies – Information that may be included in credit reports – Responsibilities of persons who furnish information to credit bureaus – Duties of persons providing adverse action notices due to use of credit reports – Procedures credit bureaus must follow when responding to consumer disputes – Prescreening activities based on credit reports – Form and content of the summary of consumer rights distributed by credit bureaus 13

PREEMPTION OF STATE LAWS (cont.)  State laws are preempted by § 1681t(b) of FCRA if they impose requirements or prohibitions on (cont.): – Fraud alerts in consumer credit files – “ Red flag ” procedures for identifying possible instances of identity theft – Blocking information resulting from identity theft – Truncating credit card and debit card account numbers – Truncating social security numbers on credit reports to consumer – Debt collector notice of fraudulent information – Coordination of identity theft complaint investigations – Prohibiting the sale of debt caused by identity theft 14

PREEMPTION OF STATE LAWS (cont.) Certain state laws are expressly saved from preemption ( §  1681t(b)(1)(F)): California Civil Code § 1785.25(a) and Massachusetts Annotated Laws, – Ch. 93, § 54A(a), both prohibiting a person from furnishing information to a CRA that the person knows to be incomplete and inaccurate But see Liceaga v. Debt Recovery Solutions, LLC, 86 Cal.Rptr.3d 876 – (Cal. Ct. App. 2008) (holding that exemption to FCRA preemption applies only to Cal. Civ. Code § 1785.25(a) and subsection creating private cause of action is preempted) and Leet v. Cellco P’ship , 480 F. Supp. 2d 422 (D. Mass. 2007) (FCRA’s failure to preempt subsection creating cause of action under Ch. 93, § 54A(a) is fatal to private claim). Compare Catanzaro v. Experian Info. Solutions, Inc. , 671 F. Supp. 2d – 256 (D. Mass. 2009) (subsection of Mass. Ann. Laws, Ch. 93, § 54A creating private cause of action is neither “requirement” nor “prohibition” but merely mechanism of enforcement, and is not preempted). 15