The state says it can help consumers by reining in credit reporting agencies, but whether it can legally do so is unclear.
BOSTON (CN) — A pair of Maine laws designed to help people repair their credit after experiencing problems that weren’t their fault left the First Circuit stumped at oral arguments Wednesday.
The question was whether federal law preempts such a move, but the judges seemed to think the federal statute was badly written and hopelessly unclear.
A frustrated U.S. Circuit Judge David Barron peppered Maine’s lawyers for insight. “If I conclude that their position is untenable, I’d like to know what is tenable,” the Obama appointee said. “Or do we have two untenable positions?”
U.S. Circuit Judge Bruce Selya, an 87-year-old Reagan appointee, seemed equally perplexed. “The bottom line is what did Congress intend,” he said. “That’s what all of us are trying to figure out.”
One of the Maine laws limits the ability of credit-reporting agencies to penalize people for medical debt. It says such debt can’t be reported if it’s less than 180 days old or if the consumer has paid it off in full.
The reason for the law is that medical debt is something that people typically don’t take on voluntarily, so it doesn’t reflect on how responsible and creditworthy they are, the state explained in its brief.
With its other statute, Maine limits reporting of debt resulting from “economic abuse,” such as where an abusive person limits a spouse’s or partner’s access to bank accounts, forces them to co-sign loans or otherwise interferes with their credit to keep them vulnerable.
The Maine Legislature heard testimony that economic abuse is extremely common in domestic-abuse situations and is one of the main reasons that vulnerable partners don’t feel free to leave.
Last year, a federal judge held that the federal Fair Credit Reporting Act preempted both Maine laws. The FCRA preempts a number of state rules including those involving identity theft and veterans’ medical care, but there is no specific mention of economic abuse or medical debt in general.
Lawyers for both sides tried to interpret the FCRA provisions, but Judge Barron seemed convinced that making sense of the statute was hopeless. In such a case, “one could argue that we should apply the presumption against preemption,” he suggested.
Misha Tseytlin of Troutman Pepper in Chicago meanwhile pointed the Boston-based panel to precedent. Arguing for the amicus U.S. Chamber of Commerce, Tseytlin said the Supreme Court ruled that there is no presumption against preemption where Congress has specifically discussed preemption in a law.
“So what is a court supposed to do when a law is ambiguous?” Barron asked.
Tseytlin replied that the court should choose the more likely outcome, “even if it’s 51%.”
“But the presumption is most important when it’s 50-50,” Barron said, clearly implying he thought that was the case here.
Barron tried another approach. “Should I take into account that before the law there was a lot of state regulation, and should I assume that Congress didn’t intend to preempt everything unless it clearly said so?”
“You could just as easily argue the opposite,” Tseytlin answered.
“Just as easily?” Barron asked. “Then we’re back to 50-50.”
But Barron also had trouble figuring out how the state laws would work if they’re not preempted. For instance, since Congress clearly preempted state rules pertaining to veterans’ medical debt, would the Maine law addressing medical debt in general apply to veterans, to everyone except veterans or to no one?
Maine Chief Deputy Attorney General Christopher Taub said it would be okay if the state’s law applied to everyone except veterans.
“So why would Congress want to set up a situation where the state could benefit everyone except veterans?” Barron asked.
“Congress wanted to help veterans,” Taub said.
“But under your view, Congress wanted the states to be able to help everyone except veterans,” Barron said. “Or are you saying Maine could help veterans too?”
“We haven’t briefed that issue,” Taub replied.
Barron then demanded an answer from Chi Chi Wu, an attorney for another amicus, the National Consumer Law Center in Boston.
“You could say the law is preempted only as to veterans. That would be unfortunate,” she replied.
“It wouldn’t just be unfortunate; more importantly, it would be implausible,” Barron said.
Jennifer Sarvadi of Hudson Cook in Washington, who represented the Consumer Data Industry Association, said it was important to look at Congress’s larger purpose, which was “to provide a uniform way to evaluate consumers regardless of where they live, rather than a patchwork state system.”
But “where in the law does it say that?” Barron asked. “Did Congress want to preclude all regulation or just limit the states in some ways?”
Rounding out the panel was U.S. District Judge Pedro Delgado Hernández, an Obama appointee to the District of Puerto Rico who was sitting by designation. Wednesday’s debate without anyone being able to provide a clear answer.