CFPB’s Recent Interpretive Rule Encourages States to Enact Fair Credit Reporting Laws
When courts or administrative agencies opine on whether a federal statute preempts state law, they usually do so in the wake of the statute’s enactment. But the U.S. Consumer Financial Protection Bureau’s (CFPB) interpretive rule issued mid-summer regarding the Fair Credit Reporting Act’s limited preemption of state laws comes 52 years after the FCRA became law, and 11 years after the Dodd-Frank Wall Street Reform and Consumer Protection Act established the CFPB.
For state regulators, the wait might have been worth it. In its interpretive rule, the CFPB endorsed states’ abilities to enact their own fair credit reporting laws to protect their residents. The rule clarifies that the FCRA’s express preemption provisions have a narrow and targeted scope, and that states therefore retain “substantial flexibility” to enact consumer reporting laws that “reflect emerging problems affecting their local economies and citizens.” And, by flagging medical debt, eviction histories, and rental arrears as examples of information state fair credit reporting laws could prohibit, the CFPB all but greenlights to state legislatures the areas of credit reporting it would like to see them regulate.
(My partner John Soumilas recently wrote about the CFPB’s efforts to curb unlawful medical debt collection.)
According to the CFPB, the FCRA has narrow express preemption provisions
The CFPB sets the stage for its analysis by noting the FCRA grants states the authority to enforce the statute, and that many states passed their own version of the FCRA after Congress enacted it—sometimes going above and beyond the FCRA’s requirements.
The CFPB then turns its focus to the preemptive scope of 15 U.S.C. 1681t of the FCRA, particularly sections 1681t(b)(1) and (5), which have been the subject of recent legal challenges to state fair credit reporting laws. Starting with section 1681t(a), the CFPB lays the groundwork for its preemption analysis by explaining that the language of that section provides that state laws not “inconsistent” with the FCRA will generally not be preempted. But it then points out that even those state laws that are inconsistent would only be preempted “to the extent of the inconsistency.” After establishing that state credit reporting laws inconsistent with the FCRA will be preempted by it, the CFPB turns next to careful parsing of the language of sections 1681t(b)(1) and (5). It concludes at the outset of its analysis that the “plain text” of those sections make it “apparent that both provisions have a narrow and targeted scope.”
The CFPB explained that under section 1681t(b)(1), laws are not preempted unless they are “with respect to any subject matter regulated under” certain sections or subsections of the FCRA
Section 1681t(b)(1) has eleven subsections that follow the same syntax. Each subsection will preempt state laws “with respect to any subject matter regulated under” an enumerated part of the FCRA. After each enumerated FCRA section comes a parenthetical phrase beginning with “relating to” that describes or narrows the section that has just been enumerated.
For example, section 1681t(b)(1)(C) generally preempts state laws “with respect to any subject matter regulated under subsections (a) and (b) of section 1681m of this title, relating to the duties of a person who takes any adverse action with respect to a consumer.” Therefore, preemption under section 1681t(b)(1) depends on the meaning of both the “with respect to” and “relating to” clauses.
The CFPB goes on to note that sometimes the “relating to” parenthetical reiterates the enumerated section, as with section 1681t(b)(1)(C) where section 1681m already concerns “the duties of a person who takes any adverse action with respect to a consumer.” But other times, “relating to” acts as an additional limitation on the “with respect to” clause. An example of this would be section 1681t(b)(1)(E) preempting state laws “with respect to any subject matter regulated under section 1681c of this title, relating to information contained in consumer reports.” Section 1681c primarily contains limitations on information that can be included in consumer reports, but it also includes other miscellaneous provisions. So, in this instance, the “with respect to” clause focuses the preemption question on “information contained in consumer reports.”
The CFPB then explains that based on the FCRA’s legislative history, only subject matter at the level of specificity referred to by 1681t(b)(1) is subject to preemption. For example, a state law would only be preempted if it both concerned the subject matter regulated by a particular section of the FCRA and related to the specific topics regarding consumer information addressed by that same section. The CFPB gives the example of section 1681c regulating the subject matter of how long specific types of information listed in that section may continue to appear on a consumer report, but not what or when items generally may be initially included in a report. Thus, a state law regarding the former would be preempted but not one regarding the latter.
According to the CFPB, it then follows that “state laws relating to what or when items generally may be initially included on a consumer report—or what or when certain types of information may initially be included on a consumer report—would generally not be preempted.” The CFPB then explains that because of this narrow preemption, “[s]tates therefore retain substantial flexibility to pass laws involving consumer reporting to reflect emerging problems affecting their local economies and citizens.” The CFPB gives the examples of state laws regulating reporting of medical debts and rental information as the kinds of laws unlikely to be preempted by the FCRA given the language of 1681t(b)(1).
The CFPB further explains that under 15 U.S.C. 1681t(b)(5), only state laws “with respect to the conduct required by” certain sections or subsections of the FCRA are preempted
The CFPB next turned to section 1681t(b)(5), which preempts state law “with respect to the conduct required by the specific provisions of [one of the nine enumerated FCRA parts].” For example, 15 U.S.C. 1681t(b)(5)(E) would preempt a state law “with respect to the conduct required by the specific provisions of section 1681j(a),” which requires consumer reporting agencies to provide free annual credit reports to consumers.
The CFPB explained that a state law requiring consumer reporting agencies to provide semi-annual credit reports would likely be preempted because that requirement would likely be “with respect to the conduct required by” 1681j(a). However, state laws that do not concern the frequency of a mandatory free credit report would likely not be preempted by this provision. So, according to the CFPB, if state law “required that a consumer reporting agency provide information required by the FCRA at the consumer’s request in languages other than English, such a law would generally not be preempted by section 1681t(b)(5)(E).”
By inviting states to enact more fair credit reporting laws, what are the ramifications?
Having made clear in this interpretive rule that sections 1681t(b)(1) and (5) of the FCRA have a “narrow and targeted scope” concerning preemption of state laws, and by dropping hints throughout its analysis, the CFPB is undoubtedly inviting states to enact more fair credit reporting laws. But doing so could create some significant consequences.
First, if even only a handful of states enacted more fair credit reporting laws, prosecuting and defending fair credit reporting claims could become more of a regionalized state-by-state practice for plaintiffs’ and defense attorneys, rather than the more national approach now, where certain boutique firms on both sides do the majority of the litigating. This might invite in some non-traditional FCRA state-based practices. That could then, in turn, create pockets and concentrations of hot-bed state litigation forums, and perhaps disparate and varying caselaw.
Second, consumer reporting agencies would likely find increased compliance costs as they would need to adjust their business practices to fit a patchwork of state and federal regulations.
Third, new state fair credit reporting laws would surely attract legal challenges. Because the challenges would center on whether the state laws are preempted by the FCRA, we could be looking at federal courts granting motions for preliminary injunctions against states enforcing their new laws, and then federal appellate courts ruling on those district courts’ decisions. This could cause regulatory uncertainty. And, of course, only a few federal appellate courts ruling in conflicting ways could lead to a circuit split and cert petitions to the U.S. Supreme Court, which might or might not be granted.
Interestingly, the CFPB’s interpretive rule here does not include analysis regarding how courts have ruled on FCRA preemption recently. With the CFPB’s full-throated endorsement of state fair credit reporting laws, the question now is simply whether states heed the CFPB’s call and what the repercussions will be.
Jim Francis is a founding partner of Center City-based Francis Mailman Soumilas, P.C., a leading consumer rights law firm. He can be reached at firstname.lastname@example.org.
Reprinted with permission from the October 26, 2022 edition of The Legal Intelligencer © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or email@example.com.