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INSIGHT: CFPB Uses Settlement, Workshop to Flex Credit Reporting Muscle

Jan. 8, 2020, 9:01 AM

For many trial lawyers, the trick to getting a point across to the jury is to “tell them, show them, and tell them again.” Federal agencies, including now the Consumer Financial Protection Bureau, function similarly to drive a point to the industry.

In November, the Consumer Financial Protection Bureau announced a settlement with an employment background screening company to resolve allegations of Fair Credit Reporting Act (FCRA) violations. The CFPB ordered the company to pay $6 million in restitution to adversely impacted consumers and fined the company $2.5 million pursuant to its civil money penalty authority.

Two months prior, the Federal Trade Commission and the CFPB announced they would host a December workshop on FCRA issues to discuss employment and tenant background screening activity.

Ahead of the workshop, the CFPB had a fresh matter to demonstrate how it views compliance with the FCRA. In addition to the enforcement matter, it released a “Special Edition” of its Supervisory Highlights solely about the consumer reporting industry. The CFPB’s actions are a fresh reminder of what its jurisdiction is in the credit reporting market.

Tenant and Employment Screening

In his opening remarks at the workshop, FTC Commissioner Noah Joshua Phillips provided a list of enforcement matters conducted by the FTC and announced that tenant and employment screening remained an enforcement strategic priority of the FTC.

Companies performing some level of credit reporting activities question the CFPB’s jurisdiction to investigate or examine their activity; especially, in the face of stated exceptions contained in Dodd-Frank’s Consumer Financial Protection Act (CFPA) for tenant and employment screening.

While a company that engages in Consumer Reporting Act (CRA) activities may subject itself to the FCRA, it may not be subject to the broader jurisdiction of the CFPB. In those circumstances, while the CFPB can enforce violations of the FCRA, the bureau may not investigate or enforce the provisions of the CFPA whether the covered person engaged in an unfair, deceptive, or abusive act or practice (UDAAP) in connection with a consumer financial product or service.

Activity Covered by the FCRA

The FCRA covers all companies that collect information about consumers and sell the resulting consumer reports for use in consumer eligibility decisions in a range of settings, including credit, housing, employment, criminal records, insurance, and work and financial history. This activity falls squarely within the ambit of the FCRA.

The FCRA is an enumerated consumer law enforced by the CFPB. The CFPA expressly states that with the exception of 615(e) and 628, the FCRA is an “enumerated consumer law.” The term “Federal consumer financial law” is defined as including the “enumerated consumer laws”—this is important because the CFPB has the authority to investigate a potential “violation of any provision of Federal consumer financial law.”

However, not all FCRA activity makes the person a covered person under the CFPA—meaning an entity that offers or provides a “consumer financial product or service.”

Although the CFPA includes consumer reporting as a financial product or service, it creates an exception from financial product or service information used for a decision related to “employment” or “a residential lease or tenancy involving a consumer.”

Additionally, while the CFPB may potentially enforce non-compliance with the FCRA, it may not be able to exercise broader jurisdiction for other purposes such as exams or certain other type of enforcement activity because they’re not a “covered person” that offers or provides a consumer financial product or service.

Some CRA Activity Not Subject to UDAAP

In light of these limitations, the CFPB cannot investigate activity in the consumer reporting market as it relates to employment or residential screening to determine compliance with any other law than the FCRA.

This is important because the CFPB’s jurisdiction of what it can investigate and seek relief for violations is limited to the FCRA alone. However, because the company is engaged in activity that falls squarely within the FCRA, the CFPB (or the FTC) may investigate its compliance with FCRA law and enforce the provisions of the FCRA and Dodd-Frank for violations of the FCRA and CFPA.

Notably in 2015, the CFPB and two credit reporting companies entered into a settlement agreement and consent order related to alleged violations by the companies in performing background checks for employment suitability. Further, both companies would not have been covered persons under the CFPA.

Nonetheless, the parties agreed to settle alleged violations of the FCRA. In addition, in the consent order, the CFPB did not allege that the two companies were covered persons.

FCRA Compliance Going Forward

This is the CFPB’s second enforcement matter regarding the alleged violation of a company involved with employment screening. It came only weeks ahead of the CFPB-FTC joint Workshop.

One of the speakers indicated that tenant and employment screening were a government strategic priority. One issue left hanging in the air during the workshop was whether—now that the two agencies have told industry how it views industry’s obligations of compliance with the FCRA and demonstrated to the industry the adverse consequences of its failure to comply with its obligations—it will continue to look for additional examples of industry non-compliance with the FCRA.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Anthony Alexis is a partner in Goodwin Procter’s financial industry practice and serves as the head of the firm’s consumer financial services enforcement practice, focusing on consumer financial services and government and regulatory investigations.

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