In Part 1 of my discussion of Fair Credit Reporting Act ("FCRA") class actions, I noted several pitfalls New Jersey employers face when obtaining a background check from a consumer reporting agency for the purposes of making an employment decision. Now, we'll examine why the number of FCRA class action filings has been on the rise.
The explosion of class action lawsuits under the FCRA is attributable to several factors. The FCRA applies to a multitude of industries including credit reporting agencies, all employers, consumer credit companies, banks, and insurance companies – to name the most prevalent. It dictates how these industries must treat consumer information and perform background checks. In sum, the FCRA itself contains hyper-technical requirements in the statute, but also additional requirements that have been imputed by the Federal courts, the FTC, and the Consumer Financial Protection Bureau (established in 2011).
All the while, the FCRA has slowly but surely become the new class action darling for reasons beyond the pitfalls addressed in Part I. Why? It appears that many cases under the FCRA result in settlements, rather than proceed to a trial on the merits. This is probably the predominant reason for the explosion in class action law suits alleging violations of the FCRA.
The underlying goal of the FCRA is to ensure accurate reporting and use of private information for a legitimate purpose. The FCRA lends itself to class action litigation since the lawsuits attack a company's standardized business practices – either employers use forms that are uniform throughout their hiring process or credit card companies issue standard written firm offers of credit. Without stating the obvious – the reason certain business practices even exist is to provide for uniform and efficient procedures to the masses. Hence, the business practices implicate a large number of putative plaintiffs.
Another attractive feature of the FCRA is that, while a negligent violation will result in actual damages, statutory damages for willful violations are the draw of plaintiff's counsel because a plaintiff does not have to show individualized harm or actual damages. Section 1681n of the FCRA provides for statutory damages of $100 to $1,000 for each willful violation (again uniformity that fits neatly into a class action lawsuit), and carries with it the promise of counsel fees, and the potential for punitive damages.
Allegations of willfulness by plaintiffs have proven effective to overcome a defendant's motion to dismiss and/or for summary judgment – in some circuits. While a company's mere violation of the FCRA does not rise to the level of willful noncompliance — the United States Supreme Court, in Safeco Ins. Co. of Am. v. Burr, interpreted the term "willful" to encompass not only knowing and intentional violations of the FCRA, but reckless ones as well.
Courts have been reluctant to dismiss cases on dispositive motions, finding that whether a violation was reckless is a fact question. This allows plaintiffs to rely upon common proof and avoid an individualized damages assessment, and forecloses the possibility of a defendant prevailing upon a dispositive motion.
This may all come to an end – or, on the flip side, open the flood gates – depending upon the U.S. Supreme Court's anticipated 2016 ruling in Spokeo v. Robins, where the Court will consider whether Congress can grant a plaintiff Article III standing to bring a lawsuit for a defendant's statutory violation of a statute without any cognizable actual harm.
The ruling is anticipated in 2016 and the Court will hear oral argument in early November 2015, but in the meantime amicus briefs are being filed in support of the ability of a private individual to file claims for violations of the FCRA. Otherwise, as some of the amicus argue, the requirement to prove actual harm will limit a private claimant's right to file a claim and will lead to an increase in dissemination of inaccurate data. This case will have implications upon other consumer protection laws, such as the Telephone Consumer Protection Act, the Truth in Lending Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, Cable Communications Policy Act, as well as a host of others. For now, we will have to wait to see how this case develops.
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