Fair Credit Reporting Act Litigation: Emerging Trends Under a - - PowerPoint PPT Presentation

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Fair Credit Reporting Act Litigation: Emerging Trends Under a - - PowerPoint PPT Presentation

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Fair Credit Reporting Act Litigation: Emerging Trends Under a Dangerous Statute Teleseminar 25 September 2013 Sherri A. Affrunti Paul Bond Wanda G. Holloway Partner, Princeton Partner, Princeton Partner, Houston +1 609 514 5950 +1 609 520

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Fair Credit Reporting Act Litigation: Emerging Trends Under a Dangerous Statute

Teleseminar 25 September 2013

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Sherri A. Affrunti Partner, Princeton +1 609 514 5950

saffrunti@reedsmith.com

Paul Bond Partner, Princeton +1 609 520 6393 pbond@reedsmith.com Wanda G. Holloway Partner, Houston +1 713 469 3814 wholloway@reedsmith.com Timothy P. Law Partner, Philadelphia +1 215 241 1262

tlaw@reedsmith.com

Travis P. Nelson Counsel, Washington, D.C. +1 202 412 9200; +1 609 524 2038 tnelson@reedsmith.com

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Topics

  • Examinations and Enforcement: Because of the policy implications and

political sensitivities of consumer information sharing, federal regulators have increased their scrutiny of users and distributors of consumer

  • information. We will review recent FTC and CFPB enforcement actions,

regulators’ expectations for FCRA compliance, and how to survive a regulatory examination or enforcement action.

  • Big Data: In the age of predictive analytics, more information than ever

before can be used – or misused – to make key employment, credit, and insurance decisions. We will explain the regulatory drive to expand the FCRA and what it means to businesses that have never before considered themselves consumer reporting agencies.

  • Employee Screening Processes: Every company has employees, and

most companies use and/or contribute to employment screening processes. These processes have become flashpoints for litigation and regulation. We will discuss the issues, liability theories, and best practices.

  • Insurance: We will also address the insurance coverage potentially

available when faced with an investigation or litigation arising from alleged FCRA violations.

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Examinations & Enforcement

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Federal Agencies – Who are the Players?

  • Federal Trade Commission
  • “Vigorous enforcement of the FCRA is a high priority for the

Commission.” – Maneesha Mithal, Assoc. Director, Div. of Privacy and Identity Protection, FTC (May 7, 2013)

  • Consumer Financial Protection Bureau
  • “To ensure compliance, the agency pursues an aggressive enforcement

program aimed at the main players in the credit reporting system – credit reporting agencies, those who send them information, and consumer report users.”

  • Shared enforcement scheme
  • Overlapping jurisdiction
  • Memorandum of Understanding

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Federal Trade Commission

  • Scope of enforcement authority
  • Who is covered? What relief can agencies seek?
  • U.S. v. HireRight Solutions
  • In re Filiquarian Publishing, LLC
  • “Test-Shopping” Operation

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Consumer Financial Protection Bureau

  • Scope of enforcement authority
  • Who is covered? What relief can agencies seek?
  • Credit reporting agencies as “larger participants”
  • “Credit reporting companies exert great influence over the lives of
  • consumers. They help determine eligibility for loans, housing, and

sometimes jobs. Consumers need an avenue of recourse when they feel they have been wronged.” – Richard Cordray, Director, CFPB

  • CFPB Bulletin 2013-09 (Sept. 2013) – Supervisory

expectations

  • Furnishers of Information – Duty to Investigate
  • Distinctions: Disputes through a CRA vs. Direct disputes

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Surviving an Examination or Enforcement Action

  • Understand the law and agency expectations
  • Design and implement a robust compliance system
  • Identify and remediate problems
  • Cooperate with agency examiners and enforcement counsel

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Big Data

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What is ‘Big Data’?

  • Roughly 90 percent of all the digital data in the world has been

created in the past two years

  • These data sets are:
  • Very large, even by modern standards
  • Diverse, encompassing many data elements, often relating to different

topics

  • Unstructured – frequently, the data sets are really data dumps

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What is ‘Big Data’? (cont.)

The term “Big Data” encompasses:

  • Any use of improved analytic tools . . .
  • To draw actionable information . . .
  • From very large, diverse, and/or unstructured data sets
  • The term “Predictive Analytics” refers to a subset of Big Data

projects – just those that aim to forecast what choices people will make

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What Kinds of Human Behavior Are Possible to Predict?

  • Whether a customer will switch from one type of credit card to

another if made the offer

  • Whether a customer is likely to discuss a company on social

media following a favorable transaction

  • How likely a customer is to research a big-ticket item after a

neighbor buys one

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What Kinds of Human Behavior Are Now Possible to Predict?

  • Whether a customer will default on his or her credit card

payments

  • Whether the customer is likely to get a divorce in the immediate

future

  • Whether the customer is looking for a new job, and/or is afraid
  • f losing a current job

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How Do Big Data and Predictive Analytics Intersect with the FCRA?

  • Consumer Reports are at the heart of the FCRA
  • A Consumer Report is defined as: “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” 15 USC § 1681a (emphasis added)

  • More and more information can be used to draw conclusions
  • n those issues

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How Will the FTC Adapt to the Age of Big Data?

  • Expanded enforcement of FCRA
  • Policing of known CRAs
  • Mystery shopping to identify new alleged CRAs
  • Urging broad understanding of what “consumer reports” mean
  • Attacking anonymization as an “out” from data qualifying as a

Consumer Report

  • Relying as a backup on FTC Act to police data brokers whose

data impact decisions important to people’s lives

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Employee Screening Processes

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Complying with FCRA in the Employment Context

  • FCRA requires employers to follow notice and disclosure procedures when
  • btaining or using Consumer Reports or Investigative Consumer Reports

from third-party Consumer Reporting Agencies

  • “Consumer Reports” may include information related to criminal background checks, credit

checks, educational history, employment history, driving and other license records, and general reputation or character that is used as a factor when considering an individual’s eligibility for hire, promotion or other employment actions, including investigations

  • “Investigative Consumer Reports” are a specific type of Consumer Report containing

information on these subjects that is obtained through personal interviews with neighbors, friends, or other people who may have knowledge concerning any such items of information

  • Many types of Consumer Reporting Agencies, including credit bureaus as well as data

collection agencies mining the internet through social media

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Complying with FCRA – Before Obtaining a Consumer Report

  • Notify employee or applicant in writing that a Consumer Report

may be obtained and used for employment purposes (hiring, retention, promotion, reassignment)

  • Obtain conspicuous written authorization from employee or

applicant prior to requesting a Consumer Report

  • Provide certification of compliance to the Consumer Reporting

Agency

  • Note special rules for requesting Investigative Consumer

Reports and for using Reports during Investigations

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Complying with FCRA – Before Taking an Adverse Action

  • Notify employee or applicant that a Consumer Report has been
  • btained and that adverse action may be taken on the contents of

the report

  • Provide FCRA Summary of Rights and a copy of the Report upon

which the decision may be based

  • Allow for reasonable opportunity for candidate or employee to notify

company of inaccuracies or otherwise dispute the Report contents

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Complying with FCRA – After Taking an Adverse Action

  • Notify employee or applicant in writing that adverse action has been

taken based upon the full or partial contents of a Consumer Report

  • Include name, address, telephone number of the Consumer Reporting

Agency that furnished the Consumer Report

  • Inform employee or applicant of his or her rights under FCRA, including

the right to dispute accuracy or completeness of the Consumer Report

  • Inform employee or applicant of right to obtain a free copy of the

Consumer Report from the Consumer Reporting Agency if requested within 60 days

  • Provide a statement that the Consumer Reporting Agency did not make

the adverse action decision and cannot provide information as to the reasons for the adverse action

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FCRA Remedies for Non-Compliance

  • Private cause of action against an employer for “willfully” or

“negligently” failing to comply with FCRA

  • Potential Damages:
  • Negligent violations: (i) actual damages; and (ii) attorneys’ fees and costs
  • Willful violations: (i) actual damages or statutory damages between $100 and

$1,000; (ii) punitive damages; and (iii) attorneys’ fees and costs

  • Statute of Limitations: earlier of (i) two years after date on which

employee discovered a violation; or (ii) five years after date of alleged violation

  • The Consumer Financial Protection Bureau, Federal Trade

Commission, other agencies, and the states may sue employers for non-compliance and obtain civil penalties available under various statutory schemes

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Technical Violations Provide Fertile Ground for Class Actions Involving FCRA and Background Checks – Recent Cases

  • In March 2011, in Illinois federal court, a transit operator agreed to pay

$5.9 million to settle two separate lawsuits filed by 150,000 job applicants and employees who claim that the company did not obtain their authorization prior to conducting criminal background checks

  • In February 2013, in Virginia federal court, a national retail store chain

agreed to pay $3 million to settle a lawsuit filed on behalf of 60,000 job applicants who claimed that their applications were denied based on criminal background reports without being provided an opportunity to challenge the reports

  • In March 2013, in Maryland federal court, a national pizza chain agreed to

pay $2.5 million to settle a lawsuit filed by a class of delivery drivers claiming that they had been denied employment or discharged based on “motor vehicle history” checks conducted by the employer

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Technical Violations Provide Fertile Ground for Class Actions Involving FCRA and Background Checks – Recent Cases

(cont.)

  • In April 2013, in Tennessee federal court, a major trucking company agreed to

pay $2.75 million to settle a lawsuit filed by a class of applicants claiming that the employer failed to obtain authorization from the applicants before conducting background checks, notify the applicants of their rights to obtain a free copy of the consumer report, and provide proper notices to the applicant before rejecting their applications

  • In March 2013, in Pennsylvania federal court, a putative class of job applicants

filed a lawsuit against a national pharmacy chain claiming that the employer improperly created and maintained reports based on information collected through searches of third-party databases

  • In July 2013, in Virginia federal court, a purported class of 10,000 job applicants

sued a major trucking company claiming that the employer “did not advise the plaintiff prior to the procurement of his consumer report, that he could receive a free copy of the consumer report within 60 days, and that he could dispute the accuracy or completeness of any information contained within the consumer report with the consumer reporting agency”

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Best Practices

  • Review FCRA notice and authorization forms to ensure compliance with the

changes that took effect in 2013

  • Assure appropriate and conspicuous authorization is obtained before requesting

a Consumer Report

  • Provide each disqualified individual with pre-adverse action notice, a copy of the

Consumer Report and FCRA notice of rights, as well as a reasonable

  • pportunity to respond to or dispute the contents of the Report
  • Provide HR representatives and managers with comprehensive training

regarding FCRA and similar state laws, and the company’s policies and procedures relating to background checks

  • Assure that HR and other representatives are complying with FCRA

requirements through continuous and periodic audits of the processes

  • Engage FCRA-knowledgeable vendors when requesting Consumer Reports
  • Beware intersection of various federal and state laws and passage of new

governing legislation before requesting Reports and using Report contents adversely

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Insurance

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General Liability Coverage for FCRA Claims

  • Personal and Advertising Injury
  • Defamation
  • Violation of right to privacy
  • Exclusions
  • Willful violations of statutes
  • Penal statutes
  • Statutes involving distribution of material
  • Employment-related practices

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D&O and E&O Coverage for FCRA Claims

  • Wrongful Acts
  • Broadly defined in D&O
  • E&O, usually limited to particular services
  • Exclusions
  • Usually require “final adjudication”

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Precedent – Very Positive

  • Duty to Defend
  • Fieldstone Mortgage
  • Sunshine Corporation
  • Pietras

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Sherri A. Affrunti Partner, Princeton +1 609 514 5950

saffrunti@reedsmith.com

Paul Bond Partner, Princeton +1 609 520 6393 pbond@reedsmith.com Wanda G. Holloway Partner, Houston +1 713 469 3814 wholloway@reedsmith.com Timothy P. Law Partner, Philadelphia +1 215 241 1262

tlaw@reedsmith.com

Travis P. Nelson Counsel, Washington, D.C. +1 202 412 9200; +1 609 524 2038 tnelson@reedsmith.com

Questions?

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