The United States Supreme Court recently granted certiorari to TransUnion on a multimillion-dollar jury verdict arising out of a class action in the Ninth Circuit.
In Ramirez v. TransUnion, a case filed in the Northern District of California,the jury assessed $60 million in damages against TransUnion for three FCRA violations: (1) willful failure to follow reasonable procedures to assure accuracy of terrorist alerts in violation of 15 U.S.C. § 1681e(b); (2) willful failure to disclose to class members their entire credit reports by excluding the alerts from the reports in violation of § 1681g(a)(1); and (3) willful failure to provide a summary of rights in violation of § 1681g(c)(2). The facts relating to the alleged injury suffered by the named class member are compelling. When applying for a car loan, Mr. Ramirez was denied financing by the dealership because he was incorrectly listed a match on an OFAC Advisor “terrorist list” alert that came up when his credit report was pulled, based on information obtained through a third party vendor. Notably, the dealership did not conduct any further independent investigation to determine whether Mr. Ramirez was in fact a match but instead sold the car to Mr. Ramirez’ wife.
Mr. Ramirez thereafter requested and obtained his credit report from TransUnion, which did not contain the OFAC alert. However, a letter he received from TransUnion a day later notified him that he was listed as a “prohibited SDN (Specially Designated National)”. After speaking with an attorney, Mr. Ramirez learned of the procedure to dispute the OFAC data associated with his credit file and did so. The alert was removed. The record revealed that more than 8,000 other consumers’ credit files had also been falsely labeled as prohibited SDNs from January and July 2011 and that they received a letter similar to Mr. Ramirez’ when they requested their credit reports during that time. Mr. Ramirez subsequently brought the above class action on behalf of himself and those other consumers, who apparently did not suffer any actual injury for which damages could be awarded. The jury verdict amounted to roughly $1,000 in statutory damages per class member and $6,300 each in punitive damages.
After the jury verdict, TransUnion appealed to the Ninth Circuit Court of Appeals. The Ninth Circuit held that the class members had standing sufficient to be certified as a class under Rule 23, but found that the punitive damages award was excessive and cut the punitive damage award in half.
On review, the U.S. Supreme Court must consider and rule upon two critical issues: (1) Whether either Article III or Rule 23 permits a damages class action where the vast majority of the class suffered no actual injury, and (2) whether a punitive damages award violates a defendant’s due process rights where it is exponentially larger than any class-wide actual damages and multiples greater than the statutory damages awarded for the defendant’s violations.
The Ramirez case comes before the High Court at the end of another record-setting year for FCRA claims. But its implications far exceed FCRA litigation. With a historically conservative Court hearing this case, there is at least a possibility that class actions may be more heavily scrutinized in the future.
Baker Sterchi will continue to monitor the Ramirez case for important updates.
As we approach the holidays, financial institutions, retailers, and consumers alike are all well-advised to be on the lookout for financial scams.
Just days ago, the Kansas City Police Department stopped gift card scammers that had defrauded an elderly woman, inducing her to purchase and send them gift cards, and threatening to harm her and her family if she did not comply. But much damage was already done, as authorities believe the scammers had already made purchases in excess of $75,000. The police became involved after Target employees notified them of the suspicious transactions.
Given the unique financial hardships presented by COVID-19, fraud is of particular concern this year. According to recent TransUnion financial hardship studies, 35% of consumers report they have been targeted by e-commerce fraud scams.
The FTC reports there are several versions of the recently popular gift card scams, including false IRS threats; callers pretending to be utility companies; sellers of cars, motorcycles boats, and expensive electronic devices on online auction or e-commerce sites; and buyers promising to pay more than the purchase price but then seeking reimbursement for the difference. They all have one thing in common – they demand payment be made in the form of gift cards from various retailers, which is surely never a requested form of payment for a legitimate transaction. Typically, the scammer will ask the victim to provide the gift card number and its pin number located on the back of the card.
So, what are consumers to do if they believe they are the victim of a gift card scam? The victim should tell trusted loved ones and report the incident to local authorities, the retailer, as well as to the FTC here.
There are steps retailers can take as well, including strengthening security by setting additional PIN numbers, limiting maximum gift card amounts, and educating employees to detect signs of gift card fraud, such as the purchaser requesting large amounts, or texting/talking on their phone through the transaction, since the scammers often demand the victim stay on the phone with them during the transaction. And it is key that retailers educate their consumers by including preventative tips near gift card racks and cash registers. Amazon, a frequent involuntary party to these scams, has published such guidance on its website.
Gift card fraud pertains to not only retail gift cards, but also prepaid cards from financial institutions. Banks and other financial institutions are reminded of their obligation to report suspicious transactions to the Financial Crimes Enforcement Network (FinCEN) and also encouraged to educate their account holders about gift card scams as the holidays approach. These efforts could save the financial institution and the consumer from substantial loss, as well as heartache, during the season of giving.
The long-awaited Opinion from the United States Supreme Court has been rendered: The structure of the Consumer Financial Protection Bureau (the “CFPB”), and specifically its appointment of a single director, removable only for cause, is unconstitutional. The Court rendered its 5-4 Opinion, authored by Chief Justice Roberts, earlier this week. The Supreme Court held that the CFPB’s current structure violates the Separation of Powers clause of the U.S. Constitution. The Supreme Court reasoned that the CFPB “lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential Control.” The Opinion went on to provide for the longstanding history of the U.S. President’s powers to remove executive officials, with very limited exception.
Defenders of the CFPB’s statutory structure cited to other agencies that have operated under a similar structure, including the Social Security Administration and the Federal Housing Finance Agency. But, the Court held, the former is distinguishable because it does not have the authority to conduct enforcement actions. And the latter is subject to ongoing criticism and constitutional challenges. The Court noted that the Fifth Circuit recently held the FHFA to be unconstitutional in Collins v. Mnuchin, 938 F. 3d 553, 587-588 (2019).
While the High Court was split over first issue, a more overwhelming 7-2 majority ruled on the second issue at hand that unconstitutional “removal” clause of the statutes creating the CFPB are severable from the other statutory provisions. Therefore, the Court held, the CFPB can continue to operate under the existing statutes.
Justice Kagan authored a dissent to the majority opinion, arguing that the President had ample power under the existing structure to remove the CFPB Director when appropriate. She cautioned about why the CFPB was created in the first place and that by undermining its independence, the majority Opinion would send “Congress back to the drawing board.”
Going forward, we now know that the CFPB is not going anywhere, but current and future Presidents will exercise more control over who will be in charge of the Bureau. What is not clear from the Opinion is the impact that it will have on enforcement actions ratified by “unconstitutionally insulated” directors. Because Mick Mulvaney was an acting director terminable-at-will, actions ratified by him are likely protected under the Opinion. But any actions ratified by the first-appointed director, Richard Cordray, or current director Kathleen Kraninger, may face legal challenges going forward.
About Financial Services Law Blog
The BSCR Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry. This blog will inform readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph, and our Financial Services practice.
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