Menashi v. Am. Home Mortg. Servicing, Inc., 2011 U.S. Dist. LEXIS 114387 (M.D. Fla. Oct. 4, 2011)

Facts: Plaintiff filed suit against the three CRAs, Wilmington Trust Company and American Home Mortgage Servicing, Inc. (“AHMSI”), the servicer of Plaintiff’s mortgage, alleging violations of § 559.72(5), (6), and (9) of the Florida Consumer Collection Practices Act (“FCCPA”). Plaintiff’s claim arose from the modification of his home mortgage under the Home Affordable Modification Program (“HAMP”). Plaintiff and AHMSI negotiated a mortgage modification under HAMP and after a three-month HAMP “trial period plan,” AHMSI offered Plaintiff a permanent HAMP agreement, which he accepted. Less than a year later, AHMSI rejected a mortgage payment from Plaintiff and informed him that the HAMP mortgage modification, while a valid contract, was a “mistake” that AHMSI would no longer honor. AHMSI then reported to the three CRAs that Plaintiff was behind on his mortgage. Plaintiff insisted the report was false and alleged the CRAs engaged in wrongful credit reporting. AHMSI alleged and Plaintiff conceded that §§ 559.72(5) and (6) are preempted by the Fair Credit Reporting Act (“FCRA”). The court held that the FCRA only preempts those state law causes of action against furnishers of credit information that regulate credit reporting – including a cause of action under a state law not directed expressly to the regulation of credit information, such as a debt collection act.

• Preemption. Section 1681t(b)(1)(F) prohibits states from imposing a law “with respect to any subject matter regulated under § 1681s-2 of [the FCRA], relating to the responsibilities of persons who furnish information to consumer reporting agencies.” If a state law regulates credit reporting only in limited circumstances, § 1681t(b)(1)(F) preempts the state law only in those limited circumstances. Here, the FCRA preempted the FCCPA only if AHMSI violated § 559.72(9) while engaged in credit reporting activity regulated by § 1681s-2. Plaintiff did not allege that AHMSI rejected the mortgage modification with the purpose of altering or inaccurately reporting his credit information. If AHMSI refused to honor the mortgage modification because it decided the modification was a “bad deal,” that decision had no connection to the purpose of § 1681s-2 and falls outside its scope. The Court rejected AHMSI claims that the FCRA literally preempts all state causes of action against furnishers of credit information. 
• Injunctive Relief. Only the FTC may obtain an injunction under the FCRA. The Court denied Plaintiff’s request for equitable relief under the FCRA and granted Trans Union’s motion to dismiss.

The Federal Trade Commission has released guidance for employers who use consumer reports for employment purposes. The guidance reminds that a report on a person’s character such as a report that includes criminal history is a consumer report if anyone will use it for employment purposes, which includes employment, promotion, reassignment, or retention as an employee.  

The FTC and the courts have previously said that the phrase “as an employee” only applies to the word “retention,” so the terms employment, promotion, and reassignment can relate to any activity that produces income, even if it is not normally considered employment. The new guidance reminds employer in plain English of their obligations when using consumer reports for these purposes. Employers may find it to be a good checklist when evaluating the compliance of their programs.

If you are a backgroundchecks.com customer and have questions, please contact Client Services. All other inquiries can be sent to info@backgroundchecks.com.

The Federal Trade Commission warned several mobile app makers that their products may be consumer reports. According to the FTC’s website, these app makers all performed instant database checks into individual’s criminal histories. The FTC noted that this information, if used for employment purposes, is a consumer report. The FTC placed no weight to the presence of a disclaimer on an app that it is not for employment purposes. Instead, the FTC said it would look to indications of actual use, such as where the mobile apps were advertised and who was on the app-makers’ customer lists.

This is critical for employers who use anything other than a regulated consumer reporting agency for their background reports. The FTC and private plaintiffs’ lawyers may hold employers liable for using services similar to these (whether mobile apps or websites) in violation of the Fair Credit Reporting Act. The FTC points out that a consumer report is a consumer report, regardless of whether the companies providing or obtaining it think so. The FTC is absolutely correct.

At a minimum, the FTC and plaintiffs’ lawyers would be able to show a violation of 15 U.S.C. § 1681b(f)(2), which prohibits anyone from obtaining a consumer report without having first certified to a consumer reporting agency the purpose for which the report will be used. Most likely, they would also be able to show a violation of:

·         15 U.S.C. § 1681b(b)(2), which prohibits anyone from obtaining a consumer report for employment without having first told the subject that that it will obtain a consumer report and having obtained the subject’s authorization;

·         15 U.S.C. § 1681b(b)(3), which requires anyone intending to take adverse action based on a consumer report obtained for employment purposes to give a specific notice before taking that action, and

·         15 U.S.C. § 1681m, which requires anyone who takes adverse action based on a consumer report to give a further notice about the action.

It seems probable that the FTC would show this to be a knowing violation, which would entail civil penalties of up to $3,500 per violation. More significantly, plaintiffs’ lawyers would show this to be willful, which means that the employer would be liable for $100 to $1,000 per violation, plus actual damages, plus punitive damages, plus attorney’s fees.

Using a regulated consumer reporting agency like backgroundchecks.com avoids this particular problem. More importantly, it assures employers that the reports on which they make critical hiring decisions were prepared by a responsible agency using processes designed to produce accurate, complete, up-to-date reports. When another service – whether mobile or web – disclaims the FCRA, that is a sign that the report may be too unreliable to be used for hiring.

In its newly issued staff report that updates its guidance under the Fair Credit Reporting Act (FCRA), the Federal Trade Commission (FTC) says that the term employment purposes includes “a nonprofit organization staffed in whole or in part by volunteers.” (See page 32 of the report.)

The sources cited in the footnote for this assertion do not support it. The first source cited there is Hoke v. Retail Credit Corp. in that case, the court construed the words employment, promotion, and reassignment in the definition of “employment purposes” have “specific meanings in the area of activities for the production of income.” By definition, volunteering is not an activity for the production of income. The other two sources that the footnote cites, the Allison and Solomon information staff opinion letters, both deal with cases in which the activity in question was income-producing (independent truck drivers in Allison and title insurance agents in Solomon).

However, courts often defer to the FTC’s guidance on matters under the FCRA. Therefore, anyone who screens volunteers should consider immediately adopting the practices related to employment-purpose screening, including disclosure, authorization, and pre-adverse-action notices.

Please see below for links to the documents referenced in this update:

• The report is available at http://ftc.gov/os/2011/07/110720fcrareport.pdf.
• The Allison and Solomon opinion letters are available through http://www.ftc.gov/os/statutes/fcra/index.shtm.
• Copies of the Hoke opinion can be found by searching the internet for the phrase “Hoke v. Retail Credit.”

For more information on the new guidance from the FTC, please see our previous update titled FTC Issues New Guidance on FCRA. For more information on how this update may affect your program and how backgroundchecks.com can help, please contact client services.