Supreme Court Provides Additional Guidance on FCRA Standing

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

On June 25, 2021, the Supreme Court of the United States issued a ruling that provides additional guidance related to the Fair Credit Reporting Act (FCRA), a federal law that regulates the collection of consumers’ credit information and access to their credit reports. In the employment context, the FCRA most frequently applies to background checks, including class actions alleging the most common background check claim—unlawful disclosure and authorization screens/forms (usually because of too much or too little information)—resulting in an informational injury.

In this new decision, TransUnion LLC v. Ramirez (No. 20-297), the Supreme Court addressed standing for certain FCRA claims. Standing is the legal requirement to bring and maintain a claim in federal court. To have standing, a party normally needs to have a sufficient legal interest and injury. There are some parallels between some of the Ramirez nonemployment-related claims and employment-related background check disclosure and authorization screen/form allegations.

Ramirez Background

Ramirez involved a class of 8,185 consumers who brought an FCRA claim against TransUnion LLC, a consumer reporting agency. These consumers had alerts in their respective TransUnion credit files indicating their names were a “potential match” to a name on a list that the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) maintained of terrorists, drug traffickers, and other serious criminals considered threats to the security of the United States.

Individually, Sergio Ramirez alleged that he had experienced difficulty obtaining credit and buying a car as a result of this notation in his TransUnion file. He claimed that he was embarrassed and had canceled a trip outside the United States after a car dealer received a credit report indicating that his name matched one on a terrorist list.

Ramirez sought to represent the class of 8,185 individuals—the majority of whom never had a credit report disseminated to a third party and never suffered a denial of credit or other injury as a result of having been identified as a potential match.

The class FCRA claims alleged the following:

  • Reasonable Procedures Claim: TransUnion did not use reasonable procedures to ensure accurate information when it included in more than 8,000 class members’ respective credit files allegedly misleading OFAC alerts labeling them as potential terrorists.
  • Formatting Defects Claim: For all class members, certain mailings sent to them by TransUnion contained formatting defects, including an incomplete credit file and/or a failure to include an FCRA summary of rights describing how to dispute or correct inaccurate information in the file.

In the trial court proceedings in the U.S. District Court for the Northern District of California, Ramirez obtained a multimillion dollar jury verdict against TransUnion for erroneously flagging him and more than 8,000 consumers as potential terrorists.

TransUnion appealed the decision, arguing that the class definition included individuals who had suffered no injury. Ultimately, the Supreme Court granted certiorari on the question of whether either Article III permitted a damages class action where the vast majority of the class had not suffered an actual injury, let alone an injury anything like what the class representative had suffered.

The Court’s Decision

The Supreme Court held that if a plaintiff does not suffer a real harm and the risk of future harm never materializes, there is no concrete harm and no standing. If there is no standing, a plaintiff/class of plaintiffs cannot maintain an FCRA action in federal court. In sum, individuals lacking concrete harm cannot sufficiently show that they have been injured under the FCRA.

On the reasonable procedures claim, the Supreme Court assumed that there were FCRA obligation violations—but focused on whether TransUnion’s failures had resulted in concrete harm to the class members. The Court concluded that the 1,853 class members whose reports had been disseminated to third-party businesses (such as car dealers) had suffered concrete harm—and, therefore, had standing to pursue their FCRA claims. However, the Court held that the remaining class members whose reports were not disseminated to third-party businesses did not suffer concrete harm, reasoning that “[t]he mere presence of an inaccuracy in an internal credit file, if it is not disclosed to a third party, causes no concrete harm.” In reaching its conclusion, the Court rejected the plaintiffs’ argument (based on language in Spokeo, Inc. v. Robins (No. 13-1339)) that inaccuracies could lead to future harm, because the plaintiffs had not demonstrated that the risk of harm (dissemination to a third party) had ever materialized or caused a denial of credit.

On the formatting defects claim, the Court held that the plaintiffs did not demonstrate that they had suffered any harm from the formatting violations, including confusion or reliance. These kinds of claims sometimes are referred to as “informational injuries”—which other courts, including the U.S. Court of Appeals for the Ninth Circuit in Syed v. M-I, LLC (No. 14-17186), have found may cause concrete harm, allowing standing and allowing plaintiffs to maintain FCRA claims in federal court.

Employment Background Check Implications

Although Ramirez does not specifically address FCRA liability in the employment context, the case has some employment-related FCRA parallels—and is good news for employers. The Ramirez formatting defects claim—found by the Supreme Court not to cause the kind of harm necessary to support Article III standing—arguably is the same kind of informational injury claim as one alleging that background check disclosure and authorization screens/forms are unlawful because they contain too much or too little information. If the Ramirez holding is applied to unlawful background check disclosure and authorization screen/form class actions, plaintiffs may have difficulty maintaining standing in federal court. Ramirez also weakened plaintiffs’ ability to use “risk of future injury” to establish standing.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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