The U.S. Court of Appeals for the Sixth Circuit recently held that using or obtaining a credit report to verify the identity of a consumer and assess his eligibility for a service is a “permissible purpose” under the federal Fair Credit Reporting Act (FCRA). The Court noted that, when dealing with an imposter purporting to be the consumer, a company’s good faith effort to protect a consumer from identity theft while providing a service is perfectly consonant with the underlying purpose of FCRA.
A copy of the opinion is available at: http://www.ca6.uscourts.gov/opinions.pdf/14a0098p-06.pdf
An independent, third-party retailer (Retailer) of defendant satellite television service provider (Company) received a call from a potential identity thief (Identity Thief). Identity Thief presented herself as a potential consumer, providing the correct social security but incorrect name of her target victim (Consumer).
Subsequently, Retailer entered the name and social security number provided into an interface that connects to three credit reporting agencies. Using a waterfall process, wherein each credit reporting agency attempts to match the data in turn, Retailer discovered that the credit agencies had been unable to find a match based on the information provided. It then informed Identity Thief that her attempt to open a new account had been declined.
Thereafter, Consumer received a credit report indicating that Company – not Retailer – had made a credit inquiry in Consumer’s name. Almost a year later, and despite knowing that the credit inquiry prevented the theft of his identity, Consumer filed suit in federal court alleging that Company wilfully and negligently violated the FCRA, by requesting and using his credit report without a “permissible purpose,” and claiming emotional distress. However, his allegations failed to mention the attempted identity theft.
Following the Complaint, Company filed a counterclaim for abuse of process, and moved for summary judgment on all claims. Consumer then moved for judgment on the pleadings with respect to the counterclaim.
The U.S. District Court for the District Court for the Western District of Kentucky granted Consumer’s motion with regard to the abuse of process counterclaim, but also granted summary judgment in favor of Company on the FCRA allegations. Both parties appealed.
As you may recall, the FCRA regulates the permissible uses of “consumer reports,” which summarize credit history and credit worthiness, see 15 U.S.C. § 1681b, and creates a private right of action allowing injured consumers to recover for negligent and willful violations of the Fair Credit Act. See 15 U.S.C. § 1681n (willful violations); 15 U.S.C. § 1681o (negligent violations). To assert such actions, a plaintiff must also show three elements: “(i) that there was a ‘consumer report’ within the meaning of the statute; (ii) that the defendant used or obtained it; and (iii) that the defendant did so without a permissible statutory purpose.” Godby v. Wells Fargo Bank, N.A., 599 F. Supp. 2d 934, 937 (S.D. Ohio 2008).
One such permissible purpose arises when the person “otherwise has a legitimate business need for the information . . . in connection with a business transaction that is initiated by the consumer.” 15 U.S.C. § 1681b(a)(3)(F)(i).
Addressing each element of the FCRA claims, the Sixth Circuit affirmed the district court’s grant of summary judgment in favor of Company.
As a preliminary issue, the Sixth Circuit determined that there was sufficient evidence of a “consumer report” within the meaning of the statute. Of significance to the Court was that the report contained an “Echostar Risk” number which had “bearing on consumer’s credit worthiness, and therefore [was] a ‘consumer report’ as defined under 15 U.S.C. § 1681(d).” Slip Op. at p. 7. Also, the Court quickly disposed of the “use or obtain” element, as this was not contested on appeal.
As to whether Company used the “consumer report” without a permissible statutory purpose, the Sixth Circuit held that “verifying the identity of a consumer and assessing his eligibility for a service is a ‘legitimate business need,’ and therefore constitutes a permissible statutory purpose.” Slip Op. at p. 8.
In so holding, the Court rejected the contention that a company, dealing with an imposter purporting to be the consumer, should be held liable when the company attempts in good-faith to verify the consumer’s identity and eligibility for commercial services. See id. at p. 10. The Court also noted that it was “beyond dispute” that preventing identity theft was a “legitimate business need,” observing that, “[the FCRA] was not intended to be used as a sword against businesses protecting consumers’ identities, and we decline to grant such a weapon to a party as litigious and seemingly insensible of the benefit that he has received as [Consumer].” Id.
Additionally, the Sixth Circuit held that Consumer had initiated the transaction, noting that Company believed in good faith that Identity Thief was Consumer, and that Consumer had benefitted from Company’s conduct. According to the Court, it is reasonable to “infer the consumer’s implicit waiver or consent” where the business’ conduct “is exactly the sort of thing the Fair Credit Act seeks to promote.” TransUnion Corp. v. F.T.C., 8 F.3d 228, 234 (D.C. Cir. 1996). As Company’s conduct was “perfectly consonant with the underlying purpose of the consumer-initiated business transaction,” Company’s attempt to protect a consumer while providing a service is permitted under the FCRA.
As to Company’s abuse of process counterclaim, the Sixth Circuit affirmed its dismissal in light of the formulaic and conclusory statements without supporting factual allegations. Notably, the Court expressly stated that it was not addressing the propriety of Rule 11 sanctions.
Accordingly, the Sixth Circuit affirmed the district court’s grant of summary judgment in favor of Company and against Consumer on the FCRA allegations, and also affirmed judgment on the pleadings in favor of Consumer on the abuse of process counterclaim.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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