Who bears the burden of proof on claims that an agency used unreasonable procedures? It may not matter.

This post contains yet another discussion of 15 USC 1681e(b), which requires consumer reporting agencies to use “reasonable procedures to assure maximum possible accuracy” when they create consumer reports.  There’s something of a long-standing circuit split over who has the burden of proof when a plaintiff claims that an agency violated this statute.  I say “something of a long-standing split” because the split isn’t as sharp as circuit splits often are.  To explain:

If one plucks quotes from various circuit court opinions, you will have what appears to a split between the Fourth and DC Circuits (on the one side) and the Ninth and Eleventh Circuits (on the other) regarding who has the burden of proof on a 1681e(b) claim.  Here’s my plucking:

1.  ”We hold here that … a plaintiff cannot rest on a showing of mere inaccuracy, shifting to the defendant the burden of proof on the reasonableness of procedures for ensuring accuracy: There is no indication that Congress meant to so shift the nominal plaintiff’s burden of proof as to requisite components of a claim based on a statutory violation.”  Stewart v. Credit Bureau, Inc., 734 F.2d 47, 51 (D.C. Cir. 1984) (citing two other FCRA provisions in which Congress had shifted the burden to the defendant, to demonstrate that Congress didn’t do so in 1681e(b)).

2.  ”[W]e hold that the plaintiff bears the burden under § 1681e(b) to show that the consumer reporting agency did not follow reasonable procedures.”  Dalton v. Capital Assoc. Indus., Inc., 257 F.3d 409, 416 (4th Cir. 2001) (following Stewart).

3.  ”[Plaintiff] has made out a prima facie case under § 1681e(b) by showing that there were inaccuracies in her credit report.”  Guimond v. Trans Union Info. Co., 45 F.3d 1329, 1334 (9th Cir. 1995).

4.  ”In order to make out a prima facie violation of [1681e](b), the Act implicitly requires that a consumer must present evidence tending to show that a credit reporting agency prepared a report containing “inaccurate” information …. The agency can [then] escape liability if it establishes that an inaccurate report was generated by following reasonable procedures.”  Cahlin v. General Motors Acceptance Corp., 936 F.2d 1151, 1156 (11th Cir. 1991).

Those quotes show a circuit split.  But as I say, the split isn’t all that sharp.  One of the two cases which says that a plaintiff cannot rest on a mere inaccuracy and must prove that an agency’s procedures were unreasonable – Stewart – also says that “In certain instances, inaccurate credit reports by themselves can fairly be read as evidencing unreasonable procedures.”  734 F.2d 52.  So under Stewart, while a plaintiff technically has to do more than demonstrate an inaccuracy, the inaccuracy may be such that the plaintiff does not have to introduce direct evidence of unreasonable procedures – he or she can simply point to the inaccuracy and ask the court (and then the jury) to infer that it was caused by an unreasonable procedure.

In Philbin v. Trans Union Corp., 101 F.3d 957 (3d Cir. 1996), the Third Circuit contrasted Stewart with Guimond and Cahlin and found that there wasn’t much of a split between them at all.  It suggested that one could derive three possible holdings from those three cases:  ”that a plaintiff must produce some evidence beyond a mere inaccuracy in order to demonstrate the failure to follow reasonable procedures; that the jury may infer the failure to follow reasonable procedures from the mere fact of an inaccuracy; or that upon demonstrating an inaccuracy, the burden shifts to the defendant to prove that reasonable procedures were followed.”  Id. at 965.  But after limning these three possible holdings, the Third Circuit said that “we find it unnecessary to decide among them.”  Id.*

Why is it unnecessary to decide among these inconsistent positions?  Because in most cases, the result is the same no matter which position one chooses.  In the process of demonstrating a real inaccuracy, most – and maybe all – plaintiffs will have to contrast two pieces of evidence – perhaps two reports from the same agency which describe an account in two different ways, or a letter from an agency or creditor saying that a problem has been solved, followed by a report which suggests that it wasn’t.  In doing this, plaintiffs will create a fact question regarding whether the procedures that created this problem can in fact be called reasonable.  And most of the time, that’s enough to get them past summary judgment.

*  Note that Philbin was decided before Dalton.  The Dalton panel said that “We express no view as to whether an inaccuracy can be so egregious that it creates a presumption that the agency’s procedures were unreasonable.”  257 F.3d at 416.  But by following Stewart – which stated that an inaccuracy could be that egregious – Dalt0n all but agreed to that proposition.

 

 

 

Can procedures be reasonable as a matter of law?

As regular readers know – because I’ve been saying it in every post for the past few weeks – the FCRA requires consumer reporting agencies to follow “reasonable procedures to assure maximum possible accuracy” of the information in their reports.  If a plaintiff comes forward with a report that is inaccurate in some way, the court must decide whether the agency followed “reasonable procedures” or not.  If the agency did follow reasonable procedures, then it isn’t liable, because – as we’ve noted before – the FCRA doesn’t make agencies strictly liable for inaccuracies.  However, if the agency didn’t follow reasonable procedures, then it is liable for damages caused by an inaccuracy.

All this begs the question of what makes a procedure “reasonable.”  It is now very well established that “The issue of whether the agency failed to follow “reasonable procedures” will be a “jury question[] in the overwhelming majority of cases.”  Dalton v. Capital Assoc. Indus., Inc., 257 F.3d 409, 416 (4th Cir. 2001) (citations omitted).  Judges don’t want to decide what’s reasonable; they’d rather let juries do that.

However, there are some occasions when a judge will decide that an agency’s procedure is reasonable as a matter of law – i.e., it is so obviously reasonable that it would be a waste of time to ask a jury whether it’s reasonable.  I thought I’d take a look at case law to see how many times a judge has done this.  My conclusion, based on an extensive but not necessarily comprehensive search:  it hasn’t happened often, and when it has, it happened in the Seventh Circuit (i.e., a federal court sitting in Illinois, Indiana, or Wisconsin).

In Henson v. CSC Credit Servs., 29 F.3d 280 (7th Cir. 1994), Greg Henson borrowed money to buy a Camaro, and then his brother Jeff Henson borrowed money to buy the car from Greg, which he did by paying off Greg’s loan.  After the Camaro was stolen, Jeff stopped making payments to his lender, who eventually repossessed the car and successfully sued Jeff for the balance of his loan.  In recording the lender’s judgment against Jeff, the court clerk made a mistake and said that the lender’s judgment was against Jeff and Greg.  Greg later sued a consumer reporting agency for reporting that he (Greg) was liable for this judgment.  The court found that the agency had simply relied on what the court docket said, which was a reasonable procedure under the circumstances.  Therefore, the agency’s reliance on the court docket was reasonable as a matter of law.  Id. at 285-86.

In Crabill v. Trans Union, L.L.C., 259 F.3d 662 (7th Cir. 2001), plaintiff Jerry Crabill had a brother named John Crabill, and their social security numbers differed only by one digit.  After numerous mix-ups in which a creditor who asked for one brother’s report received the other’s, Trans Union adopted the procedure of sending BOTH reports to creditors who asked for Jerry’s, with the note that Jerry’s should not be confused with John’s.  The court found that this procedure was reasonable, and Judge Richard Posner explained that decision as follows:  ”Trans Union defends its program, pointing out that two files with similar though not identical identifying data may actually be referring to the same person, the differences in data being the result of errors in data collection or compilation, and so it was useful for creditors to have both Crabills’ files and make their own judgment of whether they were different persons. We think this is right, and that the statutory duty to maintain reasonable procedures to avoid inaccuracy does not require a credit agency to disregard the possibility that similar files refer to the same person.”

In Quinn v. Experian Solutions, No. 02 C 5908, 2004 U.S. Dist. LEXIS 4812 (N.D. Ill. Mar. 24, 2004), plaintiff alleged that Experian violated 1681e(b) by reporting a Wal-Mart account that did not belong to him.  Experian moved for summary judgment and argued that it acted reasonably by reporting account information that Wal-Mart furnished to it.  The judge granted Experian’s motion for summary judgment because “Quinn has not presented evidence that Wal-Mart is an unreliable source of information.”  Id. at *10.  In other words, it was reasonable, as a matter of law, for Experian to report specific information from Wal-Mart unless Experian was on notice that the specific information was inaccurate or that Wal-Mart’s information was generally not reliable.

In Anderson v. Trans Union, LLC, 367 F. Supp. 2d 1225 (W.D. Wisc. 2005), a case we discussed a few weeks ago, plaintiffs were listed as deceased due to mistakes that their bank made in coding their credit card account after:  1) the name of their street changed; and 2) the card provider changed from MasterCard to Visa.  The judge granted an agency’s motion for summary judgment, finding that the bank’s information was normally reliable and that the agency had done everything possible to account for the possibility that some information was not:

“Defendant has procedures in place to check the accuracy of the information their furnishers send it; it conducts training sessions for its furnishers when they become subscribers; it audits the furnishers routinely; and it has triggers to warn of unusual numbers of complaints or a higher than expected number of “conditions” showing up on the furnishers’ reports, as bankruptcy proceedings, Despite these procedures, Cross Country Bank’s error made its way into defendant’s system and defied both the bank’s and defendant’s efforts to eliminate it. That it did so was unfortunate for plaintiffs, who had to deal with the error on their credit report, but in and of itself, it is not evidence that defendant’s procedures were unreasonable.”

Id. at 1237.

In summary, agencies whose reports contain inaccurate information will generally not be able to convince a court that their procedures are reasonable as a matter of law, such that they aren’t liable for damages caused by the inaccuracy.  But agencies have been able to convince courts in the Seventh Circuit that a few procedures are reasonable as a matter of law.  They are:

1.  Relying on court docket summaries in the absence of information to the contrary;

2.  Relying on account information from a generally reliable source (e.g., Wal-Mart) in the absence of information to the contrary;

3.  Relying on procedures that preclude the vast majority of errors but allow unprecedented (and therefore hard-to-detect) errors to occur; and

4.  Relying on novel procedures for relatives with extremely similar names and social security numbers.

The FCRA’s provision at 15 USC 1681e(b) states that every consumer reporting agency (“CRA”) must “follow reasonable procedures to assure maximum possible accuracy”  of the information in a consumer report.  The federal courts were quick to note that “maximum possible accuracy” is not “complete accuracy.”  In other words, CRAs are not “strictly liable” or automatically forced to compensate a consumer if a report contains inaccurate information about him or her.  Rather, CRAs are only liable if their failure to “follow reasonable procedures” caused a meaningful inaccuracy.

Inspired by a recent post that discussed how a circuit court’s overstated summary of a district court’s holding could lead to mischief in later litigation, I thought I’d take a moment this week and trace how the courts came to adopt the proposition, now widely held, that the FCRA does not impose strict liability on CRAs.  While it’s a relatively clear proposition if you look at the statutory language, it’s not widely known among consumers or even lawyers.  So maybe it’s worth discussing.

As far as I can tell, the first case to hold that the FCRA is not a strict liability statute is Peller v. Retail Credit Co., Civ. No. 17900, slip op. at 4 (N.D. Ga. Dec. 6, 1973).  But Peller was not published in 1973 and has not since been picked up by LEXIS.

So the first available case on FCRA strict liability is Austin v. Bankamerica Service Corp., 419 F. Supp. 730 (N.D. Ga. 1974), which follows Peller.  The Peller and Austin courts published their opinions soon after the FCRA went into effect.*  The court found that defendant Atlanta Credit Bureau created a credit report about plaintiff Willie Lee Austin which stated, correctly, that Mr. Austin was a defendant in a lawsuit.  But the report did not indicate which court the lawsuit was in, or that Mr. Austin was being sued in his official capacity (as Deputy Marshal for DeKalb County, Georgia) and not personally.  The question was whether Mr. Austin had a claim against the bureau for failing to include these details in its report.

The Austin court held that Mr. Austin had no claim because the bureau’s report was accurate as far as it went.  The court reasoned:

“If this Court were to require Credit Bureau of Atlanta to ascertain the nature of a defendant’s capacity in a lawsuit it would be tantamount to requiring consumer credit reporting agencies to evaluate the litigation; whether it is merely for injunctive relief or for damages, the amount of damages recoverable against any particular defendant, or the probability of success in a lawsuit against a particular defendant. Requiring such an evaluation would, in this Court’s opinion, force compliance beyond the intended scope of the Act.  Although the Fair Credit Reporting Act clearly requires consumer reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information,” the Act does not impose a strict civil liability for an agency’s inaccuracy or incompleteness in a report. “

419 F. Supp. at 733 (emphasis added).

The Austin court’s holding was quickly picked up and spread among the various circuit courts.  See Hauser v. Equifax, Inc., 602 F.2d 811, 814 (8th Cir. 1979) (following Austin) (“[T]he Act does not render consumer reporting agencies strictly liable for inaccuracies in a report …. There must be a showing that the inaccuracy resulted from the agency’s failure to ‘follow reasonable procedures to assure maximum possible accuracy’”); see also Cahlin v. General Motors Acceptance Corp., 936 F.2d 1151, 1156 (11th Cir. 1991) (following Hauser) (“The Act, however, does not make reporting agencies strictly liable for all inaccuracies”); Bryant v. TRW, Inc., 689 F.2d 72, 78 (6th Cir. 1982) (also following Hauser) (“It is clear, as defendant contends, that liability does not flow automatically from the fact that a credit reporting agency, such as defendant, reports inaccurate information”).

The Peller decision was also followed on a parallel track by Thompson v. San Antonio Retail Merchants Ass’n, 682 F.2d 509, 513 (5th Cir. 1982) (“Section 1681e(b) does not impose strict liability for any inaccurate credit report, but only a duty of reasonable care in preparation of the report”) (following Lowry v. Credit Bureau, Inc. of Georgia, 444 F. Supp. 541, 544 (N.D.Ga.1978) (following Peller)).

I’ll dig into some of these circuit court opinions in future weeks.  While they all agree that the FCRA is not a strict liability statute, they don’t agree on what a defendant must do to demonstrate compliance with 15 USC 1681e(b).

 

 

*  For the record:  the statutory history of 15 USC 1681, the FCRA’s preamble, explains that the FCRA was enacted on October 26, 1970 and went into effect 180 days later, or on April 24, 1971.  The Austin case is thus one of the earliest FCRA cases.

The FCRA’s two-year statute of limitations clause doesn’t impose much of a limitation.

The FCRA was extensively amended by the “Fair and Accurate Credit Transactions Act” or FACTA in 2003.  Some of the amendments received a great deal of attention when they were made; others didn’t.  One of the amendments that didn’t get much attention made a change to the FCRA’s statute of limitations provision, at 15 USC 1681p.

Before the amendment, 1681p stated that a claim for an FCRA violation had to be brought “within two years from the date on which the liability arises” unless the defendant had knowingly or willfully failed to disclose something it should have disclosed, in which case the claim could be brought within two years of the discovery of the misrepresentation.

Now, after the amendment, 1681p states that a claim for an FCRA violation must be brought either: 1) within two years of the plaintiff’s discovery of the violation; or b) within five years of the date of the violation, whichever is earlier.  Not many cases have interpreted the new language, but the ones that have suggest that the FCRA effectively has a five-year limitations period, because it is not easy for a defendant to show when a plaintiff discovered a violation.

A good example is a recent decision in Andrews v. Equifax Info. Servs. LLC, 700 F. Supp. 2d 1276 (W.D. Wash. 2010).  Plaintiff Andrews sued Equifax for mixing another person’s credit information with her own and printing both sets of information in a credit report about her.  Her claims were for failure to use reasonable procedures (1681e(b)) and failure to reinvestigate (1681i).  Evidence, including her deposition, showed that plaintiff called Equifax with credit report disputes in September 2004 and October 2005, and that Equifax conducted reinvestigations and sent her three new credit reports, the last of which was sent in November 2005.  Plaintiff was also denied credit in early 2006.  Equifax moved for summary judgment and argued that these events demonstrated that plaintiff had “discovered” a violation, which meant that her lawsuit – which she filed in 2008 – was time-barred under the two-year limitations provision.

The court  denied Equifax’s motion.  The court found that none of the events of late 2005 and early 2006 clearly indicated that plaintiff knew that Equifax had violated the FCRA at that point.  She knew that her credit reports contained inaccuracies, and that she’d been denied credit, but she didn’t necessarily know – so the court found – that these issues were due to Equifax’s alleged failure to use reasonable procedures or to reinvestigate.  The court also noted that there was no clear evidence that plaintiff received the revised credit reports that Equifax sent her – she testified at her deposition that she didn’t remember if she received them, and Equifax could only show that it sent them, not that they were delivered to her (it used regular mail and not certified mail).

Because most consumer reporting agencies and credit furnishers send consumers form letters, not personalized records of disputes or credit denials, and because they send these form letters via regular mail, not certified mail, the Andrews decision suggests that it will be somewhere between difficult and impossible for a defendant agency or furnisher to show that a typical consumer ever “discovered” an FCRA violation.  It is too easy for the plaintiff to create a dispute of fact about the discovery date, by giving vague testimony about whether he or she ever received certain documents or understood them.

If Andrews is followed by other courts, the FCRA will essentially be a statute with a five-year limitations period, as it will be the rare case in which a defendant can establish that the plaintiff “discovered” a violation and triggered the two-year period.

Is reinserting inaccurate information always a violation of 15 USC 1681e(b)? It shouldn’t be.

The FCRA tells us that consumer reporting agencies must “follow reasonable procedures to assure maximum possible accuracy of the information” in their reports.  15 USC 1681e(b).  In doing a little research on this provision, I noticed that courts have applied it differently to a common fact pattern.

The fact pattern is this:  suppose an agency reports information from an underlying source (say a bank) that turns out to be inaccurate.  The consumer notices the error, disputes it, and the agency agrees with the consumer and removes the inaccurate information.  But a year later, the inaccurate information reappears on the consumer’s report.  Is that an automatic violation of 1681e(b)?

Some courts have suggested that allowing inaccurate information to reappear is, in fact, an automatic violation of 1681e(b).  But at least one court has bucked the trend and held otherwise.  This post is going to try and explain how the “automatic violation” idea took root and why it is mistaken.

The seed of the “automatic violation” idea comes from the case of Morris v. Credit Bureau of Cincinnati, 563 F. Supp. 962 (S.D. Ohio 1983).  In that case, plaintiff Joe T. Morris married Loraine Schreve, who had filed for bankruptcy before the wedding.  When plaintiff tried to borrow money, he was denied because defendant’s credit report included some of his wife’s information and thus indicated that he had filed for bankruptcy.  Plaintiff disputed the bankruptcy, and defendant deleted it.  But later, plaintiff again had a loan denied because his wife’s bankruptcy information reappeared on his credit report.  The data reappeared because the creditor had asked defendant for a credit report about “Joseph T. Morris” (plaintiff had always gone by Joe) with a social security number that included a 9 (plaintiff’s had a 4) who nevertheless lived at plaintiff’s address and shared other characteristics.  This caused defendant to create a completely new credit file, in which it repeated the mistake of including the wife’s bankruptcy information.

Defendant had procedures in place to determine if the completely new credit file resembled any existing files.  If they had worked in this case, the procedures would have noted that the new file resembled plaintiff’s existing file, which contained a note that the bankruptcy information did not belong to plaintiff and shouldn’t appear on his credit reports.  But the procedures didn’t work.  The court held, following a bench trial, that defendant’s procedures were insufficient, and that defendant had negligently violated 15 USC 1681e(b).

The Fifth Circuit later summarized the Morris court’s holding as follows:  ”Allowing inaccurate information back onto a credit report after deleting it because it is inaccurate is negligent.”  Stevenson v. TRW, Inc., 987 F.2d 288 (5th Cir. 1993) (citing Morris).  That summarized holding has since been quoted in other court opinions.  See, e.g., Philbin v. Trans Union Corp., 101 F.3d 957 (3d Cir. 1996) (“As other courts have held, ‘allowing inaccurate information back onto a credit report after deleting it because it is inaccurate is negligent’”) (quoting Stevenson).

In this way, the Morris court’s specific finding, on facts presented in a bench trial, that one consumer reporting agency was negligent when it allowed inaccurate data to reappear on one plaintiff’s credit report, has morphed into the holding that if any agency allows any data to reappear on anyone‘s credit report, it is always negligent.

This “automatic violation” theory is problematic because it overstates the underlying decision in Morris, and because it doesn’t make sense in light of other FCRA opinions (which will likely be discussed in a future post) holding that consumer reporting agencies aren’t “strictly liable” for errors in their reports.

The good news for FCRA defendants is that one court ignored the “automatic violation” theory and held, on summary judgment no less, that a defendant which allowed inaccurate information to reappear on a plaintiff’s credit report was nevertheless not negligent under 1681e(b).  Anderson v. Trans Union, 367 F. Supp. 2d 1225 (W.D. Wisc. 2005).

In Anderson, plaintiff had a credit card with a local bank.  When plaintiff’s street was renamed, a bank employee changed the credit card account to reflect the new name and, in doing so, inserted a “flag” which told consumer reporting agencies that plaintiff was deceased.  Plaintiff noted the error on subsequent credit reports, and the agencies used a procedure to ignore the flag with the deceased notation while continuing to report the other information about the account.  But when the bank later converted the credit card from Mastercard to Visa, that change caused the agencies to “see” the flag once again and so to report the plaintiff as deceased.  Plaintiff alleged by allowing the inaccurate data to reappear, the agencies had violated 1681e(b).

The court held otherwise, at least as to Trans Union.  I’m going to quote its opinion at length:

“It is evident that the mistakes that haunted the parties were anomalies and were not the kind of mistakes that a furnisher would make regularly or even frequently. It would be unreasonable to require a consumer reporting agency to develop systems that would catch infrequent and irregular mistakes that furnishers might make. The Act does not impose such requirements. Its goal is to have consumer reports that are fair and accurate; it does not demand perfection from an industry that deals in billions of pieces of information.

“Although courts should not countenance sloppy performance from consumer reporting agencies or tolerate inadequate procedures, they cannot hold consumer reporting agencies responsible for every problem a system can develop, including those that are novel and unanticipated. Doing so would be a misreading of the statutory obligations imposed by the Act.”

I think that Anderson is right and that the Stevenson and Philbin courts’ summarizes of Morris are misleading.  Reinserting inaccurate information into a consumer’s credit report may be a violation of 1681e(b).  Or it might not be.

The FCRA at car dealerships: the FTC’s curious conclusions about “permissible purpose”

I’ve handled a number of lawsuits that involved a car dealer’s decision to obtain a credit report about a consumer who’d expressed interest in buying a car.  Several of these suits involved claims that the dealer didn’t get the consumer’s permission before obtaining the report.  These claims have always seemed surprising to me – it’s hard for me to fathom how a consumer could provide his or her personal information to a dealer (e.g., full name, address, social security number, etc.) without suspecting that the dealer wanted to use it to pull a credit report.

But put my suspicions aside.  The FCRA states that before a car dealer can obtain a credit report about a consumer, the dealer must have a “permissible purpose” under 15 USC Sec. 1681b.  A dealer can (and probably should) show permissible purpose by obtaining the consumer’s written consent.  Sec. 1681b(a)(2).

But suppose that a car dealer doesn’t obtain a consumer’s consent in writing.  What then?  Well, things are murky.  The dealer can argue that it needed the report “in connection with a credit transaction involving the consumer” (1681b(a)(3)(A)) or “has a legitimate business need for the information in connection with a business transaction that is initiated by the consumer” (1681b(a)(3)(F)(i)).  But under either argument, the dealer will have to establish facts suggesting that its decision to obtain a credit report was reasonable under the circumstances.

The FTC’s new commentary on the FCRA attempts to provide dealers with some guidance on when it would be reasonable under the circumstances to pull a consumer’s credit report.  The FTC opines that:

“The dealer would thus have a permissible purpose to obtain a credit report on a consumer who offers to pay for an automobile with a personal check or asks about credit options to finance a specific purchase.  However, this section would not allow the salesperson to obtain a report on “window shoppers” for bargaining purposes, deciding whether to spend time with consumers, or to respond to general questions about available products or financing, because there is no “transaction … initiated by the consumer” in those scenarios. For the same reason, a consumer’s request to “test drive” a vehicle, where he or she has not demonstrated an intent to initiate the purchase or lease of a vehicle, does not give rise to a permissible purpose under this section.”

None of this is supported by case law; it’s just the FTC’s opinion.  Some of it strikes me as reasonable – it’s hard to understand how it would be acceptable for a dealer to obtain credit reports for use in deciding whom to let window shop or whom to target as a serious buyer.  But two bits of it strikes me as off the mark.  They are:

1.  The FTC suggests that a dealer can obtain a credit report if a consumer offers to pay for a car by personal check.  Wouldn’t it be more reasonable for the dealer to call the bank and confirm that there’s enough money in the account to make the check good?  I don’t see how a credit report is going to answer that question, which is really what the dealer wants to know.  And I don’t think that calling a bank regarding a specific account qualifies as obtaining a credit report under the FCRA definitions at Sec. 1681a(d).  Because a credit report is about credit, not about money in the bank, I don’t see why a car dealer would be justified in seeking a credit report before accepting a personal check from a consumer.

2.   The FTC suggests that a car dealer does not have a “permissible purpose” to obtain a credit report about a consumer who wants to test drive a car.  It’s hard to understand this position.  Insurance companies are permitted to use credit reports in deciding whether and on what terms to offer insurance, on the grounds that a consumer’s use of credit sheds some light on what sort of driver he or she might be.  A car dealer is likely going to be liable for damage that a consumer does during a test drive, so it seems reasonable for the dealer, as the “insurer” of its test car(s), to obtain credit reports before allowing consumers to drive them.

Happy Anniversary: FTC celebrates 40 years of interpreting the FCRA

After the FCRA became law in 1970, the Federal Trade Commission had the responsibility of enforcing and interpreting it.  Recently, however, the Obama administration and Congress created a new agency – the Consumer Financial Protection Bureau – whose jobs include interpreting and enforcing the FCRA going forward.

To celebrate its history with the FCRA and to give the new CFPB a bit of a head start, the FTC recently released a report called “40 Years of Experience with the Fair Credit Reporting Act:  An FTC Staff Report with Summary of Interpretations.”  Forty years is a long time, and the document reflects that, weighing in at 110 pages with more than 300 footnotes.

This new treatise may give me some posting material in the weeks ahead.  For now, two thoughts:

1.  Courts are generally willing to defer to an agency’s interpretation of a statute that it administers.  Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  But the FTC no longer administers the FCRA.  Is this new document entitled to any deference?

2.  The FTC report cites a number of opinion letters that it issued in the 1990s, in which a lawyer would pose a question regarding interpretation of the FCRA to the FTC, and an FTC employee would respond with guidance.  See report at notes 55-56.  The FTC discontinued this practice in recent years, and it formally withdrew all existing letters when it published this new report.  Will the CFPB revive the practice and start issuing opinion letters?  The CFPB’s task is to clarify statutes, so the possibility appears to be there.