InfoBytes, February 20, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Consumer Finance
- Litigation
- Privacy/Data Security
- Credit Cards
Federal Issues
Obama Administration Announces $275 Billion Homeowner Affordability and Stability Plan. On February 18, President Obama unveiled the framework of his $275 billion Homeowner Affordability and Stability Plan. Under the plan, responsible homeowners with loans held or guaranteed by Freddie Mac or Fannie Mae (the GSEs), and who owe more than 80% of the value of their home, will be able to refinance at lower rates. Under the plan, the federal government will (i) inject an additional $200 billion into the GSEs under the Housing and Economic Recovery Act, (ii) have the U.S. Department of the Treasury continue to purchase GSE mortgage-backed securities, and (iii) increase the size of the GSEs’ portfolios by $50 billion to purchase more mortgages. The plan also aims to prevent foreclosure for 3 to 4 million at-risk homeowners by providing mortgage modifications. The federal government will match a lender’s mortgage interest rate reductions dollar-for-dollar, down to 31% of the borrower’s income, provided that the lender first reduces the interest rate to a specified affordability level (i.e., 38% of the borrower’s income). The plan also incentivizes lenders, servicers, and borrowers to enter into mortgage modifications by (i) providing $1,000 for servicers for each qualifying loan modification, and (ii) providing an additional $1,000 for servicers per year (for up to three years) if the borrower stays current on the loan. However, a borrower is ineligible for a loan modification if the cost of a mortgage modification is expected to exceed the cost of foreclosure. The plan also allows bankruptcy judges to modify existing mortgages that are under the GSE’s conforming loan limits if homeowners first seek a modification from their servicer and comply with their servicer’s requests for “essential” information. Finally, the plan calls for “clear and consistent” mortgage modification guidelines, which the administration expects to announce by March 4, 2009. For a copy of the plan’s fact sheet, please see http://www.treasury.gov/initiatives/eesa/homeowner-affordability-plan/FactSheet.pdf.
FTC, HHS Settle Privacy Breach and HIPAA Violation Charges Against CVS. On February 18, the Federal Trade Commission (FTC) announced that CVS Caremark (CVS) has agreed to settle claims that it did not take “reasonable and appropriate” measures to protect the financial and medical information of its customers and employees. The charges included allegations that CVS failed to (i) implement "reasonable and appropriate" procedures for disposing securely of personal information, (ii) adequately train employees regarding the disposal of personal information, (iii) take reasonable measures to assess compliance with its personal information disposal policies and procedures, and (iv) implement a reasonable process for discovering and remedying personal information breaches. The FTC further alleged that CVS engaged in unfair and deceptive practices in advertising the security of its privacy practices. The FTC’s settlement agreement, which is subject to a 30-day public review period, would require the defendant to (i) establish, implement, and maintain a program designed to protect consumer and employee personal information, (ii) for every two years for the next 20 years, obtain an audit from a qualified, independent third-party professional to ensure compliance with the order, (iii) allow the FTC to monitor compliance with the order via record-keeping and reporting provisions, and (iv) accurately represent the policies and procedures it maintains regarding personal information. Public comment regarding the proposed agreement ends March 20, 2009. CVS also agreed to pay $2.25 million in settlement of charges by the Department of Health and Human Services (HHS) that it violated the Health Insurance Portability and Accountability Act (HIPAA). The HHS settlement requires CVS to (i) establish and implement policies and procedures for disposing of protected health information, (ii) implement training for handling and disposing of such information, (iii) conduct internal monitoring, and (iv) engage a third-party assessor to evaluate compliance for three years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/02/cvs.shtm.
Florida Federal Court Imposes $8.6 Million Judgment for Violation of FTC Telemarketing Sales Rule. On February 13, the U.S. District Court for the Middle District of Florida granted summary judgment in a case brought by the Federal Trade Commission (FTC) that alleged violations of the FTC’s Telemarketing Sales Rule (TSR). Federal Trade Commission v. Global Marketing Group, Inc., Civil Action No.: 8:06-CV-02272 (M.D. Fla. Feb. 13, 2009). According to the FTC, the defendants – Ira N. Rubin and the 22 corporations he owned/controlled – provided “substantial support and assistance” to several telemarketing firms that sold non-existent unsecured credit cards to consumers. The defendants allegedly misrepresented the availability of the credit cards and illegally debited fees from consumers’ bank accounts. The order (i) permanently bans the defendants from engaging in telemarketing and payment processing activities, and (ii) imposes an $8.6 million judgment. Rubin’s partner and co-defendant also separately reached a settlement that (i) permanently prohibits him from payment processing, (iii) prohibits him from violating the TSR, (iii) prevents him from disclosing customer information, and (iv) imposes a $5 million suspended judgment. For a copy of the press release, please see http://www.ftc.gov/opa/2009/02/gmg.shtm.
State Issues
Florida Attorney General Settles Suit Against Mortgage Foreclosure Rescue Services Company. On February 9, Florida Attorney General Bill McCollum reached a settlement with a Florida mortgage foreclosure rescue services company that allegedly collected advance fees for its services, in violation of Florida law. Among other things, the settlement (i) orders the payment of $10,000 to the Attorney General’s “Seniors vs. Crime” program, and (ii) requires the company to refund certain consumers. For a copy of the agreement, please see http://myfloridalegal.com/webfiles.nsf/WF/MRAY-7P5HJP/$file/AttorneyDebtServicesAVC.pdf.
Florida Regulator Urges Mortgage Lenders to Appoint Ombudsmen to Alleviate Foreclosures. On February 19, Florida Chief Financial Officer Alex Sink urged eleven of Florida’s largest mortgage lenders to each appoint an ombudsman to facilitate interaction among lenders, attorneys, and Florida homeowners regarding mortgage foreclosures. The ombudsman would assist attorneys participating in the Florida Attorneys Saving Homes (FASH) program. For a copy of the press release, please see http://www.myfloridacfo.com/pressoffice/ViewMediaRelease.asp?ID=3119.
Illinois Regulator Shuts Down $2 Million Mortgage Fraud Scheme. On February 6, the Illinois Department of Financial and Professional Regulation announced it had shut down a property flipping scheme allegedly involving almost $2 million in fraudulently-obtained loans. The perpetrator of the fraud allegedly worked with accomplices who posed as homeowners facing foreclosure and “investors” who were willing to purchase properties prior to foreclosure. The perpetrator then allegedly originated loans with forged appraisals, fraudulent income and assets, and fake deposit verifications. For a copy of the press release, please see http://www.idfpr.com/newsrls/02062009StateShutsDownPropFlippingScheme.asp.
Courts
Eleventh Circuit Holds Stand-Alone Arbitration Agreement Survives Rescission of Related Sales Contract. On February 17, the U.S. Court of Appeals for the Eleventh Circuit upheld the validity of a stand-alone arbitration agreement that covered a sales contract already rescinded by the seller. Scott v. EFN Investments, LLC, No. 08-14799, 2009 WL 368333 (11th Cir. Feb. 17, 2009). In this case, the plaintiff sued a car dealership after the dealership rescinded a used-car purchase several days after the plaintiff signed the retail installment sales contract. On the day of purchase, the plaintiff also signed a stand-alone arbitration agreement – separate from the arbitration provision in the sales contract – that covered all disputes relating to the transaction. The plaintiff filed suit, arguing that the arbitration agreement was rescinded when the related sales contract was rescinded. The district court dismissed the lawsuit, upholding the validity of the arbitration agreement, and the court of appeals affirmed. The court of appeals found that the dispute was covered by the language of the arbitration agreement, and that, because the plaintiff did not challenge the validity of the arbitration agreement, but rather the transaction in its entirety, the challenge is subject to arbitration under the agreement. For a copy of the opinion, please see http://www.buckleykolar.com/Scott_v_EFN.pdf.
Pennsylvania Federal Court Holds FCRA Does Not Preempt State Law Defamation Claim. On February 12, the U.S. District Court for the Western District of Pennsylvania held that a company’s failure to conduct a reasonable investigation after receiving notification of possible inaccurate credit reporting could constitute malice under state law, which would not be preempted by the Fair Credit Reporting Act (FCRA). Gagliardi v. Experian Information Solutions, Inc., No. 8-892, 2009 WL 365647 (W.D. Pa. Feb. 12, 2009). In Gagliardi, the plaintiff disputed the defendants’ reporting of certain information on his credit report. The plaintiff subsequently filed suit, alleging various federal and state law claims, including defamation, in connection with the defendants’ alleged failure to conduct a reasonable investigation of the dispute. The court reasoned that Section 1681 of FCRA preempts state defamation claims against a furnisher of information to a credit reporting agency, unless the information provided by the company is false and furnished with malice or a willful intent to injure a consumer. In this case, the court found that the defendants’ failure to conduct a reasonable investigation would constitute “malice” or “willful intent” under FCRA, and that, consequently, the plaintiff’s claims are not preempted by FCRA. The court, however, proceeded to dismiss the claim because the plaintiff failed to identify the claim sufficiently to provide the defendants with fair notice of the ground of the defamation claim. The court dismissed most of the plaintiff’s claims with leave to replead them within 14 days. For a copy of the opinion, please see http://www.buckleykolar.com/Gagliardi_v_Experian.pdf.
Illinois Federal Court Holds FACTA Does Not Violate Due Process, Equal Protection Clauses. On February 12, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process or the Equal Protection Clauses of the U.S. Constitution. Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009). In this case, the plaintiff alleged that the defendant willfully violated FACTA by printing a receipt containing the expiration date of his credit card. The defendant moved to dismiss, arguing that FACTA violated the Due Process and Equal Protection Clauses. The court rejected each argument and denied the defendant’s motion. First, the defendant argued that the $100 to $1000 per violation range of statutory damages for a willful violation was impermissibly vague as to the amount of damages that could be awarded. The court disagreed, finding that “a reasonable jury tasked with determining the proper amount of damages for a FACTA violation will be able to do so within the statutory range.” Second, the defendant argued that an award of both punitive damages and a range of statutory damages is excessive in violation of due process. The court rejected this argument as premature, holding that “the mere possibility of an excessive statutory and punitive damages award under FACTA does not constitute a due process violation.” Third, the defendant argued that, by allowing punitive damages along with a range of statutory damages for the same conduct, FACTA allowed for impermissible “double punishment.” Noting that the Fifth Amendment protection against double jeopardy only applies in the criminal setting, the court held that permitting both statutory and punitive damages for the same conduct does not violate due process because “there is no general due process prohibition on double punishment for a single statutory violation.” Finally, the defendant argued that FACTA violated the Equal Protection Clause because it applied only to merchants who issue electronically printed receipts, and not merchants who issue imprinted or handwritten receipts. The court also rejected this argument, finding that Congress had a rational basis for creating this dichotomy. According to the court, among other possibilities, “Congress may have considered the harm caused by an electronic printing system issuing a large number of noncompliant receipts to outweigh the harm caused by a noncompliant handwritten or imprinted receipt occasionally slipping through the cracks.” For a copy of the opinion, please see http://www.buckleykolar.com/Irvine_v_Skydeck.pdf.
Illinois Federal Court Finds FCRA Does Not Abrogate State Sovereign Immunity. On February 10, the U.S. District Court for the Northern District of Illinois held that the Fair Credit Reporting Act (FCRA) does not nullify a state agency’s claim of sovereign immunity. Densborn v. Trans Union, LLC, No. 08 C 3631, 2009 WL 331466 (N.D. Ill. Feb. 10, 2009). The case arose after the Illinois Student Assistance Commission (ISAC), a state agency, inaccurately reported the status of the plaintiff’s account to a credit reporting agency. The plaintiff disputed the inaccurate information in writing, but both ISAC and the credit reporting agency continued to report it, in violation of FCRA. The plaintiff subsequently filed suit and ISAC moved to dismiss the action, claiming that the Eleventh Amendment provided it with sovereign immunity. The plaintiff argued that, because by its terms FCRA applies to any government or governmental subdivision or agency, FCRA abrogates state sovereign immunity. In its opinion upholding ISAC’s claim of sovereign immunity, the court found that, because FCRA was enacted pursuant to the Commerce Clause, and because the U.S. Supreme Court has ruled that Congress may not abrogate a state’s immunity through its power under the Commerce Clause, Congress could not abrogate the states’ sovereign immunity through FCRA. As a result, the court granted the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/Densborn_v_Trans_Union.pdf.
Minnesota Federal Court Holds Reporting of a “Stale” Debt Does Not Violate FDCPA. On February 2, the U.S. District Court for the District of Minnesota held that the Fair Debt Collection Practices Act (FDCPA) allows for the reporting of a “stale” debt by a debt collector to a credit reporting agency. Hollis v. Northland Group, Inc., Civil No. 08-4985, 2009 WL 250075 (D. Minn. Feb. 2, 2009). In Hollis, the defendant collection agency sent a notice to the plaintiff, Tonia Hollis, demanding payment of a debt and stating that the unpaid debt may be reported to a credit reporting agency. In her complaint, the plaintiff argued that the defendant violated the Fair Credit Reporting Act (FCRA) by threatening to take an action that could not be legally taken (i.e., report a debt that predated the action by more than seven years) and that the defendant’s notice was false and misleading because it indicated that the plaintiff’s credit history could be affected if she did not pay the debt, even though the permissible credit reporting period had passed. However, in finding for the defendant, the court found that (i) FCRA does not prevent debt collectors from reporting a stale debt to a credit reporting agency, and (ii) although FCRA prohibits a credit reporting agency from reporting a stale debt in most cases, there are exemptions under FCRA that would allow a credit reporting agency to report a stale debt. Therefore, the court concluded that a debt collector could reasonably provide information on a stale debt to a consumer reporting agency because the consumer reporting may, under certain circumstances, include such information in a consumer report. As a result, the court affirmed the defendant’s motion for judgment on the pleadings. For a copy of the decision, please see http://www.buckleykolar.com/Hollis_v_Northland.pdf.
Firm News
Colgate Selden will present in a webcast sponsored by the National Association of Federal Credit Unions regarding the RESPA Reform Rule on March 4. Mr. Selden’s presentation is entitled “Real Estate Settlement Overhaul: Complying with RESPA Reform.”
Matthew Previn moderated a panel of in-house counsel at the ACI Consumer Finance Class action and Litigation Conference in New York City on Jan. 27-28.
Heidi Bauer presented during a panel discussion at the Nationwide Mortgage Licensing System User Conference in New Orleans, Louisiana on February 10.
Jonathan Cannon spoke on RESPA litigation at the National Compliance Summit for Title Companies in Las Vegas, NV on February 19-20.
Mortgages
Obama Administration Announces $275 Billion Homeowner Affordability and Stability Plan. On February 18, President Obama unveiled the framework of his $275 billion Homeowner Affordability and Stability Plan. Under the plan, responsible homeowners with loans held or guaranteed by Freddie Mac or Fannie Mae (the GSEs), and who owe more than 80% of the value of their home, will be able to refinance at lower rates. Under the plan, the federal government will (i) inject an additional $200 billion into the GSEs under the Housing and Economic Recovery Act, (ii) have the U.S. Department of the Treasury continue to purchase GSE mortgage-backed securities, and (iii) increase the size of the GSEs’ portfolios by $50 billion to purchase more mortgages. The plan also aims to prevent foreclosure for 3 to 4 million at-risk homeowners by providing mortgage modifications. The federal government will match a lender’s mortgage interest rate reductions dollar-for-dollar, down to 31% of the borrower’s income, provided that the lender first reduces the interest rate to a specified affordability level (i.e., 38% of the borrower’s income). The plan also incentivizes lenders, servicers, and borrowers to enter into mortgage modifications by (i) providing $1,000 for servicers for each qualifying loan modification, and (ii) providing an additional $1,000 for servicers per year (for up to three years) if the borrower stays current on the loan. However, a borrower is ineligible for a loan modification if the cost of a mortgage modification is expected to exceed the cost of foreclosure. The plan also allows bankruptcy judges to modify existing mortgages that are under the GSE’s conforming loan limits if homeowners first seek a modification from their servicer and comply with their servicer’s requests for “essential” information. Finally, the plan calls for “clear and consistent” mortgage modification guidelines, which the administration expects to announce by March 4, 2009. For a copy of the plan’s fact sheet, please see http://www.treasury.gov/initiatives/eesa/homeowner-affordability-plan/FactSheet.pdf.
Florida Attorney General Settles Suit Against Mortgage Foreclosure Rescue Services Company. On February 9, Florida Attorney General Bill McCollum reached a settlement with a Florida mortgage foreclosure rescue services company that allegedly collected advance fees for its services, in violation of Florida law. Among other things, the settlement (i) orders the payment of $10,000 to the Attorney General’s “Seniors vs. Crime” program, and (ii) requires the company to refund certain consumers. For a copy of the agreement, please see http://myfloridalegal.com/webfiles.nsf/WF/MRAY-7P5HJP/$file/AttorneyDebtServicesAVC.pdf.
Florida Regulator Urges Mortgage Lenders to Appoint Ombudsmen to Alleviate Foreclosures. On February 19, Florida Chief Financial Officer Alex Sink urged eleven of Florida’s largest mortgage lenders to each appoint an ombudsman to facilitate interaction among lenders, attorneys, and Florida homeowners regarding mortgage foreclosures. The ombudsman would assist attorneys participating in the Florida Attorneys Saving Homes (FASH) program. For a copy of the press release, please see http://www.myfloridacfo.com/pressoffice/ViewMediaRelease.asp?ID=3119.
Illinois Regulator Shuts Down $2 Million Mortgage Fraud Scheme. On February 6, the Illinois Department of Financial and Professional Regulation announced it had shut down a property flipping scheme allegedly involving almost $2 million in fraudulently-obtained loans. The perpetrator of the fraud allegedly worked with accomplices who posed as homeowners facing foreclosure and “investors” who were willing to purchase properties prior to foreclosure. The perpetrator then allegedly originated loans with forged appraisals, fraudulent income and assets, and fake deposit verifications. For a copy of the press release, please see http://www.idfpr.com/newsrls/02062009StateShutsDownPropFlippingScheme.asp.
Consumer Finance
FTC, HHS Settle Privacy Breach and HIPAA Violation Charges Against CVS. On February 18, the Federal Trade Commission (FTC) announced that CVS Caremark (CVS) has agreed to settle claims that it did not take “reasonable and appropriate” measures to protect the financial and medical information of its customers and employees. The charges included allegations that CVS failed to (i) implement "reasonable and appropriate" procedures for disposing securely of personal information, (ii) adequately train employees regarding the disposal of personal information, (iii) take reasonable measures to assess compliance with its personal information disposal policies and procedures, and (iv) implement a reasonable process for discovering and remedying personal information breaches. The FTC further alleged that CVS engaged in unfair and deceptive practices in advertising the security of its privacy practices. The FTC’s settlement agreement, which is subject to a 30-day public review period, would require the defendant to (i) establish, implement, and maintain a program designed to protect consumer and employee personal information, (ii) for every two years for the next 20 years, obtain an audit from a qualified, independent third-party professional to ensure compliance with the order, (iii) allow the FTC to monitor compliance with the order via record-keeping and reporting provisions, and (iv) accurately represent the policies and procedures it maintains regarding personal information. Public comment regarding the proposed agreement ends March 20, 2009. CVS also agreed to pay $2.25 million in settlement of charges by the Department of Health and Human Services (HHS) that it violated the Health Insurance Portability and Accountability Act (HIPAA). The HHS settlement requires CVS to (i) establish and implement policies and procedures for disposing of protected health information, (ii) implement training for handling and disposing of such information, (iii) conduct internal monitoring, and (iv) engage a third-party assessor to evaluate compliance for three years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/02/cvs.shtm.
Pennsylvania Federal Court Holds FCRA Does Not Preempt State Law Defamation Claim. On February 12, the U.S. District Court for the Western District of Pennsylvania held that a company’s failure to conduct a reasonable investigation after receiving notification of possible inaccurate credit reporting could constitute malice under state law, which would not be preempted by the Fair Credit Reporting Act (FCRA). Gagliardi v. Experian Information Solutions, Inc., No. 8-892, 2009 WL 365647 (W.D. Pa. Feb. 12, 2009). In Gagliardi, the plaintiff disputed the defendants’ reporting of certain information on his credit report. The plaintiff subsequently filed suit, alleging various federal and state law claims, including defamation, in connection with the defendants’ alleged failure to conduct a reasonable investigation of the dispute. The court reasoned that Section 1681 of FCRA preempts state defamation claims against a furnisher of information to a credit reporting agency, unless the information provided by the company is false and furnished with malice or a willful intent to injure a consumer. In this case, the court found that the defendants’ failure to conduct a reasonable investigation would constitute “malice” or “willful intent” under FCRA, and that, consequently, the plaintiff’s claims are not preempted by FCRA. The court, however, proceeded to dismiss the claim because the plaintiff failed to identify the claim sufficiently to provide the defendants with fair notice of the ground of the defamation claim. The court dismissed most of the plaintiff’s claims with leave to replead them within 14 days. For a copy of the opinion, please see http://www.buckleykolar.com/Gagliardi_v_Experian.pdf.
Illinois Federal Court Holds FACTA Does Not Violate Due Process, Equal Protection Clauses. On February 12, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process or the Equal Protection Clauses of the U.S. Constitution. Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009). In this case, the plaintiff alleged that the defendant willfully violated FACTA by printing a receipt containing the expiration date of his credit card. The defendant moved to dismiss, arguing that FACTA violated the Due Process and Equal Protection Clauses. The court rejected each argument and denied the defendant’s motion. First, the defendant argued that the $100 to $1000 per violation range of statutory damages for a willful violation was impermissibly vague as to the amount of damages that could be awarded. The court disagreed, finding that “a reasonable jury tasked with determining the proper amount of damages for a FACTA violation will be able to do so within the statutory range.” Second, the defendant argued that an award of both punitive damages and a range of statutory damages is excessive in violation of due process. The court rejected this argument as premature, holding that “the mere possibility of an excessive statutory and punitive damages award under FACTA does not constitute a due process violation.” Third, the defendant argued that, by allowing punitive damages along with a range of statutory damages for the same conduct, FACTA allowed for impermissible “double punishment.” Noting that the Fifth Amendment protection against double jeopardy only applies in the criminal setting, the court held that permitting both statutory and punitive damages for the same conduct does not violate due process because “there is no general due process prohibition on double punishment for a single statutory violation.” Finally, the defendant argued that FACTA violated the Equal Protection Clause because it applied only to merchants who issue electronically printed receipts, and not merchants who issue imprinted or handwritten receipts. The court also rejected this argument, finding that Congress had a rational basis for creating this dichotomy. According to the court, among other possibilities, “Congress may have considered the harm caused by an electronic printing system issuing a large number of noncompliant receipts to outweigh the harm caused by a noncompliant handwritten or imprinted receipt occasionally slipping through the cracks.” For a copy of the opinion, please see http://www.buckleykolar.com/Irvine_v_Skydeck.pdf.
Illinois Federal Court Finds FCRA Does Not Abrogate State Sovereign Immunity. On February 10, the U.S. District Court for the Northern District of Illinois held that the Fair Credit Reporting Act (FCRA) does not nullify a state agency’s claim of sovereign immunity. Densborn v. Trans Union, LLC, No. 08 C 3631, 2009 WL 331466 (N.D. Ill. Feb. 10, 2009). The case arose after the Illinois Student Assistance Commission (ISAC), a state agency, inaccurately reported the status of the plaintiff’s account to a credit reporting agency. The plaintiff disputed the inaccurate information in writing, but both ISAC and the credit reporting agency continued to report it, in violation of FCRA. The plaintiff subsequently filed suit and ISAC moved to dismiss the action, claiming that the Eleventh Amendment provided it with sovereign immunity. The plaintiff argued that, because by its terms FCRA applies to any government or governmental subdivision or agency, FCRA abrogates state sovereign immunity. In its opinion upholding ISAC’s claim of sovereign immunity, the court found that, because FCRA was enacted pursuant to the Commerce Clause, and because the U.S. Supreme Court has ruled that Congress may not abrogate a state’s immunity through its power under the Commerce Clause, Congress could not abrogate the states’ sovereign immunity through FCRA. As a result, the court granted the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/Densborn_v_Trans_Union.pdf.
Minnesota Federal Court Holds Reporting of a “Stale” Debt Does Not Violate FDCPA. On February 2, the U.S. District Court for the District of Minnesota held that the Fair Debt Collection Practices Act (FDCPA) allows for the reporting of a “stale” debt by a debt collector to a credit reporting agency. Hollis v. Northland Group, Inc., Civil No. 08-4985, 2009 WL 250075 (D. Minn. Feb. 2, 2009). In Hollis, the defendant collection agency sent a notice to the plaintiff, Tonia Hollis, demanding payment of a debt and stating that the unpaid debt may be reported to a credit reporting agency. In her complaint, the plaintiff argued that the defendant violated the Fair Credit Reporting Act (FCRA) by threatening to take an action that could not be legally taken (i.e., report a debt that predated the action by more than seven years) and that the defendant’s notice was false and misleading because it indicated that the plaintiff’s credit history could be affected if she did not pay the debt, even though the permissible credit reporting period had passed. However, in finding for the defendant, the court found that (i) FCRA does not prevent debt collectors from reporting a stale debt to a credit reporting agency, and (ii) although FCRA prohibits a credit reporting agency from reporting a stale debt in most cases, there are exemptions under FCRA that would allow a credit reporting agency to report a stale debt. Therefore, the court concluded that a debt collector could reasonably provide information on a stale debt to a consumer reporting agency because the consumer reporting may, under certain circumstances, include such information in a consumer report. As a result, the court affirmed the defendant’s motion for judgment on the pleadings. For a copy of the decision, please see http://www.buckleykolar.com/Hollis_v_Northland.pdf.
Litigation
Eleventh Circuit Holds Stand-Alone Arbitration Agreement Survives Rescission of Related Sales Contract. On February 17, the U.S. Court of Appeals for the Eleventh Circuit upheld the validity of a stand-alone arbitration agreement that covered a sales contract already rescinded by the seller. Scott v. EFN Investments, LLC, No. 08-14799, 2009 WL 368333 (11th Cir. Feb. 17, 2009). In this case, the plaintiff sued a car dealership after the dealership rescinded a used-car purchase several days after the plaintiff signed the retail installment sales contract. On the day of purchase, the plaintiff also signed a stand-alone arbitration agreement – separate from the arbitration provision in the sales contract – that covered all disputes relating to the transaction. The plaintiff filed suit, arguing that the arbitration agreement was rescinded when the related sales contract was rescinded. The district court dismissed the lawsuit, upholding the validity of the arbitration agreement, and the court of appeals affirmed. The court of appeals found that the dispute was covered by the language of the arbitration agreement, and that, because the plaintiff did not challenge the validity of the arbitration agreement, but rather the transaction in its entirety, the challenge is subject to arbitration under the agreement. For a copy of the opinion, please see http://www.buckleykolar.com/Scott_v_EFN.pdf.
Pennsylvania Federal Court Holds FCRA Does Not Preempt State Law Defamation Claim. On February 12, the U.S. District Court for the Western District of Pennsylvania held that a company’s failure to conduct a reasonable investigation after receiving notification of possible inaccurate credit reporting could constitute malice under state law, which would not be preempted by the Fair Credit Reporting Act (FCRA). Gagliardi v. Experian Information Solutions, Inc., No. 8-892, 2009 WL 365647 (W.D. Pa. Feb. 12, 2009). In Gagliardi, the plaintiff disputed the defendants’ reporting of certain information on his credit report. The plaintiff subsequently filed suit, alleging various federal and state law claims, including defamation, in connection with the defendants’ alleged failure to conduct a reasonable investigation of the dispute. The court reasoned that Section 1681 of FCRA preempts state defamation claims against a furnisher of information to a credit reporting agency, unless the information provided by the company is false and furnished with malice or a willful intent to injure a consumer. In this case, the court found that the defendants’ failure to conduct a reasonable investigation would constitute “malice” or “willful intent” under FCRA, and that, consequently, the plaintiff’s claims are not preempted by FCRA. The court, however, proceeded to dismiss the claim because the plaintiff failed to identify the claim sufficiently to provide the defendants with fair notice of the ground of the defamation claim. The court dismissed most of the plaintiff’s claims with leave to replead them within 14 days. For a copy of the opinion, please see http://www.buckleykolar.com/Gagliardi_v_Experian.pdf.
Illinois Federal Court Holds FACTA Does Not Violate Due Process, Equal Protection Clauses. On February 12, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process or the Equal Protection Clauses of the U.S. Constitution. Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009). In this case, the plaintiff alleged that the defendant willfully violated FACTA by printing a receipt containing the expiration date of his credit card. The defendant moved to dismiss, arguing that FACTA violated the Due Process and Equal Protection Clauses. The court rejected each argument and denied the defendant’s motion. First, the defendant argued that the $100 to $1000 per violation range of statutory damages for a willful violation was impermissibly vague as to the amount of damages that could be awarded. The court disagreed, finding that “a reasonable jury tasked with determining the proper amount of damages for a FACTA violation will be able to do so within the statutory range.” Second, the defendant argued that an award of both punitive damages and a range of statutory damages is excessive in violation of due process. The court rejected this argument as premature, holding that “the mere possibility of an excessive statutory and punitive damages award under FACTA does not constitute a due process violation.” Third, the defendant argued that, by allowing punitive damages along with a range of statutory damages for the same conduct, FACTA allowed for impermissible “double punishment.” Noting that the Fifth Amendment protection against double jeopardy only applies in the criminal setting, the court held that permitting both statutory and punitive damages for the same conduct does not violate due process because “there is no general due process prohibition on double punishment for a single statutory violation.” Finally, the defendant argued that FACTA violated the Equal Protection Clause because it applied only to merchants who issue electronically printed receipts, and not merchants who issue imprinted or handwritten receipts. The court also rejected this argument, finding that Congress had a rational basis for creating this dichotomy. According to the court, among other possibilities, “Congress may have considered the harm caused by an electronic printing system issuing a large number of noncompliant receipts to outweigh the harm caused by a noncompliant handwritten or imprinted receipt occasionally slipping through the cracks.” For a copy of the opinion, please see http://www.buckleykolar.com/Irvine_v_Skydeck.pdf.
Illinois Federal Court Finds FCRA Does Not Abrogate State Sovereign Immunity. On February 10, the U.S. District Court for the Northern District of Illinois held that the Fair Credit Reporting Act (FCRA) does not nullify a state agency’s claim of sovereign immunity. Densborn v. Trans Union, LLC, No. 08 C 3631, 2009 WL 331466 (N.D. Ill. Feb. 10, 2009). The case arose after the Illinois Student Assistance Commission (ISAC), a state agency, inaccurately reported the status of the plaintiff’s account to a credit reporting agency. The plaintiff disputed the inaccurate information in writing, but both ISAC and the credit reporting agency continued to report it, in violation of FCRA. The plaintiff subsequently filed suit and ISAC moved to dismiss the action, claiming that the Eleventh Amendment provided it with sovereign immunity. The plaintiff argued that, because by its terms FCRA applies to any government or governmental subdivision or agency, FCRA abrogates state sovereign immunity. In its opinion upholding ISAC’s claim of sovereign immunity, the court found that, because FCRA was enacted pursuant to the Commerce Clause, and because the U.S. Supreme Court has ruled that Congress may not abrogate a state’s immunity through its power under the Commerce Clause, Congress could not abrogate the states’ sovereign immunity through FCRA. As a result, the court granted the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/Densborn_v_Trans_Union.pdf.
Minnesota Federal Court Holds Reporting of a “Stale” Debt Does Not Violate FDCPA. On February 2, the U.S. District Court for the District of Minnesota held that the Fair Debt Collection Practices Act (FDCPA) allows for the reporting of a “stale” debt by a debt collector to a credit reporting agency. Hollis v. Northland Group, Inc., Civil No. 08-4985, 2009 WL 250075 (D. Minn. Feb. 2, 2009). In Hollis, the defendant collection agency sent a notice to the plaintiff, Tonia Hollis, demanding payment of a debt and stating that the unpaid debt may be reported to a credit reporting agency. In her complaint, the plaintiff argued that the defendant violated the Fair Credit Reporting Act (FCRA) by threatening to take an action that could not be legally taken (i.e., report a debt that predated the action by more than seven years) and that the defendant’s notice was false and misleading because it indicated that the plaintiff’s credit history could be affected if she did not pay the debt, even though the permissible credit reporting period had passed. However, in finding for the defendant, the court found that (i) FCRA does not prevent debt collectors from reporting a stale debt to a credit reporting agency, and (ii) although FCRA prohibits a credit reporting agency from reporting a stale debt in most cases, there are exemptions under FCRA that would allow a credit reporting agency to report a stale debt. Therefore, the court concluded that a debt collector could reasonably provide information on a stale debt to a consumer reporting agency because the consumer reporting may, under certain circumstances, include such information in a consumer report. As a result, the court affirmed the defendant’s motion for judgment on the pleadings. For a copy of the decision, please see http://www.buckleykolar.com/Hollis_v_Northland.pdf.
Privacy/Data Security
FTC, HHS Settle Privacy Breach and HIPAA Violation Charges Against CVS. On February 18, the Federal Trade Commission (FTC) announced that CVS Caremark (CVS) has agreed to settle claims that it did not take “reasonable and appropriate” measures to protect the financial and medical information of its customers and employees. The charges included allegations that CVS failed to (i) implement "reasonable and appropriate" procedures for disposing securely of personal information, (ii) adequately train employees regarding the disposal of personal information, (iii) take reasonable measures to assess compliance with its personal information disposal policies and procedures, and (iv) implement a reasonable process for discovering and remedying personal information breaches. The FTC further alleged that CVS engaged in unfair and deceptive practices in advertising the security of its privacy practices. The FTC’s settlement agreement, which is subject to a 30-day public review period, would require the defendant to (i) establish, implement, and maintain a program designed to protect consumer and employee personal information, (ii) for every two years for the next 20 years, obtain an audit from a qualified, independent third-party professional to ensure compliance with the order, (iii) allow the FTC to monitor compliance with the order via record-keeping and reporting provisions, and (iv) accurately represent the policies and procedures it maintains regarding personal information. Public comment regarding the proposed agreement ends March 20, 2009. CVS also agreed to pay $2.25 million in settlement of charges by the Department of Health and Human Services (HHS) that it violated the Health Insurance Portability and Accountability Act (HIPAA). The HHS settlement requires CVS to (i) establish and implement policies and procedures for disposing of protected health information, (ii) implement training for handling and disposing of such information, (iii) conduct internal monitoring, and (iv) engage a third-party assessor to evaluate compliance for three years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/02/cvs.shtm.
Illinois Federal Court Holds FACTA Does Not Violate Due Process, Equal Protection Clauses. On February 12, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process or the Equal Protection Clauses of the U.S. Constitution. Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009). In this case, the plaintiff alleged that the defendant willfully violated FACTA by printing a receipt containing the expiration date of his credit card. The defendant moved to dismiss, arguing that FACTA violated the Due Process and Equal Protection Clauses. The court rejected each argument and denied the defendant’s motion. First, the defendant argued that the $100 to $1000 per violation range of statutory damages for a willful violation was impermissibly vague as to the amount of damages that could be awarded. The court disagreed, finding that “a reasonable jury tasked with determining the proper amount of damages for a FACTA violation will be able to do so within the statutory range.” Second, the defendant argued that an award of both punitive damages and a range of statutory damages is excessive in violation of due process. The court rejected this argument as premature, holding that “the mere possibility of an excessive statutory and punitive damages award under FACTA does not constitute a due process violation.” Third, the defendant argued that, by allowing punitive damages along with a range of statutory damages for the same conduct, FACTA allowed for impermissible “double punishment.” Noting that the Fifth Amendment protection against double jeopardy only applies in the criminal setting, the court held that permitting both statutory and punitive damages for the same conduct does not violate due process because “there is no general due process prohibition on double punishment for a single statutory violation.” Finally, the defendant argued that FACTA violated the Equal Protection Clause because it applied only to merchants who issue electronically printed receipts, and not merchants who issue imprinted or handwritten receipts. The court also rejected this argument, finding that Congress had a rational basis for creating this dichotomy. According to the court, among other possibilities, “Congress may have considered the harm caused by an electronic printing system issuing a large number of noncompliant receipts to outweigh the harm caused by a noncompliant handwritten or imprinted receipt occasionally slipping through the cracks.” For a copy of the opinion, please see http://www.buckleykolar.com/Irvine_v_Skydeck.pdf.
Credit Cards
Illinois Federal Court Holds FACTA Does Not Violate Due Process, Equal Protection Clauses. On February 12, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process or the Equal Protection Clauses of the U.S. Constitution. Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009). In this case, the plaintiff alleged that the defendant willfully violated FACTA by printing a receipt containing the expiration date of his credit card. The defendant moved to dismiss, arguing that FACTA violated the Due Process and Equal Protection Clauses. The court rejected each argument and denied the defendant’s motion. First, the defendant argued that the $100 to $1000 per violation range of statutory damages for a willful violation was impermissibly vague as to the amount of damages that could be awarded. The court disagreed, finding that “a reasonable jury tasked with determining the proper amount of damages for a FACTA violation will be able to do so within the statutory range.” Second, the defendant argued that an award of both punitive damages and a range of statutory damages is excessive in violation of due process. The court rejected this argument as premature, holding that “the mere possibility of an excessive statutory and punitive damages award under FACTA does not constitute a due process violation.” Third, the defendant argued that, by allowing punitive damages along with a range of statutory damages for the same conduct, FACTA allowed for impermissible “double punishment.” Noting that the Fifth Amendment protection against double jeopardy only applies in the criminal setting, the court held that permitting both statutory and punitive damages for the same conduct does not violate due process because “there is no general due process prohibition on double punishment for a single statutory violation.” Finally, the defendant argued that FACTA violated the Equal Protection Clause because it applied only to merchants who issue electronically printed receipts, and not merchants who issue imprinted or handwritten receipts. The court also rejected this argument, finding that Congress had a rational basis for creating this dichotomy. According to the court, among other possibilities, “Congress may have considered the harm caused by an electronic printing system issuing a large number of noncompliant receipts to outweigh the harm caused by a noncompliant handwritten or imprinted receipt occasionally slipping through the cracks.” For a copy of the opinion, please see http://www.buckleykolar.com/Irvine_v_Skydeck.pdf.