Articles Posted in FCRA Class Actions

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Class Action Complaints Alleging FCRA Violations Erroneously Dismissed because FACTA Amendments Eliminating Private Rights of Action for FCRA § 1681m Violations cannot be Applied Retroactively to Class Action Claims Premised on Violations that Occurred Prior to FACTA’s Effective Date Seventh Circuit Holds

Plaintiff Linda Killingsworth filed a class action against Household Bank (now HSBC Bank Nevada) alleging that the prescreened credit card offer extended to her by the Bank prior to August 20, 2004 violated the federal Fair Credit Reporting Act (FCRA), and plaintiff Erick Sawyer separately filed a class action against his auto insurance carrier, Ensurance Insurance Services, alleging that in connection with issuing him an auto policy in October 2004 it “violated the FCRA by charging him a higher rate based on negative information in his credit report without giving him notice of that adverse action, and also by using his initial credit information for subsequent renewals of his policy when corrected credit information would have qualified him for a lower rate.” Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 616 (7th Cir. 2007). The class action complaints were filed in the Northern District of Illinois, and defense attorneys in each class action moved to dismiss the complaint based on Section 311 of the federal Fair and Accurate Credit Transactions Act (FACTA), which amended the FCRA to eliminate certain private rights of action under the FCRA. Id., at 617 (citing 15 U.S.C. § 1681m(h)(8)). In each case, the district court agreed and dismissed the class action complaint, id. Both plaintiffs appealed and the Seventh Circuit consolidated the appeals and issued a single opinion address the question of whether Section 311, which became effective on December 1, 2004, “impairs rights [plaintiffs] possessed prior to the new statute’s effective date and therefore has an impermissible retroactive effect if applied to them.” Id. The Seventh Circuit reversed the dismissal of Killingsworth’s class action, concluding that the retroactive application of Section 311 was improper as to her claims, but the Circuit Court remanded for further proceedings as to Sawyer’s class action complaint, concluding that “the retroactivity question cannot be decided at the pleading stage because the conduct alleged in his [class action] complaint straddles FACTA’s effective date.” Id.

The issue before the Seventh Circuit was “whether an amendment to the [FCRA] eliminating private rights of action has an impermissible retroactive effect when applied to FCRA claims that accrued prior to the amendment’s effective date.” Killingsworth, at 616. Section 311 of FACTA added subsection (h) to FCRA § 1681m so as to eliminate private rights of action for violations of § 1681m. Killingsworth received an offer of credit prior to August 20, 2004, but did not file her class action lawsuit until October 2005. Id., at 617. Her class action alleged a violation of § 1681m(d), and defense attorneys moved to dismiss the class action on the ground that no private right of action existed based on Section 311’s amendment to the FCRA. Id., at 617-18. The district court agreed and dismissed Killingsworth’s class action, id., at 618. For his part, Sawyer applied for auto insurance in October 2004, his auto policy took effect on December 20, 2004, and it was renewed twice at six-month intervals. Id., at 618. Sawyer also filed his class action lawsuit after the effective date of Section 311; his class action alleged a violation of § 1681m(a). Id. However, the class action alleged further that “Ensurance failed to consider interim changes to his credit rating and instead relied on his initial credit score when subsequently renewing his policy,” thus implicating acts taken after Section 311’s effective date. Id. As in Killingsworth, defense attorneys moved to dismiss Sawyer’s class action on the ground that no private right of action existed; the federal court agreed and dismissed Sawyer’s class action. Id.

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Judicial Panel Grants Defense Request, Over Objection, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 but Agrees With Plaintiff’s Request to Transfer Class Actions to District of New Jersey

Three class action lawsuits were filed against Boscov’s Department Store alleging violation of the federal Fair and Accurate Credit Transactions Act (FACTA). In re Boscov’s Dep’t Store, LLC, Fair & Accurate Credit Transactions Act (FACTA) Litig., ___ F.Supp.2d ___, 2007 WL 3119372, *1 (Jud.Pan.Mult.Lit. October 17, 2007). Defense attorneys filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the District of Maryland. Maryland plaintiffs supported the motion; Pennsylvania plaintiffs agreed pretrial coordination was appropriate but argued that the Western District of Pennsylvania was the appropriate transferee court; and New Jersey plaintiffs opposed centralization but alternatively argued that the District of New Jersey was the appropriate transferee court. Id. The Judicial Panel granted the motion to centralize the class actions but rejected defendant’s request for transfer to Maryland and Pennsylvania plaintiff’s request for transfer there even though Boscov was headquartered in Pennsylvania, id. Rather, the Panel stated that all three forums would be appropriate, and selected New Jersey Illinois because it has “the capacity to handle this litigation and a transferee judge with time and experience to steer this litigation on a prudent course.” Id.

NOTE: This case highlights the risk a defendant runs in assuming that they will be successful in choosing a forum by way of MDL centralization.

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Allegations in Class Action Complaint that Defendant had been “Repeatedly Informed” of FACTA’s Requirements but Failed to Timely Comply Sufficient to Establish “Willful” Violation of FACTA so as Defeat Rule 12(b)(6) Motion to Dismiss Pennsylvania Federal Court Holds

Plaintiff filed a class action against Lifetime Brands for violating the federal Fair and Accurate Credit Transactions Act (FACTA). Ehrheart v. Lifetime Brands, Inc., 498 F.Supp. 753, 754 (E.D. Pa. 2007). The class action complaint alleged that defendant “willfully” failed to redact credit card information from electronically printed customer receipts, id. Defense attorneys moved to dismiss the class action for failure to state a claim, arguing that plaintiff had not pleaded injury in fact and that defendant had not acted willfully, id. The district court disagreed with the defense and denied the motion, holding that the class action complaint adequately pleaded claims under FACTA.

Recognizing that it was entitled to consider exhibits to the class action complaint in ruling upon the defense Rule 12(b)(6) motion, and that it need not accept as true “bald allegations” or “legal conclusions,” Ehrheart, at 755, the district court first held that a claim under FACTA does not require proof of identity theft. The class action alleged that defendant gave plaintiff credit or debit card receipts that violated FACTA because they contained more than the last five digits of card and/.or the expiration date of her credit card. Id. That is all that is required: “FACTA does not require that a plaintiff have suffered actual monetary damages in order to sue for violation of the Act” but, rather, provides for statutory damages irrespective of whether any actual injury is suffered. Id., at 755-56. Accordingly, the court rejected defense arguments challenging the class action complaint for failure to allege actual injury.

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Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Rejects Transferee Court Recommendations of Various Plaintiffs Opting Instead to Transfer Class Actions to District of Kansas as Requested by Defense

Six class action lawsuits (followed by “tag-along” class actions) were filed against The TJX Companies for violations of the Fair and Accurate Credit Transactions Act (FACTA) because TJX allegedly included certain information on customer credit card receipts. In re The TJX Cos., Inc., Fair & Accurate Credit Transactions Act (FACTA) Litig., 505 F.Supp.2d 1379, 1379 (Jud.Pan.Mult.Lit. 2007). Defense attorneys filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the District of Kansas. Id. The Kansas class action plaintiffs did not oppose the motion, id. The plaintiffs in the other federal district did not oppose centralization, but argued alternatively for California, Illinois, Massachusetts or Nevada as the transferee court. Id. The Judicial Panel granted the motion to centralize the class action litigation and agreed with defense attorneys that the District of Kansas was the appropriate court Id., at 1380.

Download PSF file of In re TJX Transfer Order

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Judicial Panel Grants Defense Request, Opposed by Plaintiffs, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Agrees to Transfer Class Actions to Central District of California as Requested by Defense

Two class action lawsuits were filed against Charlotte Russe alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA) by failing to block certain credit and debit card information from customer receipts. In re Charlotte Russe, Inc., Fair & Accurate Credit Trans. Act (FACTA) Litig., 505 F.Supp.2d 1377, 1378 (Jud.Pan.Mult.Lit. 2007). Defense attorneys filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Central District of California, id., at 1377.. Plaintiffs’ lawyers in both the California and the Pennsylvania class actions opposed centralization, particularly because the Central District of California had refused to certify FACTA class actions in several cases including in the California plaintiffs’ action. Id., at 1378. The Judicial Panel granted the motion to centralize the class actions (recognizing that technically only one of them remained a class action) because the statutory requirements have been met: “Each action involves allegations that Charlotte Russe’s printing of certain credit and debit card information on customer receipts violated [FACTA]. Centralization…will eliminate duplicate discovery; prevent inconsistent pretrial rulings, especially with respect to class certification; and conserve the resources of the parties, their counsel and the judiciary.” Id. The Panel also agreed that the Central District of California is the appropriate transferee court because the first class action was filed there and because defendant’s headquarters are in California. Id., at *2.

Download PDF file of In re Charlotte Russe Transfer Order

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Whether FACTA Class Action Violates Due Process Because Statutory Damages are Grossly Disproportionate to Actual Harm Suffered must be Challenged by Defense at Motion to Certify Class Action Rather than by Defense Motion to Dismiss California Federal Court Holds

Plaintiff filed a class action in California federal court against Adidas alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA) for failing to remove credit card expiration dates from receipts given customers following credit card purchases. Arcilla v. Adidas Promotional Retail Operations, Inc., 488 F.Supp.2d 965, 967-68 (C.D. Cal. 2007). Defense attorneys moved to dismiss the class action complaint or to strike the prayer for punitive damages, id., at 968. The district court rejected the defense challenges to the class action complaint.

FACTA is part of the Fair Credit Reporting Act (FCRA), and provides in part, “[N]o person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.” 15 U.S.C. § 1681c(g). The statute became effective December 4, 2006, and since that time literally hundreds of putative class action complaints have been filed alleging violations of FACTA; indeed, the district court noted that the putative class action before it was “one of as many as 70” FACTA class action lawsuits filed in the Ninth Circuit alone. Arcilla, at 967. The class action allegations in the instant class action complaint “resemble those in the others”: the putative class action alleges that plaintiff purchased merchandise from defendant and received a credit card receipt that disclosed the expiration date of his credit card, id. The class action alleged that defendant provided similar receipts to other customers, and alleged further that some of those receipt included “more than the last five digits of the card numbers,” id., at 968. The class action complaint prayed for statutory damages, punitive damages, and attorney fees, and alleges that defendant’s conduct resulted in an “increased risk of identify theft.” Id.

The district court summarized the defense arguments at page 968 as follows: “(1) it could not have willfully violated the FACTA because the statute is vague and ambiguous; (2) the Complaint seeks statutory damages that would be constitutionally excessive and thus violate due process because no actual harm has been suffered; (3) the statutory damages would violate ‘principles of tort law’ because Plaintiff and the potential class members have suffered no actual harm; (4) the request for punitive damages is improper because any such damages would be excessive absent an allegation of actual harm.” The district court disagreed, concluding that the allegations of the class action complaint were sufficient to survive the defense motions, and that certain challenges to the class action had to be brought in response to a motion to certify the litigation as a class action.

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Rule 23(b)(3) Superiority Class Action Requirement not met Where Financial Impact on Defendant for Technical Violation of FACTA (Fair and Accurate Credit Transactions Act) would be Disproportionate to any Harm to the Class California Federal Court Holds

Within hours of purchasing an item at Cost Plus with her credit card, plaintiff filed a putative class action alleging a technical violation of the federal Fair and Accurate Credit Transactions Act (FACTA) in that her receipt truncated her credit card number but failed to omit the expiration date of the card. Spikings v. Cost Plus, Inc., Case No. CV-06-8125-JFW (C.D. Cal. May 25, 2007) [Slip Opn., at 1-2]. Plaintiff filed a motion for certification of class action treatment; defense attorneys objected arguing in part that the prerequisite Rule 23(b)(3) finding of superiority did not exist thus barring class action certification. Id., at 2. The district court agreed with the defense and refused to certify the litigation as a class action.

FACTA requires that no more than the last 5 digits of a credit card number be shown on customer receipts, and that the expiration date of the credit card not be disclosed on the receipt. 15 U.S.C. § 1681c(g). Plaintiff purchased an item at Cost Plus on December 19, 2006, and within four (4) business hours filed her putative class action complaint. Spikings, at 2. Plaintiff served the class action complaint on December 26, 2006, defendant deleted the expiration date from credit card receipts in all but three of its stores by January 11, 2007, and completed the process of deleting the expiration date from all customer credit card receipts by January 29, 2007. Id. Nonetheless, plaintiff pursued the class action, alleging that defendant’s violation of FACTA was “willful” within the meaning of 15 U.S.C. § 1681n, thus entitling the class to statutory damages of $100-$1000 per violation, as well as punitive damages and attorney fees. Id. Plaintiff also moved the court to certify the litigation as a class action, id., at 1.

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Putative Class Action Alleging FACTA Violation for Inclusion of Credit Card Expiration Date on Customer Receipts did not Warrant Class Action Treatment Because Rule 23(b)(3) Superiority Requirement not Satisfied California Federal Court Holds, Particularly as Defendant’s Act in Correcting the Violation Immediately on Receipt of Plaintiff’s Complaint Established its Good Faith and “Nullified Any Deterrence Benefit”

Plaintiff filed a putative class action against International Coffee & Tea alleging that it violated the Fair and Accurate Credit Transactions Act (FACTA) because it provided customers with credit card receipts that included the last five digits of the credit card and the card’s expiration date. Soualian v. International Coffee & Tea, LLC, Slip Opn., at 1 (C.D. Cal. June 11, 2007). Plaintiff filed a motion to certify the litigation as a class action; defense attorneys objected that Rule 23(b)(3)’ superiority test had not been met. Id. The district court agreed and refused to permit the litigation to proceed as a class action.

FACTA provides that “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last five digits of the card number of the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.” 15 U.S.C. § 1681c(g)(1). Plaintiff’s putative class action sought to represent “the class of individuals who made purchases at Defendant’s stores…and who received receipts on which Defendant printed more than the last five digits of the person’s credit card or debit card number, or on which Defendant printed the expiration date of the person’s credit or debit card.” Soualian, at 1. The district court outlined the elements required for class certification under Rule 23(a), but focused its analysis on whether Rule 23(b)(3) had been satisfied, id.

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In Seminal FCRA (Fair Credit Reporting Act) Class Action Cases, Supreme Court Holds (1) “Willful” Failures Under FCRA § 1681n(a) Include Acts of “Reckless Disregard,” (2) “Adverse Action” in Determining Insurance Premiums Includes Setting First-Time Insurance Rates, (3) Review of Credit Report must have Impacted Rate Charged Consumer, and (4) Insurers did not Violate FCRA

Plaintiffs filed two separate putative class action lawsuits against GEICO and Safeco Insurance, respectively, alleging willful failure to give notice of adverse actions under the federal Fair Credit Reporting Act (FCRA) in violation of § 1681m(a). Safeco Ins. Co. of America v. Burr, __ U.S. __, 2007 WL 1582951 (June 4, 2007) [Slip Opn., at 4]. The questions before the United States Supreme Court in the consolidated cases were “whether willful failure covers a violation [of the FCRA] committed in reckless disregard of the notice obligation, and, if so, whether … Safeco and GEICO committed reckless violations.” Id., at 1. The Supreme Court held that a “willful” violation of the FCRA included “reckless disregard,” but that neither GEICO nor Safeco recklessly violated the FCRA, id., at 1-2.

The class action complaints were filed by individuals who purchased car insurance from GEICO and Safeco, each of which rely upon credit reports in setting insurance premiums. Safeco, at 4-5. In these consolidated class actions, defendants allegedly offered plaintiffs auto insurance at rates that were higher than the most favorable rates offered by the companies. Id., at 4. However, the insurers did not send plaintiffs notices of adverse action, id., at 4-5. The FCRA requires that “any person [who] takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report” must provide notice to the consumer. 15 U.S.C. § 1681m(a). For these purposes, an “adverse action” includes “a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for.” § 1681a(k)(1)(B)(i). The Supreme Court explained that these notices “must point out the adverse action, explain how to reach the agency that reported on the consumer’s credit, and tell the consumer that he can get a free copy of the report and dispute its accuracy with the agency.” Safeco, at did not allege actual damages; rather, it sought statutory and punitive damages under § 1681n(a). Id.

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As Matter of First Impression, Seventh Circuit Holds that FCRA (Fair Credit Reporting Act) Requires Consumer Reporting Agency to do More than Make Accurate Disclosures because Statute Requires that Disclosures also be “Clear”

Plaintiffs filed a putative class action against credit reporting agency Equifax Information Services alleging violations of the federal Fair Credit Reporting Act (FCRA). Gillespie v. Equifax Information Services, LLC, 484 F.3d 938, 939 (7th Cir. 2007). The class action complaint asserted that Equifax’s disclosures failed to comply with the FCRA; specifically, the class action complaint alleged that consumers could not properly calculate the date by which negative credit information must be removed from their reports. Id. Defense attorneys moved for summary judgment on the grounds that the information it provided to consumers was clear and accurate. The district court agreed and granted summary judgment in favor of the defense; based on this ruling, the court found it unnecessary to address plaintiffs’ motion to certify the lawsuit as a class action. The Seventh Circuit reversed.

Plaintiff Heather Gillespie opened a credit account with Direct Merchants Bank in 1999 and defaulted on the account in 2001; plaintiff Angela Cinson opened an account with Sears in 1993 and defaulted on the account in 1996 or 1997. Gillespie, at 939. The delinquent accounts were sold to a collection agency, and information on the delinquencies made it to the Equifax credit files of each plaintiff, id. In 2004, each plaintiff requested their credit file from Equifax and Equifax complied. Gillespie, at 939. Plaintiffs objected to the “Date of Last Activity” entry in their credit files. Id. The court explained at page 939 the manner in which the field is completed:

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