Lenders, servicers and others regulated by consumer protection statutes may be able to rest a bit easier following the U.S. Supreme Court’s recent decision in TransUnion LLC v. Ramirez (Ramirez), where the Court filtered out over 75% of claimants in a consumer class action because they did not suffer actual harm from the alleged statutory violations.
The Ramirez decision is also potentially favorable to certain loan servicers and others regulated under the Fair Debt Collection Practices Act (FDCPA) which had been dealt a blow under the 11th Circuit’s April 2021 decision in Hunstein v. Preferred Collection and Management Services, Inc. (Hunstein). There, the panel had found that a consumer had standing to sue under the FDCPA, even in the absence of actual harm, solely on grounds that a statutory violation existed.
The Decision in TransUnion LLC v. Ramirez
In a 5-4 split decision issued on June 25, 2021, Justice Kavanaugh, writing for the Court, found that 6,332 consumers wrongfully identified as “potential terrorists” on their credit reports lacked standing to sue TransUnion, even though it found that those classifications arose from procedures that violated the Fair Credit Reporting Act (FCRA).
The Court reasoned that each consumer could only sue for the error where it caused concrete harm. As a result, merely 22% (1,853 out of 8,185) consumers in the suit – those whose credit reports containing faulty classifications were actually disseminated to third parties via credit checks, thus causing concrete injury in the form of reputational harm – could proceed with their claims. The consumers whose information did not reach third-party businesses lacked standing to sue.
Applicability To Other Statutory Schemes
Although Ramirez concerned the conduct of a credit reporting agency pursuant to the FCRA, the Court’s reasoning is not specific to the FCRA, and could extend easily to other contexts. For example, the actual injury requirement set forth in Ramirez may apply to alleged violations of statutes affecting lenders, loan servicers and other regulated entities, including the Truth in Lending Act, the FDCPA, the Equal Credit Opportunity Act and other federal statutes.
Importance to FDCPA Litigation
In its Hunstein decision, the 11th Circuit ruled that a debt collector violated the FDCPA by sharing a consumer’s private information with a third-party vendor that used the information to send a letter to the consumer, even though using third-party vendors is common practice in the debt collection industry. There has been concern in the debt collection industry that the decision will trigger an expensive overhaul of practices at entities regulated by the FDCPA, which courts have found include loan servicers that acquired already-defaulted loans.
The debt collection company defendant in Hunstein is seeking to have the 11th Circuit rehear the case en banc for a number of reasons including the Ramirez court’s interpretation of Article III standing (whether the court would have jurisdiction to hear the case based upon an “injury-in-fact”) as well as based on a footnote in Ramirez which discusses the impact of intra-company publication and standing.
The Hunstein defendant’s argument is that, like the class members in Ramirez, the sharing of private information with vendors for mailings was an internal communication. Based on the Ramirez footnote, these kinds of disclosures to vendors are not actionable “publications” which cause an injury-in-fact, therefore they are not sufficient to provide standing.
If rehearing en banc is granted and the 11th Circuit determines Ramirez applies to FDCPA suits (which seems likely based on the Supreme Court’s broad reasoning), it may reevaluate its own analysis and find that this statutory violation does not suffice to establish standing. That would be good news for parties regulated by the FDCPA, as it could stave off the need to stop outsourcing tasks usually handled by outside vendors and stem a tide of potential litigation that was anticipated based on the Hunstein decision.
Looking Ahead
The result of the Supreme Court’s rationale in Ramirez seems balanced and fair to consumers as well as regulated entities, as it filters out claims of unharmed consumers while leaving untouched the ability of claimants who have suffered real harm caused by statutory violations to seek legal redress.
Although the long-term impact on litigation related to alleged statutory violations (and the practices of the debt collection industry) remains unclear, the Ramirez decision is promising for lenders and other entities subject to complex regulatory schemes, as it reinforces the common sense mandate that a claimant must, in fact, be harmed to recover.
Christine DeVito and Nicole Serratore, members of the Insolvency, Creditors’ Rights + Financial Products Practice Group of Davis+Gilbert, contributed to this post.
