Federal courts have recently dismissed a number of cases brought by consumers alleging violations of consumer protection law because they lack "standing." The trend has been hastened by the U.S. Supreme Court's ruling last year in TransUnion LLC v. Ramirez, a case involving the federal Fair Credit Reporting Act (FCRA).
In the months following the Ramirez decision a growing number of U.S. Courts of Appeals, including the Second and Seventh Circuits, have found plaintiffs lacked standing to assert typical claims under other consumer protection laws.
But a recent ruling from the Seventh Circuit concerning an alleged FCRA violation held that a certain privacy harm was enough to allow the federal courts to hear the claim. However, although that privacy harm was sufficient for standing, the result was not favorable for the plaintiff.
The Court's opinion also highlights the importance of having well-grounded procedures as part of a debt collector's operations to avoid FCRA liability.
The FCRA Claim
The consumer alleged in her complaint that a collection agency attempted to collect a debt from her that had been discharged in an earlier bankruptcy. As part of the collection agency's debt collection process, it performed a bankruptcy "scrub," which did not return consumer's bankruptcy discharge. The debt collector then obtained a "propensity‐to‐pay score" from a credit reporting agency. Unlike a full credit report, the propensity‐to‐pay score only reveals a person's "likelihood of repayment on a scale of 400 to 800."
The consumer filed a class action against the debt collector alleging it violated the FCRA.
Although the FCRA does permit access to credit files to collect a debt, the consumer alleged that in her case because the debt was subject to the earlier bankruptcy discharge order, the collection agency could not lawfully collect the debt and so it lacked a "permissible purpose" under FCRA to access her credit file.
The trial court granted summary judgment for the debt collector holding it met the FCRA's requirements. This appeal followed.
Standing and Privacy
The consumer testified in her deposition concerning various harms she alleged she suffered – financial, reputational and credit injuries - but her testimony revealed no suffered actual loss in any of these areas.
She also alleged she suffered a "dignitary harm." The consumer's deposition testimony described this as stress and a "privacy harm."
The Seventh Circuit ruled out the consumer's claim of stress as a concrete injury because it was not particularized, it was merely conclusory. It then turned to her privacy harm allegation, saying it "might be concrete."
Looking to the Supreme Court's analysis in Ramirez, the Seventh Circuit determined it could "pair" her claim – a violation of the FCRA by obtaining credit information – and the privacy harm she suffered, with a common law tort; namely invasion of privacy.
In particular the Seventh Circuit construed the privacy claim as close in kind to the common law tort of intrusion upon seclusion which arises when a person "intrudes . . . upon the solitude or seclusion of another or his private affairs or concerns" and the "intrusion would be highly offensive to a reasonable person." It likened the act of obtaining one's propensity-to-pay score without a permissible purpose as "analogous to the unlawful inspection of one's mail, wallet, or bank account."
And while the impermissible pull alleged here might not be enough to prevail as a common law claim for intrusion upon seclusion itself, that is "irrelevant," the Seventh Circuit said. "Ramirez make[s] clear our responsibility to look for a close relationship "in kind, not degree. . .. It is enough to say that the harm alleged in her complaint resembles the harm associated with intrusion upon seclusion."
The Seventh Circuit held that this closeness in kind, between what the FCRA prohibited – the privacy harm the consumer allegedly suffered -and what common law would recognize as a claim, is a sufficient concrete injury to confer her standing in a federal court.
The Court bolstered its reasoning by noting the Supreme Court's "recognition" of a person's "right to privacy" that includes the control over their own personal information and pointing to "Congress's decision to protect this right in the FCRA." In fact, Ramirez itself recognizes that "[v]arious intangible harms can also be concrete . . . providing a basis for lawsuits in American courts . . . for example, reputational harms, disclosure of private information, and intrusion upon seclusion."
Other Possibilities for Lawfully Accessing Credit Information Despite Bankruptcy
Finding that the consumer had standing, the Seventh Circuit then turned to the question of whether the debt collector violated the FCRA when it obtained the propensity-to-pay score.
Notably, the Court rejected the argument that a debt collector always lacks a FCRA permissible purpose when it accesses credit information concerning a debtor subject to a bankruptcy discharge. "[A] bankruptcy's effect on [FCRA] § 1681b(a)(3)(A) should not be read too broadly."
In dicta the Seventh Circuit left "open the possibility that, in some instances, the FCRA would still permit [the debt collector] to procure a consumer report notwithstanding an underlying bankruptcy." But here, the debt collector did not identify any other reason for accessing the consumer's credit information other than to collect the debt and, because the debt had been discharged in a prior bankruptcy case, it lacked a permissible purpose and so violated the FCRA when it obtained the propensity-to-pay score.
Actual Damages and Merits
Finding that the debt collector violated the FCRA when it accessed the consumer's credit information did not end the analysis.
Having alleged a concrete harm does not necessarily mean the plaintiff has, in fact, sustained damages and FCRA requires either actual damages (for a negligent violation) or evidence that the violation was willful.
To recover under FCRA for a negligent violation, the consumer was required to demonstrate a "causal relation" between the statutory violation and the alleged harm. These harms can take the form of pecuniary losses – loss of income, credit denials, increased cost of credit and the like.
They can also be non-pecuniary, such as emotional distress, but under Seventh Circuit law, non-pecuniary harms must be articulated with "reasonable detail."
Put another way, simply saying "I suffered stress and could not get a good night's sleep," is not enough. Nor is an allegation that one's privacy was invaded. It is here the consumer's "negligent FCRA violation" claim failed.
She could not point to any pecuniary loss occasioned by the impermissible pull. Although she alleged her privacy was invaded and that the invasion caused her "stress" and "anger," these are conclusory claims and non-pecuniary damages must be particularized.
Lesson in Having Robust FCRA and Bankruptcy Scrub Procedures
The FCRA also allows a consumer to recover if a willful violation occurred. This required the consumer to demonstrate that the debt collector accessed her credit information "with actual knowledge or reckless disregard for the FCRA's requirements."
The debt collector's procedures provided that it would perform bankruptcy investigations before collecting on an account and it did so here, but the scrub did not identify the consumer's bankruptcy. The Seventh Circuit noted that the account at issue was not scheduled in the consumer's bankruptcy petition "so the bankruptcy court did not send a notice to any creditor for that debt. Thus, any lapse in notification was attributable to [the consumer], not [the debt collector]."
In a footnote, the Court recognized that the consumer's bankruptcy was a "no-asset discharge." The footnote correctly points out that in a no-asset discharge even unscheduled debts are "[f]unctionally discharged." And although the decision never mentions which bankruptcy chapter the consumer's case was administered under, it was very likely a Chapter 7 case because this theory of "no-asset" discharges would otherwise usually be inapplicable.
However, after debt collection activity commenced on the consumer's account the collector received notice of the bankruptcy and the collector's procedures prohibited collection of bankruptcy-related accounts and so collection activity on the consumer's account ceased.
Thus, the Seventh Circuit affirmed the trial court's ruling, holding the violation was not willful because the debt collector "lacked actual knowledge of the bankruptcy," had procedures recognizing a bankruptcy discharge prohibited collection of an affected account, "had a reasonable basis for relying on its procedures," and, as a result, "did not recklessly disregard the possibility that debt had been discharged."
Ralph T. Wutscher
Maurice Wutscher LLP
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