On May 16, 2016, the Supreme Court of the United States made a ruling that affects businesses facing class action litigation. Class actions have been a growing problem for consumer reporting agencies and the companies who utilize them. Together, they have faced endless bouts in court for the misuse of specific documentation as mandated by the Fair Credit Reporting Act (FCRA). In fact, many companies have faced challenges of fraudulent applicants who are not seeking employment, but looking to start a class litigation based on FCRA violations.
Companies that face these types of class actions experience eerily similar outcomes:
- Plaintiff alleges the FCRA violation, but cannot show real-world harm.
- Plaintiff demonstrates a "technical" violation of the FCRA with no real loss suffered.
- Plaintiff seeks to represent a class seeking to expose the company and seeks damages in the multi-million or even billion dollar territory.
- The high cost of the exposure leads the defending company to settle rather than risk a decision.
The case of Spokeo Inc. v. Robins alleges that Spokeo violated the FCRA. The plaintiff could not show that Spokeo's failure to follow the mandated credit reporting procedures caused any actual harm. When the case was dismissed by a district court for failure to show "injury in fact" and after the Ninth Circuit reversed that decision, holding that the violation of the procedure is sufficient regardless of the lack of harm, the Supreme Court granted a review to determine if parties that which have suffered no actual losses could pursue a claim in federal court.
The Supreme Court announced its ruling on May 16, 2016 in a 6-2 decision. The majority determined that Robins cannot make a claim based solely on a statutory violation.
The case has been remanded to back to the Ninth Circuit, which will now have to consider the case again in light of the Supreme Court's decision.