As reported in a recent Hunton Andrews Kurth client alert, Mitigating FCRA Risks in the COVID-19 World (Oct. 23, 2020), consumer litigation claims related to the Fair Credit Reporting Act (FCRA) doubled in the years leading up to the COVID-19 pandemic. After a slight decrease in FCRA filings due to court closures and other COVID-19 restrictions, claims will likely resume their previous upward trajectory. In fact, the Consumer Financial Protection Bureau (CFPB) has already seen an uptick in consumer complaints, many of which mention COVID-19 specific keywords.
Given the anticipated rise in FCRA complaints, the alert highlights the need for financial institutions and financial services companies to develop FCRA-compliant policies and procedures, including training on those policies and procedures, to mitigate the risk of FCRA-related enforcement actions and litigation claims, particularly in light of the regulatory changes relating to the COVID-19 pandemic.
Another important risk mitigation tool to consider is insurance, which can offer protection when even the most robust preventative measures fail to prevent an FCRA claim. Coverage for FCRA-related claims—often from directors’ and officers’ (D&O) or errors and omissions (E&O) policies—might be broader than one would initially expect. Policies may cover defense costs involving legal fees, as well as indemnification for damages.
Policies may provide coverage for legal fees and expenses incurred in responding to regulators’ investigative demands, including the issuance of subpoenas demanding testimony or the production of documents. See Astellas US Holding, Inc. v. Starr Indem. & Liab. Co., No. 17 CV 8220, 2018 WL 2431969, at *1 (N.D. Ill. May 30, 2018) (treating subpoena as a “Claim” because it is a “written demand for . . . non-monetary relief”); Syracuse Univ. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 40 Misc. 3d 1205(A) (N.Y. Sup. Ct. 2013) (finding grand jury investigation and subpoenas constituted a “Claim” under D&O policy), aff’d, 112 A.D.3d 1379 (N.Y. App. Div. 2013). Even if regulators’ investigative efforts do not lead to imposition of fines or penalties, the costs to defend against subpoenas or enforcement actions can be substantial and may be covered by insurance.
Insurance may also afford coverage for FCRA-related damages. Because a successful FCRA litigant can recover actual damages or statutory penalties for each violation, attorneys’ fees, costs, and punitive damages, a company embroiled in an FCRA dispute can quickly find itself liable for a hefty award, particularly in the class action context. While some insurance policies may exclude certain components of relief (such as punitive damages), coverage may remain for statutory penalties, which some courts have treated as compensatory, not punitive, in nature. See, e.g., Navigators Ins. Co. v. Sterling Infosystems, Inc., No. 653024/2013, 2015 WL 4540389, at *4–5 (N.Y. Sup. Ct. July 28, 2015) (holding FCRA damages were “compensatory” in nature and, therefore, not excluded as “penalties” under E&O policy); see also Bateman v. Am. Multi-Cinema, Inc., 623 F.3d 708, 718 (9th Cir. 2010) (holding FCRA statutory damages provision is not penal in nature); Ashby v. Farmers Ins. Co. of Or., 592 F. Supp. 2d 1307, 1316-17 (D. Ore. 2008) (treating statutory penalties “as ‘Compensatory’ Damages”). Of course, the scope of coverage is always fact-specific and depends on the policy language and facts of each claim. Prospective and renewing policyholders should thoroughly review the extent of available coverage, including the impact of any exclusions or carve outs from the definition of “loss,” in light of the damages available under the FCRA.
Due to the expected resumption of FCRA claim filings, furnishers of consumer credit information should be cautious of the future and eager to establish comprehensive FCRA-compliant policies and procedures. In addition to a robust compliance program, D&O, E&O, and other insurance policies can provide vital protection and confidence in an otherwise uncertain future.