On the Docket: Recent Federal Court Opinions*
FAIR CREDIT REPORTING ACT (FCRA)
Ninth Circuit affirms summary judgment of a FCRA claim against a consumer reporting agency (CRA) for reporting stale information because the plaintiff failed to show the CRA acted negligently or willfully.
Moran v. The Screening Pros, LLC, 25 F.4th 722 (9th Cir., 2022). In 2010, when the plaintiff applied to lease an apartment, the landlord obtained his consumer report from The Screening Pros, a consumer reporting agency, which showed criminal charges had been filed against the plaintiff in 2000 that were dismissed in 2004. Section 605(a) of the FCRA (15 U.S.C. §1681c(a)) generally requires CRAs to remove negative information from consumer reports after specified time periods to prevent consumers being harmed by stale information. However, a plaintiff can only recover damages under the FCRA for a negligent or willful violation. The district court held that the plaintiff failed to show negligent or willful conduct and dismissed the case on summary judgment.
On appeal, the Ninth Circuit affirmed. The court held that a negligence violation requires a plaintiff to “show that the defendant acted pursuant to an objectively unreasonable interpretation of the statute,” while a willful violation requires a plaintiff to show a knowing or a reckless violation of a standard. The court previously ruled the defendant should not have included the 2004 dismissal of the criminal charges in the plaintiff’s consumer report in 2010. But the defendant submitted evidence that its interpretation was consistent with industry norms. In addition, the Federal Trade Commission’s only guidance on the question at the time (although outdated) appeared to permit reporting the charge. Accordingly, the court found that, although a violation occurred, it was neither negligent nor willful and therefore affirmed the summary judgment.
FINTECH
The Conference of State Bank Supervisors (CSBS) withdraws its lawsuit against the Office of the Comptroller of the Currency (OCC) challenging the application of a fintech company to become a deposit-taking national bank without obtaining insurance from the Federal Deposit Insurance Corporation (FDIC).
In 2018, the OCC issued a policy statement indicating it would accept applications for special purpose national bank charters for nonbank fintech companies under its chartering authority under the National Bank Act (NBA). This policy has been subject to various lawsuits, including one the CSBS filed. On January 13, 2022, the CSBS filed a notice with the U.S. District for the District of Columbia to voluntarily withdraw its lawsuit against the OCC concerning the application of Figure Technologies, a fintech company, for a special purpose national bank charter.
The lawsuit challenged the OCC’s legal authority under the NBA to charter a full-service national bank without the entity obtaining deposit insurance from the FDIC. The CSBS is withdrawing the lawsuit because in December 2021, Figure Technologies amended its application to indicate it would apply to the FDIC for deposit insurance and to the Board of Governors of the Federal Reserve System to become a bank holding company under §3 of the Bank Holding Company Act. The CSBS stated the lawsuit was now moot because its concerns were addressed.
REGULATION E — ELECTRONIC FUND TRANSFER ACT (EFTA)
Ninth Circuit reverses the dismissal of a lawsuit for a consumer’s liability for unauthorized transactions because the complaint plausibly alleged they would have occurred regardless of whether the consumer timely notified the bank.
Widjaja v. JPMorgan Chase Bank, N.A., 21 F.4th 579 (9th Cir. 2021). The plaintiff alleged that identity thieves stole more than $500,000 from her checking account at Chase in a series of withdrawals. The second withdrawal of $29,000 on November 2, 2017, was flagged by the receiving bank as suspicious and returned to Chase. However, Chase did not notify the plaintiff of the incident or change her account credentials to prevent further unauthorized transactions.
The plaintiff alleged additional withdrawals were made between November 2017 and March 2019, but she did not report them to Chase until March 2019 because she alleged that she was traveling abroad and had “very limited or no” Internet access to check her bank statements. Chase reimbursed the plaintiff for some of the transactions but declined to reimburse her for $300,000 in losses because her notice of an unauthorized transaction was made more than 60 days after transmitting the periodic statement with the disputed transactions. Under the Electronic Fund Transfer Act (EFTA), if a consumer fails to report an unauthorized transfer to the bank within 60 days after the statement containing the unauthorized transfer is sent and the bank can establish that unauthorized transfers made after the 60-day period would not have occurred but for the consumer’s failure to notify the bank of the earlier unauthorized transfer, consumers may face unlimited liability for unauthorized transfers occurring after the 60-day period. See 12 C.F.R. §1005.6(b)(3).
The district court held that the EFTA barred her claim as a matter of law and dismissed the case. On appeal, the Ninth Circuit court noted that under §1693g(a) of the EFTA, a consumer may only be held liable for unauthorized transfers occurring after the 60-day period if the bank establishes the transfers “would not have occurred but for the failure of the consumer” to report them within the time frames specified in the regulation and that the district court’s analysis overlooked this requirement.
The court noted that “[w]hen notified by a consumer that an unauthorized transfer has taken place, most banks have procedures in place to prevent subsequent unauthorized transfers, such as freezing the consumer’s account or changing the account number and password.” Because Chase did not take these actions after becoming aware of the unauthorized withdrawal of $29,000 in November 2017, the plaintiff plausibly alleged a violation for purposes of surviving a motion to dismiss. On remand to the trial court, the plaintiff will still have the burden to prove that, even if she had timely notified Chase of the unauthorized transactions, Chase would not have prevented the additional ones from occurring.
STANDING
The Second Circuit, on reconsideration, dismisses class-action lawsuit for failing to timely record a mortgage satisfaction because plaintiffs lacked standing.
Maddox v. Bank of N.Y. Mellon Tr. Co., N.A., 19 F.4th 58 (2d Cir. 2021). In 2000, the plaintiffs purchased a property secured by a mortgage loan, which was later assigned to Bank of New York (BNY) Mellon. In September 2014, the property was sold, but BNY Mellon did not record a mortgage satisfaction until September 22, 2015. New York law requires a creditor to record a mortgage satisfaction within 30 days of full repayment and provides statutory damages for violations. The plaintiff sought damages for all class members whose mortgage liens were not timely marked satisfied. BNY Mellon sought to dismiss the suit on standing grounds; the District Court denied the motion, and the Second Circuit affirmed that decision on appeal. But after the Supreme Court clarified in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021) that to have standing to sue in federal court plaintiffs must show that they suffered concrete injury, BNY asked the court to reconsider.
On reconsideration, the Second Circuit ordered the case dismissed for lack of standing. The court noted that the Supreme Court in TransUnion clearly stated “no concrete harm; no standing.” The plaintiffs had sold their property without incident and did not allege reputational harm from someone else seeing the lien in the county’s property records. The plaintiffs alleged the lien could have impacted their credit rating and made it more difficult to obtain financing if they needed it, but the court noted this was conjecture and this risk never materialized. Finally, the plaintiffs alleged emotional harm, but the court found the allegations implausible. The court noted that the plaintiffs could still seek damages in state court for failing to record the satisfaction.