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The FCRA does not apply to plaintiffs who are turned down for business credit

October 7, 2016 Leave a comment

This month’s post will attempt to establish something that I’ve always vaguely known to be true, but never had occasion to fully research:  the FCRA applies to consumers who are trying to get personal credit, not credit for their business.

Most courts treat this as a well-established point.  See, e.g.,  Frydman v. Experian Info. Solutions, Inc., No. 14-cv-9013, 2016 U.S. Dist. LEXIS 107139, *29 (S.D.N.Y. Aug. 11, 2016) (stating that “[T]he FCRA does not apply to consumers’ business transactions” ); Boydstun v. U.S. Bank Nat’l Ass’n ND, 187 F. Supp. 3d 1213, 1217 (D. Or. May 11, 2016) (citing 14 cases and referring to “many others” which support the proposition that “the statutory text, legislative history, and administrative interpretation of the FCRA and concluded that it “does not cover reports used or expected to be used only in connection with commercial business transactions”).

The point is well-established because courts have been making it since just after the FCRA became law in 1970.  See, e.g., Wrigley v. Dun & Bradstreet, Inc., 375 F. Supp. 969, 970-971 (N.D.Ga. 1974) (“The court is constrained to the view that both the legislative history of the Act and the official administrative interpretation of the statutory terminology involved compel the conclusion that the Act does not extend coverage to a consumer’s business transactions.”).

The point is also well-established because several circuit courts have made it as well.  See, e.g., Bacharach v. Suntrust Mortg., 827 F.3d 432, 435 (5th Cir. 2016) (“Numerous courts have concluded that the FCRA does not cover reports used or expected to be used only in connection with commercial business transactions”); Matthews v. Worthen Bank & Trust Co., 741 F.2d 217, 219 (8th Cir. 1984).

The point sometimes gets muddied, because there are a number of court cases which involve an entity that pulls someone’s credit report not to help him (or his business) get credit, but rather in hope of finding some dirt to use to discredit him.

Defendants in those cases have sometimes argued that precisely because they didn’t pull the credit report to help the plaintiff get a loan, the report was not a “consumer report” and plaintiff’s FCRA claims must therefore be dismissed.

At least one court has looked to those cases and come away unsure of whether a plaintiff who fails to get credit for his business can sue  under the FCRA.  Breed v. Nationwide Ins. Co., No. 3:05CV-547-H, 2007 U.S. Dist. LEXIS 30714, *5 (W.D. Ky. April 24, 2007)  (citing such cases and then claiming that “The Circuits are split as to whether the consumer’s purpose in obtaining credit [i.e., for personal or business purposes] necessarily determines whether the report is a consumer report under the FCRA”).

However, the cases that Breed cited all involved plaintiffs who never sought a loan, but rather learned that someone had pulled their credit report without their permission, and filed suit for damages.  See, e.g.,  St. Paul Guardian Ins. Co. v. Johnson, 884 F.2d 881 (5th Cir. 1989); Heath v. Credit Bureau of Sheridan, Inc., 618 F.2d 693, 696 (10th Cir.1980); Hansen v. Morgan, 582 F.2d 1214 (9th Cir. 1978); but see Ippolito v. WNS, Inc., 864 F.2d 440, 452 (7th Cir. 1988) (cited by Breed as support for what Breed called a circuit split, but actually finding that a credit report that a franchisor pulled to evaluate a franchisee did not give the franchisee a viable FCRA claim, and stating that “In enacting the FCRA, Congress sought to regulate the dissemination of information used for consumer purposes, not business purposes”).  For this reason, one district court expressly declined to follow what it called Breed‘s “cautious approach.”  Tilley v. Global Payments, Inc., 603 F. Supp. 2d 1314, 1329 (D. Kan. 2009) (noting that the rule against FCRA claims applying to business loans applies even where the plaintiffs are running unincorporated businesses under their own names).

Before closing, I feel that I should address the fact that in one case, the Ninth Circuit held that a plaintiff who “hoped to start a business” had a viable FCRA claim when he was turned down for a loan due to incorrect information on his credit report.  Dennis v. BEH-1, LLC, 520 F.3d 1066, 1068 (9th Cir. 2008).  But in that case, the plaintiff was turned down for a personal loan, not a business loan:  he applied for the personal loan in the hope of establishing “a clean credit history when he sought financing for [his] venture.”  Id.

Dennis doesn’t really pertain to the proposition here, which is that if a plaintiff gets turned down for a business loan due to inaccurate information on his credit report, he doesn’t have a valid claim under the FCRA.

 

 

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