Welcome to Balch's Consumer Finance Compass, where we navigate the complex regulatory sphere that is consumer finance. I'm Jason Tompkins, partner in the Consumer Finance Compliance and Defense Practice. Today we'll explore Consumer Data Industry Association v. Frey, a recent decision from the U.S. District Court for the District of Maine.

This decision addresses when companies that furnish information to the credit bureaus must comply with state law or federal law, and in what instances the federal law preempts, or essentially takes the place of, and overrides conflicting state laws.

Federal preemption is based on the constitutional principal that federal law is the supreme law of the land, and any state laws to the contrary cannot stand. The issue the court had to address here was whether two Maine statutes that govern the reporting of certain medical debts, and the reporting and investigation of certain allegations of economic abuse can stand in the face of the Fair Credit Reporting Act, which governs furnishers on a federal level.

The court's analysis begins with the premise that Section 1681t of the Fair Credit Reporting Act expressly states that it does not preempt state law, except to the extent there's an inconsistency, or pursuant to a number of exceptions that then fall below that introductory paragraph. Those exceptions are numerous, numbering almost two dozen, and the exceptions have exceptions to themselves. So, it's a very complex area that the court had to look at.

The court specifically looked at three separate requirements. First, the Maine Fair Credit Reporting Act prohibits the reporting of medical debt until it is 180 days past the date of first delinquency. The plaintiff here said that that conflicted with the Fair Credit Reporting Act, reporting of information that's more than seven years old. The court disagreed. According to the court, these two statutes cover different subjects.

The Fair Credit Reporting Act is only concerned with things older than seven years, and the Maine Act is only concerned with how soon you can report something, and it does not require furnisher to report something that is over seven years old. Thus, a furnisher could comply with both requirements, and there was no preemption. The court reached a different conclusion as to the second provision.

The Federal Fair Credit Reporting Act prohibits the reporting of medical debt for veterans until one year after the date of medical services, or the date of delinquency. Whereas as mentioned before, the Maine Fair Credit Reporting Act allowed the furnisher to report the medical debt of everyone, not making a distinction between veterans and non-veterans after 180 days.

The court concluded that this was an inconsistency, and therefore the Maine Fair Credit Reporting Act was preempted by the Federal Fair Credit Reporting Act. Finally, the court addressed a separate Maine statute, the Maine Economic Abuse Debt Reporting Act, which requires furnishers who receive an allegation of economic abuse to, not only investigate that, but then imposes certain reporting requirements.

Economic abuse is essentially when one person exerts such control over another person's finances as to abuse them, and typically arises in the context of domestic abuse. The Fair Credit Reporting Act does not address economic abuse but does include requirements for reporting and notification regarding identity theft. The court concluded, quote, "The heartland of each statute concerns a distinct societal phenomenon that is unlike the other," end quote.

Specifically, the court concluded that sometimes economic abuse can be based upon identity theft, but not all identity theft is economic abuse. Similar to the old adage that all squares are rectangles, but not all rectangles are squares. To the extent the economic abuse is based entirely on identity theft, preemption exists, and the Maine statute has no operation.

The furnisher must only comply with the Fair Credit Reporting Act's requirements in that situation. But to the extent the economic abuse is based on something other than identity theft, or identity theft plus something else, the Maine statute is not preempted, and furnishers must comply.

The court pointed out that the conclusion regarding preemption is often a very fact-intensive case-by-case analysis, and that is why even though this decision concerns only two Maine statutes, its application is much broader. States across the nation have various requirements, regulations, and statutes that may conflict with provisions of the Fair Credit Reporting Act, or other consumer protection statutes. And it's important to look at that exhaustive list of preemption exceptions in Section 1681t and seek advice from your local counsel in each of those jurisdictions as to what requirements may stand, and which may be preempted.