Class Action Complaints Alleging FCRA Violations Erroneously Dismissed because FACTA Amendments Eliminating Private Rights of Action for FCRA § 1681m Violations cannot be Applied Retroactively to Class Action Claims Premised on Violations that Occurred Prior to FACTA’s Effective Date Seventh Circuit Holds
Plaintiff Linda Killingsworth filed a class action against Household Bank (now HSBC Bank Nevada) alleging that the prescreened credit card offer extended to her by the Bank prior to August 20, 2004 violated the federal Fair Credit Reporting Act (FCRA), and plaintiff Erick Sawyer separately filed a class action against his auto insurance carrier, Ensurance Insurance Services, alleging that in connection with issuing him an auto policy in October 2004 it “violated the FCRA by charging him a higher rate based on negative information in his credit report without giving him notice of that adverse action, and also by using his initial credit information for subsequent renewals of his policy when corrected credit information would have qualified him for a lower rate.” Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 616 (7th Cir. 2007). The class action complaints were filed in the Northern District of Illinois, and defense attorneys in each class action moved to dismiss the complaint based on Section 311 of the federal Fair and Accurate Credit Transactions Act (FACTA), which amended the FCRA to eliminate certain private rights of action under the FCRA. Id., at 617 (citing 15 U.S.C. § 1681m(h)(8)). In each case, the district court agreed and dismissed the class action complaint, id. Both plaintiffs appealed and the Seventh Circuit consolidated the appeals and issued a single opinion address the question of whether Section 311, which became effective on December 1, 2004, “impairs rights [plaintiffs] possessed prior to the new statute’s effective date and therefore has an impermissible retroactive effect if applied to them.” Id. The Seventh Circuit reversed the dismissal of Killingsworth’s class action, concluding that the retroactive application of Section 311 was improper as to her claims, but the Circuit Court remanded for further proceedings as to Sawyer’s class action complaint, concluding that “the retroactivity question cannot be decided at the pleading stage because the conduct alleged in his [class action] complaint straddles FACTA’s effective date.” Id.
The issue before the Seventh Circuit was “whether an amendment to the [FCRA] eliminating private rights of action has an impermissible retroactive effect when applied to FCRA claims that accrued prior to the amendment’s effective date.” Killingsworth, at 616. Section 311 of FACTA added subsection (h) to FCRA § 1681m so as to eliminate private rights of action for violations of § 1681m. Killingsworth received an offer of credit prior to August 20, 2004, but did not file her class action lawsuit until October 2005. Id., at 617. Her class action alleged a violation of § 1681m(d), and defense attorneys moved to dismiss the class action on the ground that no private right of action existed based on Section 311’s amendment to the FCRA. Id., at 617-18. The district court agreed and dismissed Killingsworth’s class action, id., at 618. For his part, Sawyer applied for auto insurance in October 2004, his auto policy took effect on December 20, 2004, and it was renewed twice at six-month intervals. Id., at 618. Sawyer also filed his class action lawsuit after the effective date of Section 311; his class action alleged a violation of § 1681m(a). Id. However, the class action alleged further that “Ensurance failed to consider interim changes to his credit rating and instead relied on his initial credit score when subsequently renewing his policy,” thus implicating acts taken after Section 311’s effective date. Id. As in Killingsworth, defense attorneys moved to dismiss Sawyer’s class action on the ground that no private right of action existed; the federal court agreed and dismissed Sawyer’s class action. Id.
After noting that its review of the district court orders dismissing the class action complaints was de novo, Killingsworth, at 618, the Seventh Circuit explained that both defendants raise primarily a legal argument, characterized by the Court as the “threshold issue” – whether FACTA amended the FCRA so as to eliminate private rights of action for § 1681m violations alleged in the class action complaints, id., at 619. As a preliminary matter, the Court reaffirmed its holding that § 1681m(h)(8) eliminates private rights of action for all claims under § 1681m, not simply for those claims brought under § 1681m(h). Id. (citing Perry v. First Nat’l Bank, 459 F.3d 816, 819 (7th Cir. 2006)). The question, then, is whether the statute may be applied retroactively to conduct that occurred prior to FACTA’s effective date, id. Based on its analysis of retroactivity, the Seventh Circuit held that Congress did not intend for Section 311 to apply to conduct that occurred prior to FACTA’s effective date. See id., at 619-22. In this regard, the Court examined whether retroactive application of the amendment would “impair rights a party possessed when he acted, increase a party’s liability for past conduct, or impose new duties with respect to transactions already completed.” Id., at 621-22. It held that Killingsworth class action claim, which “accrued between FACTA’s enactment and effective dates,” id., at 622, existed at the time of Household’s allegedly willful violation of § 1681m, so her private right of action would be impaired if the statute applied retroactively, id., at 622-23. But with respect to Sawyer’s class action claim, the Circuit Court held that “the issue of retroactivity may ultimately be irrelevant” because the complaint does not specify when the alleged FCRA violation occurred “and discovery may show that it occurred after December 1, 2004, when FACTA became effective.” Id., at 623. Because this issue could not resolved at the pleading stage, the Seventh Circuit remanded the matter for further proceedings. Id.
The Seventh Circuit also addressed defendants’ other challenges to the class action complaints, but we do not discuss them here. See Killingsworth, at 623-24. We note only that the Court held that whether Household’s § 1681m(d)’s disclosures were clear and conspicuous could not resolved “at this stage of the case,” id., and that the class action complaint adequately pleaded a claim for an FCRA violation, id., at 624.
In sum, the Seventh Circuit concluded at page 624 “that FACTA’s elimination of private rights of action for § 1681m violations has an impermissibly retroactive effect when applied to claims that accrued before its December 1, 2004 effective date.” Killingsworth, at 624. Accordingly, it reversed the district court orders and remanded for further proceedings, id.