Wednesday, June 21, 2017

When is a terrorist not a terrorist?

Managing Director
Lenders Compliance Group

Question: When is a terrorist not a terrorist?

Answer: When a Credit Reporting Agency (CRA) conflates a class of consumers with similarly named terrorists and criminals from a government watch list.

A California federal jury found Tuesday, June 20th, that TransUnion violated the Fair Credit Reporting Act (FCRA), awarding the plaintiffs whopping statutory and punitive damages topping $60 million.[*] I’m not sure if a larger award has ever been achieved in an FCRA verdict, but my guess is this size damages would likely be near or at the top!

I guess there are some people who have names that sound like the names of terrorists. So what else is new?

The credit reports issued by TransUnion, the CRA, checked consumers against the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) database. This database lists terrorists, drug traffickers, and other criminals. But, as the suit alleged, the credit reports about law-abiding consumers were sometimes linked to similarly named criminals on the OFAC watch list.

Lawsuits thrive where ambiguity afflicts the host!

The 8,185 class members profiled by TransUnion will each get $984 in statutory damages and $6,353 in punitive damages, bringing the total award to $8 million in statutory damages and $52 million in punitive damages. 

This scenario is not a mere thought-distracting speculation. In fact, financial institutions face dilemmas like this every day in their mission to originate loans that do not get flagged as requiring the filing of Suspicious Activity Reports (SARs). They depend on such services as CRAs to give them the information needed to determine if a loan applicant is just a Joe or Jane consumer who, perhaps with some of the usual venial exceptions caused by life’s poisoned petty mortifications, just want to get a loan versus the representationally complex behavior control system of a rabid, deranged terrorist whose moribund artificialities lead to morose glee at the loss of life and limb of innocent people.

After a week-long trial, the jury found that TransUnion willfully failed to assure the maximum accuracy for its results, to notify class members of their OFAC results in written disclosures, and to provide them with notice of their FCRA rights. That notion of “willfully failed” is the operative phrase! It hinges on the claim, which the jury accepted, that technology is available to deliver accurate results in credit reporting and that the failures of TransUnion to ensure accuracy showed willful noncompliance with the FCRA.

There is the usual casting of calumnies on plaintiff’s counsel. Transunion has stated that “the plaintiffs’ firm ... has a history of bringing questionable claims against credit reporting companies, to enrich itself rather than enforcing consumer protections.” But the facts, as alleged, seem kind of daunting.

This lawsuit, filed all the way back in February 2012, alleges that the lead plaintiff, Sergio L. Ramirez, was prevented from buying a car in 2011 because TransUnion told lenders he potentially matched two entries on the OFAC list.

Unfortunately, when Ramirez tried to get off TransUnion’s list, the CRA’s customer service agents gave him a “runaround" and didn’t explain how the error could be corrected. Then, as stated at trial, TransUnion argued that Ramirez’s experience occurred because a credit report produced by TransUnion was “garbled” after it was transferred between multiple financial entities before ending up at the auto dealer.

Just be glad something like this hasn’t happened to you!

As a defense, Transunion claimed that the consumers weren’t financially harmed by the mix up, because they were “able to purchase the car they wanted on the same financial terms and during the same time frame as would have been the case if the plaintiff’s name was not a potential match to a name on the OFAC list.”

Personally, I don’t particularly like this defense in this case. It is like saying that ‘somebody shot a bullet into a crowd of people, but that’s alright since nobody was killed!’ Of course, the goal of such a defense is to show that there was no damage and, mutatis mutandis, the legal viability of the suit is vitiated.

But I’m going with plaintiff’s view that TransUnion allegedly didn’t ensure accuracy, as required by the FCRA, by cross-checking OFAC name hits with other results, such as the date of birth. Plaintiffs also alleged TransUnion kept the OFAC results from the consumers themselves and only disclosed potential matches to the companies requesting the credit checks.

If you think this failure to comply with the FCRA is something new for Transunion, just consider the fact that TransUnion had lost a similar suit in Pennsylvania federal court in 2005. 

What I don’t get is why one lost lawsuit was not enough to learn from such a glaring defect in a technological solution! But then I do tend to descant critically against such ingenious conceits as not learning from muddled lapses and avoidable blunders.

[*] Sergio L. Ramirez v. TransUnion LLC, Case 3:12-cv-00632, U.S. District Court for the Northern District of California