SCOTUS’ Spokeo Decision Limits Consumer Credit Class Actions

Spokeo Inc v. RobinsLast week, the U.S. Supreme Court handed a temporary victory to a “people search” website, when it remanded a closely watched case to the Ninth Circuit for further proceedings.

The case, Spokeo, Inc. v. Robins, is a consumer credit protection class action brought under the federal Fair Credit Reporting Act (FCRA). The case is of interest to the marketplace lending industry, which is subject to the multitude of federal consumer credit protection laws, such as the FCRA.

Spokeo is a people search engine that organizes people’s online information into data profiles for various users, including “employers who want to evaluate prospective employees,” or “those who want to investigate prospective romantic partners or seek other personal information.”  At issue in the case are Spokeo’s procedures for making sure those profiles are accurate.

Thomas Robins, a 29-year-old Virginia man, claims his Spokeo profile was completely false – it said he was a wealthy, married man in his 50s, with children, and that he held a graduate degree. He claims none of that is true and that these inaccuracies could affect his ability to get a job by making him appear overqualified for the positions he sought.

Mr. Robins sued under the FCRA, 15 U.S.C. § 1681e(b), which requires consumer reporting agencies (which allegedly includes Spokeo) to “follow reasonable procedures to assure maximum possible accuracy of” consumer reports. Companies that willfully violate the FCRA can be liable for actual damages or $1,000 per violation, punitive damages, and attorney’s fees.

The Supreme Court, in the 6-2 decision written by Justice Samuel Alito, said the Ninth Circuit’s legal analysis was flawed. The lower court had considered whether Mr. Robins alleged an “injury in fact,” which is required to give a litigant standing to sue in federal court under Article III of the Constitution.  The Ninth Circuit had held that Robins’ allegation that “Spokeo violated his statutory rights” under the FCRA was sufficient to allege an injury-in-fact and give him standing.

The Supreme Court disagreed, holding that the Ninth Circuit had failed to consider whether Robins had suffered a “concrete” harm, not just an abstract, technical violation of the FCRA. The court explained that a person does not automatically suffer an injury-in-fact whenever a statutory right is violated. Instead, a plaintiff must allege and prove a real, “concrete” harm, not just a technical violation of a procedural statutory right. Justice Alito gave the example of an incorrect zip code as the type of mistake that wouldn’t qualify. “It is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm,” he wrote, even though the inaccuracy may be a technical violation of the FCRA.

Nonetheless, the Supreme Court confirmed that, in some cases, intangible injuries can provide a plaintiff with constitutional standing. “[T]he violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury in fact. In other words, a plaintiff in such a case need not allege any additional harm beyond the one Congress has identified,” the court wrote.

The ruling sends the case back to the Ninth Circuit for the lower court to analyze how or if Robins had suffered any real or concrete harm.

The decision will probably lead to more litigation over class certification. On one hand, marketplace lenders can now argue that proof of a concrete injury should defeat class certification in many cases, since individual issues would predominate over class-wide proof of standing (i.e., even if a lead plaintiff, such as Mr. Robins, can show that he has suffered a concrete injury, evaluating the harm to each proposed class member would require countless factual inquiries, each one unique to each particular plaintiff). On the other hand, plaintiffs’ lawyers will likely view the case as a win for consumers, since it reaffirms that, in some cases, intangible injuries delineated by Congress can establish standing.

Although the FinTech industry is relatively young, it is only a matter of time until plaintiffs’ class action lawyers set their sights on marketplace lenders. Class actions have already been filed against SoFi in California (an FCRA case in which the court has preliminarily approved settlement on a class basis) and Lending Club in New York. Spokeo provides a promising vehicle by which marketplace lenders can challenge the standing of a plaintiff to sue in the first place.

Doug Cuthbertson

About: Doug Cuthbertson

Doug Cuthbertson is a partner in the firm’s Business Litigation Group. He focuses on financial and insurance disputes, having represented banks, credit card issuers, and insurance companies for almost 20 years. His practice encompasses civil litigation involving federal consumer credit protection statutes, retail banking and deposit products and services, business torts, fraud, insurance coverage, and other insurance-related matters. View all posts by Doug Cuthbertson
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