A lawsuit filed in May 2014 by the Mississippi Attorney General against Experian in Mississippi state court alleging widespread federal and state law violations was removed last week by Experian to a federal district court in Mississippi. While the complaint’s sensational allegations of Fair Credit Reporting Act (FCRA) violations by Experian have received considerable attention, it seems to have gone unnoticed that the lawsuit appears to represent the fourth lawsuit by a state AG or regulator using his or her Dodd-Frank enforcement authority.
The Illinois AG and the Superintendent of the New York Department of Financial Services recently became, respectively, the first state AG and state regulator to use their authority under Dodd-Frank Section 1042 to bring a civil action for a violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP). (The Illinois AG has used that authority in two actions.)
In his complaint against Experian, Mississippi AG Jim Hood has alleged in Claim VIII that Experian’s conduct constituted unfair and deceptive acts and practices in violation of the Dodd-Frank UDAAP prohibition. Without expressly alleging that his UDAAP claim is brought under Section 1042 of Dodd-Frank, Mr. Hood seeks various remedies in Count VIII under Dodd-Frank Section 1055 (12 U.S.C. 5565). Specifically, Mr. Hood seeks “restitution, disgorgement of Experian’s revenue from these deceptive and unfair practices and acts, rescission of agreements with Mississippi consumers for credit monitoring services, identity theft protection services, and credit scores, damages as set forth in subsection(c), penalties, public notification regarding these violations of law, including the costs of notification, and limits on the activities or functions of Experian with regard to the offensive conduct.” (Since civil penalties, not damages, are set forth in Section 1055(c), presumably Mr. Hood intended to reference “damages, penalties as set forth in subsection (c).”)
In the complaint, Mr. Hood also seeks restitution under the Mississippi Consumer Protection Act (which Experian is alleged to have also violated) and damages under the FCRA. However, the other remedies he seeks in Claim VIII are ones that would not otherwise be available to him under the FCRA or Mississippi CPA.
The civil penalties provided by Section 1055(c)(2) are draconian, consisting of the following:
First tier-for any violation of a law, rule or final order or condition imposed in writing by the CFPB-up to $5,000 per day during which the violation or failure to pay continues
Second tier-for recklessly engaging in a violation of a Federal consumer financial law, up to $25,000 per day during which the violation continues
Third tier-for knowingly violating a Federal consumer financial law, up to $1 million per day during which the violation continues
Despite Mr. Hood’s attempt to invoke these draconian penalties, we question whether Section 1055 authorizes a court to award them to a state AG (or state regulator). Although Section 1055(c)(1) provides that such penalties can be assessed against “any person that violates, through any act or omission, any provision of Federal consumer financial law,” Section 1055's other subparagraphs suggest that such penalties can only be awarded to the CFPB. Section 1055(c)(3) sets forth factors that “the Bureau or the court shall take into account” in determining the amount of a penalty assessed under Section 1055(c)(2). Section 1055(c)(4) provides authority to the CFPB to compromise, modify or remit penalties assessed under Section 1055(c)(2). And perhaps most significantly, Section 1055(c)(5) provides that no penalty can be assessed under Section 1055(c) unless “the Bureau gives notice and an opportunity for a hearing to the person accused of the violation” or “the appropriate court has ordered such assessment and entered judgment in favor of the Bureau.” (emphasis added).
Even if Mr. Hood cannot obtain civil penalties under Section 1055, the range of other remedies potentially available to him under Dodd-Frank provides another illustration of the power of the new weapons Congress has placed in the hands of state AGs and regulators.