7th Circuit Weighs in on FCRA Preemption
The Seventh Circuit Court of Appeals issued an opinion this month upholding significant federal preemption under the Fair Credit Reporting Act. In Purcell v. Bank of America, the Court held that 15 U.S.C. 1681t(b)(1)(F) does not conflict with 15 U.S.C. 1681h(e) and therefore FCRA preempts all state law causes of action, whether based on statute or common law.
In Purcell, plaintiff filed a complaint in Indiana state court alleging that defendant Bank of America incorrectly reported that she was behind on loan payments. Defendant removed the case to federal court, then moved to dismiss. The district court held that plaintiff had no private right of action under 15 U.S.C. 1681s-2(a) and that plaintiff had not properly stated a cause of action under 15 U.S.C. 1681-2(b). Among other things, the district court rejected defendant's argument that 15 U.S.C. 1681t(b)(1)(F) preempts both statutory and common law claims arising out of credit reporting, and instead applied the statutory approach to FCRA preemption. Defendant appealed.
The 7th Circuit reversed, holding that 1681t(b)(1)(F) preempts all of plaintiff's state law causes of action. The Court rejected the district court's narrow interpretation of "laws" in the preemption provision of 1681t(b) to mean only state statutory claims and not state common law claims.
The Court also rejected the district court's conclusion that there is a conflict between the preemption provisions of 1681t(b)(1)(A) and 1681h(e). Specifically, the Court stated: ". . .we do not perceive any inconsistency between the two statutes. Section 1681h(e) preempts some state claims that could arise out of reports to credit agencies; §1681t(b)(1)(F) preempts more of these claims."
9th Circuit Affirms Preemption of CCRAA
In Carvalho v. Equifax Information Services, LLC, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of plaintiff's claim under California's Consumer Credit Reporting Agency Act (CCRAA), Civil Code 1785.1 et seq., as preempted by the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681t(b)(1)(F).
In Carvalho, plaintiff incurred medical bills of $118. Plaintiff's carrier denied coverage for the bills, plaintiff failed to pay, and the provider sent the balance to a collection agency. After collection efforts, plaintiff refused to pay the invoice, and the collection agency reported the debt to the CRAs. Plaintiff disputed the debt with the CRAs in a series of letters. The CRAs reinvestigated various times and the furnisher verified the debt after each reinvestigation.
Plaintiff filed a putative class action complaint against the furnisher and the CRAs in Monterey County Superior Court alleging violation of the California CCRAA. The Superior Court granted the furnisher's demurrer based on preemption of the CCRAA by the FCRA. The CRAs then removed the case to federal court based on the Class Action Fairness Act, 28 U.S.C.1332(d) (CAFA). Plaintiff moved to remand; the district court denied the motion. Plaintiff moved for class certification and for leave to amend her complaint; the district court denied plaintiff's motions and granted the CRAs' motions for summary judgment. Plaintiff appealed.
On appeal, plaintiff argued: (1) removal by the CRAs was untimely; (2) the Superior Court's order granting the furnisher's demurrer based on preemption was error; and (3) the district court's orders granting summary judgment and denying leave to amend were error.
The Ninth Circuit first held that removal was timely. The Court rejected plaintiff's arguments that defendants should have had notice of removability from pre-litigation settlement negotiations or from plaintiff's state court civil case cover sheet.
Regarding preemption, the Court held that the furnisher's CCRAA claim was preempted by the FCRA. The Court first noted that under Ninth Circuit caselaw, only California Civil Code 1725(a), and its accompanying private right of action provisions in sections 1785.25(g) and 1785.31, are exempted from FCRA preemption. Because plaintiff failed to argue section 1725(a) in opposition to the furnisher's demurrer, the Court held plaintiff had abandoned the argument and could not raise it on appeal. The Court then held that plaintiff's claim alleging inadequate investigation under section 1725(f) is preempted by FCRA.
Finally, the Court upheld the Orders granting summary judgment and denying plaintiff leave to amend.
New Furnisher Rules Effective July 1
The new rules for furnishers of credit reporting information take effect on July 1, 2010. Subject to several exceptions, the rules implement two significant changes for furnishers.
First, the rules require furnishers to implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information. Second, the rules require furnishers to conduct a reasonable investigation into disputes related to credit reporting submitted to a furnisher directly by a consumer. The Fair Credit Reporting Act rules now in place require such an investigation only after a furnisher receives notice of dispute from a credit reporting agency. Significantly, if a furnisher provides a specific correspondence address for such disputes, the furnisher need only respond to disputes submitted to that address.
New Duties for Furnishers Under Credit Reporting Rules
Pursuant to final agency rules implementing revisions to credit reporting regulations mandated by the Fair and Accurate Credit Transactions Act of 2003 ("FACTA"), significant changes to credit reporting rules will take effect on July 1, 2010.
Subject to several exceptions, the final new credit reporting rules for furnishers require furnishers to conduct a reasonable investigation into disputes related to credit reporting submitted to a furnisher directly by a consumer. The Fair Credit Reporting Act rules now in place require such an investigation only after a furnisher receives notice of dispute from a credit reporting agency. Significantly, if a furnisher provides a specific correspondence address for such disputes, the furnisher need only respond to disputes submitted to that address.
FTC Clarifies FDCPA-FACTA Conflict
In an Advisory Opinion, the Federal Trade Commission has clarified a statutory conflict between the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., and its regulations implementing the Fair and Accurate Credit Transactions Act of 2003 ("FACTA"), which added new sections to the Fair Credit Reporting Act, ("FCRA"), 15 U.S.C. § 1681 et seq.
Specifically, the the FDCPA provides that "if a consumer has notified a debt collector in writing that 'the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate with the consumer with respect to such debt' (with some exceptions not applicable here)." 15 U.S.C. § 1692c(c). Separately, FTC regulation implementing FACTA "requires furnishers of information to CRAs to report the results of a direct dispute to the consumer, 16 CFR § 660.4(e)(3), or notify the consumer if the furnisher determines the dispute is frivolous or irrelevant, 16 CFR § 660.4(f)(2)."
As written, a furnisher of credit information that contacts a debtor regarding a credit dispute investigation, as required by FTC FACTA regulations, could violate the cease-communication rules of the FDCPA. The FTC Opinion eliminates this conflict, providing:
a debt collector does not violate Section 805(c) of the FDCPA if the consumer directly disputes information after sending a written “cease communication” to the collector, and the collector complies with the Rule by means of a communication that has no purpose other than complying with the Rule by stating (1) the results of the investigation or (2) the collector’s belief that the communication is frivolous or irrelevant.
FCRA Preempts California Private Right of Action
In Liceaga v. Debt Recovery Solutions, LLC, the First District California Court of Appeal has held that the federal Fair Credit Reporting Act, 15 U.S.C. §1681 et seq. ("FCRA"), preempts the private right of action provision of California's Credit Reporting Agencies Act, Civ. Code §1785.1 et seq. ("CRAA").
Plaintiff Rebecca Liceaga was the apparent victim of identity theft. Her identity was used to open a Sprint cell phone account without her knowledge. When the account became delinquent, Sprint assigned the debt to defendant Debt Recovery Solutions, LLC, which eventually reported the delinquency to credit reporting agencies, despite plaintiff's protests that the debt was the result of identity theft. Plaintiff sued, alleging a violation of California's CRAA. The trial court granted defendant's motion for judgment on the pleadings on the grounds that FCRA preempts any private right of action under CRAA. Plaintiff appealed.
On appeal, the First District affirmed. Although section 1681t(b) of FCRA preempts any state law "relating to the responsibilities of persons who furnish information to consumer reporting agencies...", plaintiff asserted that California's CRAA was specifically exempted from that preemption provision, along with a similar statute in Massachusetts. The Court disagreed, holding that the California exemption to FCRA preemption applied only to Civil Code section 1785.25(a), not to section 1785.25 generally. The Court also rejected plaintiff's assertion that the language of the FCRA preemption provision should be interpreted broadly to allow a consumer in any state to bring a private state law right of action.
The Court of Appeal held that FCRA preempts the California CRAA private right of action against a "furnisher" of credit information.
