Consumer Compliance Outlook: First Issue 2017

On the Docket: Recent Federal Court Opinions


The Fifth Circuit addresses ECOA liability of secondary market assignees.

Alexander v. AmeriPro Funding, Inc., PDF External Link 848 F.3d 698 (5th Cir. 2017). ECOA and Regulation B prohibit creditors from discriminating against credit applicants on a prohibited basis for any aspect of a credit transaction, including whether any part of an applicant’s income is derived from income received from a public assistance program. 15 U.S.C. §1691(a)(2); 12 C.F.R. §1002.1. Twelve individuals filed a lawsuit against defendants AmeriPro Funding, Inc. and Wells Fargo Bank, NA (as well as a third defendant, a second national bank, which settled the claims that were brought against it) alleging that they were discriminated against when applying for residential mortgage loans because they received Section 8 housing assistance.

Defendant Wells Fargo both originates loans as a creditor and acquires them in the secondary market from lenders such as defendant AmeriPro. Wells Fargo’s publicly available secondary-market investor guidelines, which correspondent lender AmeriPro followed regarding loans that it intended to sell to Wells Fargo, indicated that it would not purchase loans underwritten, in whole or in part, based on Section 8 income.

Two of the 12 plaintiffs applied directly to Wells Fargo for credit (Wells Fargo Applicants), four applied directly to AmeriPro (AmeriPro Applicants), and six inquired about loans from AmeriPro but did not complete applications (AmeriPro Inquirers). The district court dismissed all 12 plaintiffs’ claims for failure to state a claim upon which relief could be granted. On appeal, however, the Fifth Circuit affirmed the lower court’s dismissal of Wells Fargo Applicants’ and AmeriPro Inquirers’ claims but reinstated some of the AmeriPro Applicants’ claims and remanded them for further proceedings consistent with its opinion.

The Wells Fargo applicants alleged that defendant Wells Fargo violated ECOA because its investor guidelines specifically state that it will not purchase loans underwritten with reliance on Section 8 income. However, the court found that the guidelines applied to Wells Fargo secondary market residential mortgage purchases and were not relevant here given that these plaintiffs applied directly to Wells Fargo.

Reviewing the AmeriPro Inquirers’ claims, the court found that ECOA only permits an “aggrieved applicant” to bring a private cause of action and that individuals who inquire about loans without actually applying for them do not qualify. The court added that Regulation B’s prohibition against discouraging — on a prohibited basis — applications for credit, 12 C.F.R. §1002.4(b), provides for no equivalent private cause of action and could solely be enforced by administrative agencies.

The court reinstated the AmeriPro Applicants’ claims that plausibly alleged that defendant AmeriPro denied their credit applications on the grounds that they received public assistance. However, it rejected their additional claims that defendant Wells Fargo violated ECOA because its secondary-market policy of not purchasing mortgages underwritten in reliance on Section 8 income resulted in defendant AmeriPro’s primary-market discrimination against applicants with such income.

Under ECOA, loan assignees are liable only if they participate in the credit decision or have knowledge of the violation. Referencing a 2003 ECOA rulemaking (“The final rule clarifies that the definition of creditor includes those who make the decision to deny or extend credit, as well as those who negotiate and set the terms of the credit with the consumer. But a potential as-signee who establishes underwriting guidelines for its purchases but does not influence individual credit decisions is not a creditor” (emphasis in original)), the court stated: “The AmeriPro Applicants fail to state a claim against Wells Fargo because they fail plausibly to allege that Wells Fargo ‘participate[d]’ in the decision to extend credit. They make no allegations whatsoever concerning Wells Fargo’s alleged ‘participation’ other than pointing out that Wells Fargo had a policy in the secondary market of not purchasing mortgages that were originated by someone else in the primary market based on Section 8 income. Again, this policy does not violate any prohibition under the ECOA. The ECOA does not apply, and does not purport to apply, to arms-length transactions in the secondary mortgage market” (emphasis in original).


The Ninth Circuit rules that an employer violates the FCRA by combining an employment application consumer report disclosure with a liability waiver.

Syed v. M-I, LLC, PDF External Link 853 F.3d 492 (9th Cir. 2017) (amended opinion). Under the FCRA, a party, including a prospective employer, which seeks to obtain a consumer report “for employment purposes with respect to any consumer,” including a job applicant, must provide a disclosure that “a consumer report may be obtained for employment purposes” and obtain the applicant’s written authorization. The disclosure must appear in a document consisting solely of the disclosure, although it may also include the authorization. 15 U.S.C. §1681b(b)(2)(A).

When the plaintiff applied for employment, the defendant provided the required disclosure (and the authorization) but combined it with a waiver of liability. The plaintiff, who brought suit on behalf of himself and any other plaintiffs allegedly similarly affected by the defendant employer and the defendant company that obtained consumer reports on the employer’s behalf, alleged that this conduct violated the FCRA. The district court dismissed the lawsuit for failure to state a claim upon which relief could be granted, but on appeal, the Ninth Circuit reversed.

The court was not persuaded by the employer’s argument that the FCRA permitted employers to combine the authorization with disclosure because “the disclosure and authorization requirements fit hand in glove” to protect consumers against improper invasions of privacy. The court also determined that also including a liability waiver on the document “pulls the applicant’s attention away from his privacy rights protected by the FCRA by calling his attention to the rights he must forego if he signs the document.” Noting that the FCRA allows for actual damages in the event of negligent violation of FCRA requirements regarding obtaining and using consumer reports, 15 U.S.C. §1681o, the court determined that the plaintiff instead had recourse to the statutory damages, punitive damages, and attorney’s fees and costs associated with a willful violation, 15 U.S.C. § 1681n. Explaining that “[t]he FCRA’s employment disclosure provision ‘says what it means and means what it says,’” the court remanded the case to the district court for further proceedings consistent with its opinion.

The Seventh Circuit finds that the plaintiff alleging a FACT (Fair and Accurate Credit Transactions Act of 2003) Act violation without suffering harm lacks legal standing.

Meyers v. Nicolet Restaurant of De Pere, LLC, PDF External Link 843 F.3d 724 (7th Cir. 2016). The FACT Act’s identity theft-related amendments to the FCRA prohibit printed receipts provided for credit and debit card transactions at the point of sale or transaction from displaying more than the last five digits of the card number or the expiration date. 15 U.S.C. §1681c(g)(1).

The plaintiff brought a class action on behalf of himself and similarly situated patrons against the defendant restaurant after it printed his credit card’s expiration date on his receipt. The district court denied the plaintiff’s motion for class certification. On appeal, the Seventh Circuit vacated the district court’s judgment and remanded the matter for dismissal due to a lack of jurisdiction. In particular, the court determined that the plaintiff lacked Article III legal standing under the Supreme Court’s decision in Spokeo, Inc. v. Robins, PDF External Link 136 S.Ct. 1540 (2016), which held that a plaintiff must allege more than a “bare procedural violation, divorced from any concrete harm … [s]uch an injury ‘must be ‘de facto’; that is, it must actually exist.’”

The court found that, because the plaintiff here discovered the violation on his receipt immediately after receiving it and without anyone else seeing it, he was not at risk for identity theft. The court also noted the legislative history finding that “proper truncation of the card number, by itself, prevents identity theft and credit card fraud, regardless of inclusion of the expiration date.” 15 U.S.C. §1681n (notes). The court concluded: “This case asks whether the violation of a statute, completely divorced from any potential real-world harm, is sufficient to satisfy Article III’s injury-in-fact requirement. We hold that it is not.”

The Washington, D.C. Circuit grants the CFPB’s petition for en banc review of PHH Corporation v. Consumer Financial Protection BureauPDF External Link

Last year, a divided three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruled that “the CFPB is unconstitutionally structured because it is an independent agency headed by a single Director.” PHH Corporation v. Consumer Financial Protection Bureau, PDF External Link 839 F.3d 1, 37 (D.C. Cir. 2016). The CFPB later petitioned the D.C. Circuit to vacate the panel’s decision and have the entire court decide the appeal. On February 16, 2017, the D.C. Circuit granted the CFPB’s petition. In May 2017, the court heard oral arguments.