Court Rejects FCRA Preemption Argument in Financial Privacy Litigation
Recently, a federal court considered whether the Fair Credit Reporting Act (“FCRA”) preempts a Missouri Merchandising Practices Act (“MMPA”) claim arising from accurate reporting. Pudic v. Dep’t Stores Nat’l Bank, 2021 U.S. Dist. LEXIS 150910 (E.D. Mo. Aug. 11, 2021). The court held the FCRA does not preempt a MMPA claim, and Defendant’s Motion to Dismiss was denied.
Here are the facts. Plaintiff, an individual, brought an action against Defendants, DSNB and Kohl’s, Inc. (collectively, the “Defendants”) for violating the MMPA when Defendants refused to accept payment on an account. Plaintiff had credit card accounts with the Defendants and fell behind on payments. When Plaintiff tried to resolve the unpaid accounts, the Defendants rejected Plaintiff’s payment citing bankruptcy as the basis for the denial.
From this disclosure, Plaintiff alleged that Defendants “had unfairly combined or linked” his account to his mothers’ (as she also had credit cards with Defendants, a nearly identical Social Security number, and had previously filed for bankruptcy—unlike Plaintiff). Plaintiff contended that Defendants, “in connection with transactions with Plaintiff,” violated the MMPA through “misrepresentations and unfair practice.” He alleged that, as a result of Defendants’ misconduct, his credit score suffered, he could not refinance his vehicle or obtain a reasonable mortgage interest rate, and his credit limit was reduced on other accounts.
The Defendants moved to dismiss Plaintiff’s First Amended Complaint arguing the FCRA preempts Plaintiff’s MMPA claim. The Court denied Defendants’ motion.
First, a refresher on the FCRA. The purpose of the FCRA, 15 U.S.C. § 1681, is to “ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy.” The FCRA also explicitly preempts state law in certain areas by stating, “[n]o requirement or prohibition may be imposed under the laws of any State with respect to any subject matter regulated under section 1681s-2 of this title, relating to responsibilities of persons who furnish information to consumer reporting agencies.” 15 U.S.C. § 1681t(b)(1)(F).
Courts have adopted various approaches to preemption under 1681t(b). On the “most narrow” interpretation, § 1681t(b)(1)(F) preempts only state laws concerning either the prohibition on furnishing inaccurate information or the duty to investigate and correct inaccurate reporting upon notification of a dispute. More broadly interpreted, the FCRA might preempt any additional duties imposed on furnishers.
Plaintiff urged the Court to interpret the FCRA narrowly, arguing that his MMPA claim was not preempted by the FCRA because he does not contest the accuracy of Defendants’ reporting. Conversely, Plaintiff alleged that Defendants improperly rejected his payments, not that Defendants reported inaccurate information.
The Court indicated Section 1681s-2 is silent on furnishers duties to accept payment and therefore, does not preempt state claims pertaining to acceptance of payment.Defendants argued that an “implicit claim of injury to [a plaintiff’s] credit score relating to loan payments” can be brought under the FCRA. Defendants cite Eaton v. Citibank, 2010 U.S. Dist. LEXIS 113293, 2010 WL 4272920 (M.D. Pa. Oct. 25, 2010) to support its claim. In Eaton, the court entered summary judgment for the defendant on the grounds that the plaintiff “could not prevail” on a claim under 15 U.S.C. § 1681s-2 because the report at issue was “accurate.” This case, however, actually supports Plaintiff’s position since Plaintiff did not contest the accuracy of Defendants reporting but rather claimed Defendants improperly rejected his payments.
The Court indicated that it is Defendants duty to justify preemption, and they failed to do so in this case. The Court read 15 U.S.C. § 1681t(b)(1)(F) to preempt state actions relating only to the two duties (noted above) imposed on furnishers by § 1681s-2. Here, Plaintiff’s claim was not regulated by 1681s-2, and thus, the FCRA does not preempt Plaintiff’s MMPA claim.
For more developments in this area of the law, stay tuned. CPW will be there to keep you in the loop.