Study Shows Marked Increase in FCRA Cases, Downward Trend in Consumer Protection Litigation Overall

[1] The report uncovered a 100% increase in the number of lawsuits brought under the Fair Credit Reporting Act over the past ten years and revealed decreases in Truth-In-Lending Act cases. The report’s data, which represents federal district court litigation between 2009 and 2018, is informative both for potential plaintiffs, as individuals and certified classes, as well as for potential financial institution defendants and those facing agency enforcement actions.

I. The number of consumer protection cases filed and the amount of damages recovered are on the decline

The study uncovered a split in plaintiffs between individuals pursuing up to dozens of consumer protection actions across multiple federal district courts and more obvious government agency plaintiffs like the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). The CFPB and FTC oversee and enforce the lion’s share of the federal consumer protection statutes.[2]

The study did not indicate plaintiffs’ preference for any particular court, though certain types of cases predominated in jurisdictions friendlier to the plaintiffs’ causes. The top three courts for consumer financial protection cases were the Eastern District of New York (E.D.N.Y.), the Northern District of Illinois (N.D. Illinois), and the Middle District of Florida. E.D.N.Y. saw the greatest number of class actions for the 10-year period, likely because of the minimum statutory damages provided by New York’s consumer protection statute. N.D. Illinois saw the highest number of unfair and deceptive trade practices claims.

Both the number of cases filed and the resulting damages realized by plaintiffs in these cases have decreased more recently. The study showed that only 533 consumer protection cases were filed in 2018, down significantly from 2013, when the highest number of cases, 829, were filed. The amount of damages awarded has also trended down since 2013, excluding the 2016 spike from the collective $14 billion in damages awarded following the Volkswagen emissions scandal. While the 2018 figure, $1.5 billion in damages awarded, was similar to the preceding two years, it was the lowest overall since 2011. Many of these cases involved statutory damages with built-in provisions for attorney’s fees and costs and approved class-action settlements. While 97% of enhanced and treble damages awards were granted on default judgment, only 3% were realized on the merits. Unsurprisingly, the largest individual awards resulted from federal government consumer protection enforcement actions.

Notably, the study did not include reporting on the most recent CFPB enforcement action brought under the FCRA on November 25, 2019, against Sterling Infosystems Inc., an important case we will address in a future post.

II. Fair Credit Reporting Act[3] cases have more than doubled since 2009

Out of all of the cases surveyed, one of the study’s key revelations is its identification of a 100% increase in the number of FCRA cases in the last decade, with more than 132,000 cases filed between 2009 and 2018. The ultimate outcomes of the cases were varied, and, unsurprisingly, the study underlined the significant time commitment required of plaintiffs and defendants[4] in pursuing these cases. The median time to reach class certification was 529 days, which plaintiffs achieved in only 34 cases between 2016 and 2018. The median time to summary judgment was 455 days across 461 cases in the same period, and the median time to trial was even longer at 736 days. While the FCRA cases represent the smallest proportion of claimant wins overall, cases that reached trial saw a drastic swing in favor of the claimant, with 75 percent of the courts involved finding an FCRA violation. Only 24 FCRA cases, 17 of which were resolved on the merits between 2016 and 2018, reached trial, however.

The rate of settlement further belies the financial burden of these cases, with more than 84% of FCRA cases terminating in a voluntary dismissal (10% of cases) or a stipulated dismissal (90%). Even in the 9,786 FCRA cases that settled, the median time to termination through settlement or by procedural dismissal from 2016 to 2018 was 187 days.

III. FTC consumer protection and enforcement activity holds steady, while 2018 saw the lowest number of CFPB enforcement actions ever

The study did not elicit any outright trends regarding CFPB and FTC consumer protection cases and enforcement actions, though it is worth noting that the agencies recorded the largest proportion of claimant wins overall in their enforcement actions, at a rate of nearly 86%. This, of course, is not surprising, given the greater leverage of government-entity plaintiffs in public enforcement cases compared to private-individual plaintiffs in consumer protection cases generally. The study also noted a low number of settlements (about 7% overall), a majority of which were consent judgments. Compared to the CFPB’s 35 enforcement actions from 2016 to 2018, the FTC filed 124, more than three times that of the CFPB.

IV. Pulling it all together

Several factors seem to be at play in this marked increase in FCRA litigation. As the economy recovered in the wake of the 2008 global financial crisis, job applications and the accompanying background checks skyrocketed as the job market improved. Consumers also transitioned from relying on cash and resumed or increased their use of credit, increasingly applying for credit cards and mortgages. These activities were made even easier with the proliferation of smartphones and similar mobile devices, which were only in their infancy pre-2009 and not yet widely adopted. Compared to 2008 and earlier, consumers today can sign up for a credit card, apply for a mortgage, monitor their financial accounts, apply and even interview for jobs, and check their credit scores from their smartphone.

This increase in activity and access naturally has led to the greater exchange of credit report information and the potential for error, data breaches, and misuse, leaving defendants open to massive FCRA liability. While the “big three” credit reporting agencies were the hardest hit over the past ten years, financial institutions were not immune, with Bank of America defending against a significant number of FCRA claims during the studied period.

As the data shows, just reaching settlement on a claim, regardless of its validity, can take months, with summary judgment and trial coming months and even years later. In this new age of enterprise-wide hacking, misuse of credit report information in background checks, identity theft, and cybercrime, and the exponential increase in online financial activity, the risk to FCRA-regulated entities is great. Any entity that receives or transmits credit report information is a potential defendant, and diligence is required to avoid financial liability.

[1] While the report itself covers a wide swath of consumer protection cases, we focus here on cases arising under the Fair Credit Reporting Act and actions brought under federal consumer protection enforcement statutes, including the Federal Trade Commission Act and the Consumer Financial Protection Act.

[2] These include the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FCRA), the Telephone Consumer Protection Act, and the Truth In Lending Act (TILA). Congress granted the CFPB and FTC the power to carry out these functions through the Consumer Financial Protection Act and the Federal Trade Commission Act, respectively.

[3] By way of background, Congress enacted the Fair Credit Reporting Act in 1970 to regulate and protect the collection and use of consumers’ credit information and consumers’ access to their credit reports. The overarching goal of the FCRA is to promote fairness, accuracy, and privacy of consumers’ personal information collected and shared by credit reporting agencies. FCRA imposes a variety of obligations on consumer reporting agencies, furnishers of consumer data, and users of consumer report data.

[4] The most frequent defendants in FCRA cases from 2009–2018 were the three major national credit reporting agencies in the United States, Equifax (including its subsidiaries), Experian, and TransUnion

Arent Fox’s Consumer Financial Services group will continue to monitor developments in this area. If you have any questions on the study or complying with the FCRA, contact Jenny Lee, Jake Christensen, or the Arent Fox professional who normally handles your matters.