Earlier this year, we wrote that the Consumer Financial Protection Bureau (CFPB) reported a not-so-smooth transition to aggressive compliance activities in 2022 after a long period of flexibility during the COVID-19 pandemic (link). The Fair Credit Reporting Act (FCRA) is one of many consumer financial laws that have come directly into the CFPB’s sights in the first half of 2022. In a series of amicus briefs, advisory opinions and interpretive rules, the CFPB has communicated new positions that significantly raise the bar for FCRA compliance and limit the preemption of state law, even going so far as to take positions that contradict longstanding court precedent. These ongoing developments will be worth watching as we move forward into the second half of 2022 and beyond.
The CFPB is a federal agency created in 2010 that is responsible for consumer protection in the financial sector. In this capacity, the CFPB regulates banks, mortgage lenders, mortgage and loan servicers, credit reporting agencies and debt collectors, among other things, by establishing rules, informal written advice and investigating consumer complaints.
The FCRA was enacted by Congress in 1970 to, among other things, ensure “a fair and accurate credit report” that is “essential to the continued operation of the banking system.” See 15 USC § 1681(a)(1). The FCRA imposes obligations on providers of credit information (Section 1681s-2), users of credit information (Sections 1681b and 1681m) and consumer reporting agencies (Sections 1681b, 1681c, 1681e and 1681i).
The orientations of the CFPB in 2022
To date in 2022, the CFPB has taken the following positions vis-à-vis the FCRA:
- Investigations of “legal” disputes. In an amicus brief filed with the United States Court of Appeals for the Eleventh Circuit in April (link), the CFPB has taken the position that providers are required by FCRA Section 1681s-2 to investigate credit reporting disputes that raise “legal” issues (for example, whether the borrower has a debt). This position is at odds with a long line of Federal Court precedents that providers are required to investigate only disputes of factual inaccuracy. In support of its position (which reiterated a similar position taken in an amicus brief in 2021), the CFPB argued that the previous precedent had been “ill-decided” because (a) the text of the FCRA does not distinguish between legal and factual disputes, (b) credit information providers (such as loan servicers) are able to assess legal issues, and c) in practice it may be difficult to distinguish between factual and legal issues. Whether the Eleventh Circuit will adopt the CFPB’s position remains to be seen. However, even if the CFPB’s position is rejected by the Eleventh Circuit, there is no indication that the CFPB will stop there. The CFPB appears to be focused on dramatically expanding the scope of credit reporting and investigation of disputes that may give rise to FCRA claims against vendors under section 1681s-2(b). The end result could be the creation of a split between federal circuits that take the CFPB position (extend enforcement to legal disputes) and those that do not (limit civil enforcement to factual inaccuracies).
- Preemption of state law. In an interpretative rule published in June (link), the CFPB has also taken the position that the scope of the FCRA’s preemption over state laws is “narrow” and “targeted.” Section 1681t of the FCRA generally provides that the FCRA prevails over inconsistent state laws, and federal courts have long relied on this section to hold that state law claims covering the same subject matter as that regulated by the FCRA are preempted. . In its new rule, however, the CFPB confirms its belief that the state can — and should — enact stricter laws than the FCRA, and even goes so far as to suggest that state law prohibits certain credit information. (for example, prohibiting reporting of medical debts, evictions or rent arrears) would not be anticipated. While the new rule may lead to stricter regulation of the credit reporting industry at the state level, it remains to be seen how – or if – the courts will change their interpretation of the FCRA’s preemption to the light of the CFPB’s interpretation.
- “Authorized objective.” In an advisory opinion published this month (link), the CFPB recently focused on the “permitted purpose” requirement of FCRA Section 1681b. Section 1681b lists the circumstances under which a consumer reporting agency may provide a credit report to the information user, and under which a user may request a report from a consumer reporting agency, including when the user has a “permitted purpose” for requesting the report (for example, when the user “intends to use the information in connection with a credit transaction involving the consumer”). With respect to consumer reporting agencies, the CFPB Opinion imposes additional obligations by stating that an agency is in breach of the “permitted purpose” provision if its faulty procedures result in the agency providing information on the bad consumer. Similarly, with respect to users, the CFPB has taken the remarkable step of rejecting the “reason to believe” standard applied by the courts to determine whether the user had a “permitted purpose”, which is a common defense. to the liability of the FCRA in the context of identity. claims for theft. This notice potentially expands the scope of the FCRA’s liability by imposing “strict prohibitions” on consumer reporting agencies and information users, but only time will tell if courts follow CFPB guidelines.
The CFPB has confirmed it is focusing on the FCRA at every turn throughout the first half of 2022. The common thread of CFPB guidance has been enhanced obligations – narrowing the preemption of state law and expanding investigations and permitted purpose obligations. Consumer reporting agencies, providers and information users will be advised to continue to monitor CFPB activity, as the CFPB is sure to continue issuing FCRA guidance throughout 2022 and into in 2023. However, while the CFPB guidelines are relevant to regulatory compliance under the current CFPB regime, it remains to be seen whether courts interpreting the FCRA will follow the CFPB guidelines. In each of the cases identified in this article, it would require courts to break with long-standing precedent, which can be time-consuming and result in circuit splits that only serve to increase uncertainty and litigation costs.