The Consumer Financial Protection Bureau ("CFPB") has sounded the alarm on a home security company's alleged violation of the Fair Credit Reporting Act ("FCRA"). On December 11, 2020, the CFPB announced that it and the Arkansas Attorney General reached a settlement with Alder Holdings, LLC ("Alder"), a Utah-based home security company, for allegedly violating the FCRA by charging higher activation fees to customers with lower credit scores without providing notice to the customers. Under the terms of the settlement, Alder will pay a $600,000 civil penalty and provide proper notices to its customers in the future. The case is styled Bureau of Consumer Financial Protection et al. v. Alder Holdings, LLC, Case No. 20-cv-1445. The complaint filed in the Eastern District of Arkansas is available here, and the proposed stipulated final judgment and order is available here.
Alder retails home-security alarm systems to customers through door-to-door sales. When an Alder salesperson sells an alarm system, the customer typically enters a long-term contract with monthly monitoring fees and an initial activation fee. The activation fee may be deferred through monthly installments, paid along with the monthly monitoring fee. Essentially, the alarm and monitoring equipment is provided to the customer at a price much lower than its retail value, with Alder recouping its costs and making a profit through the deferred activation fee, monitoring fee, and long-term contract arrangement. According to the complaint, because Alder grants its customers the right to defer payment of the activation fee, the arrangement qualifies as an extension of credit for FCRA purposes.
Not every Alder customer, however, is charged the same activation fee. Instead, Alder evaluates each customer's credit score to determine the amount of the activation fee that the customer will be charged. This practice of providing less-favorable credit terms based on a review of a customer's consumer report is regulated by the FCRA's Risk-Based Pricing Rule, which requires companies utilizing such a practice to provide a Risk-Based Pricing Notice to affected customers. The required notice must include information about the customer's consumer report, the identity of the provider of the report, and the customer's rights under federal law to obtain a copy of the report and to dispute its accuracy, among other things. According to the complaint, Alder failed to provide this notice to its customers.
Alder is currently involved in related litigation with the State of Arkansas in Arkansas state court. Under the terms of the settlement, if Alder agrees to pay $100,000 to settle the related state-court litigation, that amount will be offset from the $600,000 civil penalty in this case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.