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report.29 Under the FCRA, target marketing-making unsolicited mailings or telephone calls to consumers based on information from a credit report-is generally not a permissible purpose. 30 In a 1992 Commission action to enforce the FCRA against a consumer reporting agency that sold target marketing lists assembled using consumer report information, the court of appeals held that“, .a major purpose of the Act is the privacy of a consumer's credit-related data." 31 If consumer information is “so sensitive as to rise to the level of a consumer report, then it must “...be kept private except under circumstances in which the consumer could be expected to wish otherwise or, by entering into some relationship, with a business, could be said to implicitly waive the Act's privacy to help further that relationship.” 32
The 1996 Amendments added provisions that reflected Congress' awareness of increased public concern
about the privacy of personal information. For example, Congress added, for the first time, an express provision stating that the “legitimate business need” permissible purpose requires that the transaction be “initiated by the consumer. ."33 Congress also added express language prohibiting any person from obtaining a consumer report without a permissible purpose. 34
Consumer right to opt out of prescreening. The 1996 Amendments also added an express permissible purpose for prescreening. As noted above, prescreened offers are unsolicited offers of credit or insurance that are made (typically in mass mailings) to consumers who were selected for the offer based on information in their credit reports. Prior to the 1996 Amendments, the FCRA did not specifically address the use of consumer reports for such unsolicited offers. The Commission, however, had issued an interpretation of the FCRA in 1973 that permitted the use of consumer reports by creditors for unsolicited offers of credit if creditors followed guidelines set forth in the Commission's interpretation.35 Those guidelines required every consumer on any list resulting from the use of consumer reports to receive a firm offer of credit-for example, the offer must be unconditional; all the consumer had to do to receive the credit was to accept the offer.
In the 1996 Amendments, Congress added a number of provisions to the FCRA to provide an explicit statutory framework for prescreening.36 The legislative
29 Other permissible purposes specified in the FCRA include (1) in response to an order of a court or a Federal grand jury subpoena; (2) in connection with a determination of the consumer's eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant's financial responsibility or status; and (3) in response to a request by the head of a State or local child support enforcement agency if the person making the request certifies to the credit bureau that certain conditions are met (and in certain other child support circumstances). Section 604(a); 15 U.S.C. $ 1681b(a).
30 Prescreening, discussed more fully below at notes 35-41 and accompanying text, is a form of target marketing for firm offers of credit or insurance, for which the FCRA now provides an explicit permissible purpose keyed to adherence to statutory procedures,
including affording consumers the opportunity to opt out of future prescreened solicitations. See also Note 22, supra.
31 TransUnion Corp. v. FTC, 81 F.3d 228, 234 (D.C. Cir. 1996). The TransUnion case has a long history. The Commission issued an administrative complaint in 1992, and a Commission administrative law judge (ALJ) granted summary judgment to complaint counsel, and was affirmed by the full Commission. 118 F.T.C. 821 (1994). On appeal, the case was remanded back to the ALJ for a trial. TransUnion Corp. v. FTC, 81 F.3d 228 (D.C. Cir. 1996). After a trial, the ALJ issued another decision in the Commission's favor, which was affirmed by the full Commission. F.T.C.
(2000). This decision was affirmed by the U.S. Court of Appeals for the D.C. Circuit, and certiorari was denied by the Supreme Court. TransUnion Corp. v. FTC, 245 F.3d 809, reh. denied 267 F.3d 1138 (D.C. Cir. 2001), cert. denied, 122 S. Ct. 2386 (June 10, 2002).
33 Section 604(a)(3)(F)(i); 15 U.S.C. 16816(a)(3/FXi). The review of an account "to determine whether the consumer continues to meet the terms of the account” supplies the other “legitimate business need” of this permissible purpose. Section 604(aX3XFX(ii); 15 U.S.C. 16816(a)(3XFXii).
34 The 1970 FCRA prohibited consumer reporting agencies from furnishing consumer reports to those who do not have a permissible purpose, but there was no analogous provision aimed at those who obtained consumer reports (with the exception of a criminal provision imposed on those who obtained information on a consumer "under false pretenses." Section 619, 15 U.S.C. $ 16817).
35 16 CFR $ 600.5 (withdrawn in 1990 when the Commission Commentary was published; see notes 52–53, infra). The Commission's rationale for permitting prescreening was that the minimal invasion of consumer privacy involved in prescreening was offset by the fact that every consumer received an offer of credit. The four banking regulatory agencies also interpreted the FCRA to sanction prescreening for the entities under their jurisdiction.
36 Sections 603(1); 604(c) and (e); and 615(d); 15 U.S.C. $$ 1681a(l), 1681b(c) and (e), and 1681m(d), respectively. "Firm offer of credit or insurance,” the term used by Congress for what is commonly known as “prescreening,” is defined in Section 603(l), which also contains much of the operable language governing prescreening. The permissible purpose is set out in Section 604(c) and the opt out scheme is contained in Section 604(e). Section 615(d) recites the disclo
Continued sures required of those who use consumer reports to make prescreened offers. See H. Rep. 103486, 103rd Cong., 2nd Sess., 32 (1994X“The bill permits a consumer reporting agency to furnish limited information, commonly referred to as a prescreened list, in connection with such transactions only if the transaction consists of a 'firm offer of credit,' the consumer reporting agency has established a notification system whereby consumers can opt out to have their names excluded from consideration from such offers of credit, and the consumer has not elected to be so excluded. Under the bill, a prescreened list, furnished by a consumer reporting agency in connection with a credit transaction that is not initiated by the consumer, may contain only certain types of information.").
process leading to the 1996 Amendments included an extensive consideration of prescreening issues. Congress ultimately chose to permit prescreening for both credit and insurance purposes, and to permit certain postscreening 37 to protect the safety and soundness of the financial industry.
At the same time, Congress provided an important mechanism for consumers to safeguard their privacy. Every written prescreened offer must provide notice of the consumer's right to "opt out” of future prescreen lists.38 Credit bureaus must have a system, including a toll-free telephone number, that consumers can use to opt out,39 and they cannot include consumers who opt out on any subsequent prescreened list.40 The FCRA requires nationwide bureaus to maintain an opt out notification system, so that a notification by a consumer to one bureau is sufficient to have the consumer excluded from prescreened offers at all of the bureaus.41 Accuracy
Credit report accuracy was, and remains, a core goal of the FCRA. Because even small differences in a consumer's credit score can influence the cost or other terms of the credit offer, or even make the difference between getting approved or denied, accuracy of the information underlying the score calculation is paramount. Accurate reports benefit not only consumers but also credit grantors, who need accurate information to make optimal decisions. These considerations provide significant incentives for all parties to maintain a high level of accuracy in consumer credit files. Congress recognized, however, that decisions based on inaccurate information can impose potentially severe consequences to individual consumers. Consequently, Congress enacted the FCRA accuracy protections.42
The FCRA uses two major avenues to achieve the goal of optimal accuracy. First, it provides that consumer reporting agencies must follow “reasonable procedures to assure maximum possible accuracy of the information” they report.43 Second, the FCRA establishes mechanisms for consumers to learn about possible errors in their credit reports and have them corrected. The statute gives consumers both the right to know what information the credit bureau maintains on them, and the right to dispute errors.
37 Section 603(1) limits permissible postscreening to verifying that consumers continue to meet the criteria used in the prescreening and to verify any application information (such as income or employment) that is used in the process of granting credit or insurance. Credit grantors are also permitted to require that consumers furnish collateral so long as the collateral requirement is established before the prescreening is conducted and is disclosed to the consumer in the solicitation that results from the prescreening. 15 U.S.C. § 1681a(l). See also H. Rep. 103–486, 103rd Cong., 2nd Sess., 33 (1994)(“The Committee recognizes that the furnishing of consumer reports for such credit solicitation is an exception to the general rule in Section 604(aX3XA) that consumer reports may be furnished by consumer reporting agencies only for credit transactions that are initiated by the consumer. Consequently, the Committee has established a special rule which permits the furnishing of consumer reports by a consumer reporting agency for credit transactions not initiated by the consumer, but only if the agency complies with strict limitations to ensure privacy protections for consumers. This special rule is a liberalization of an FTC interpretation of the FCRA.”).
38 Section 615(d) requires that written prescreen offers make a clear and conspicuous statement that (i) information in the consumer's credit report was used in the prescreen; (ii) the consumer was selected because the consumer met criteria for credit worthiness or insurability; (ii) the credit or insurance may not be extended if, after the consumer responds to the offer, the consumer does not continue to meet the criteria used to select the consumer for the offer; (iv) the consumer has the right to opt out of further unsolicited offers; and (v) the methods by which the consumer can notify the credit bureau of a decision to opt out. 15 U.S.C. § 1681m(d).
39 Section 604(e)(5); 15 U.S.C. $ 1681b(e)(5).
41 Section 604(0)6); 15 V.S.C. § 1681b(d/6). The opt out is effective for 2 years if conveyed by telephone, or permanently (unless revoked) if conveyed in writing. Section 604(d)(4)(B); 15 U.S.C. $ 1681b(d)(4)(B).
42 Section 602(a)(1) of the FCRA, Congressional findings and statement of purpose, notes that "Inaccurate credit reports directly impair the efficiency of the banking system. 15 U.S.C. $ 1681(a)(1).
43 By its terms therefore (“reasonable procedures. • .maximum possible accuracy"), the statute itself recognizes that absolute accuracy is impossible. Section 607(b); 15 U.S.C. § 168le(b). Pragmatic consideration of the large volume of data that credit bureaus must store and process also bears on this issue. See Notes 2, 5, 6, 10 and 15, supra, and text accompanying.
Consumer right to know. Under Section 609 of the FCRA, consumers have a right to know all information in their files (except risk scores) upon request and proper identification. They also have the right to learn the identity of all recipients of their report for the last year (2 years in employment cases). 44 In addition, the consumer's right to learn about and dispute inaccuracies is facilitated by the FCRA's “adverse action” notice requirements. Adverse action notices—sometimes called “Section 615 notices”—are a key mechanism for maintaining accuracy. Since 1970, the FCRA has required that when credit is denied based, even in part, on a consumer report (or, in some cases, when the consumer is offered less-advantageous terms than would be the case in the absence of the consumer report information), the creditor must notify the consumer and provide certain key information, including (1) the identity of the consumer reporting agency from which the creditor obtained the report; (2) the right to obtain a free copy of the report; and (3) the right to dispute the accuracy of information in the report.45
Under the 1970 FCRĀ, adverse action notices were required only when consumer reports were used for credit, insurance, or certain employment purposes. In the 1996 Amendments, Congress broadened the circumstances under which adverse action notices are required in connection with insurance and employment decisions. It also required notices of adverse action when consumer reports are used in other situations, such as opening savings or checking accounts, apartment rentals, and retail purchases by check.46°
The Commission believes that the “self-help” mechanism embodied in the FCRA's scheme of adverse action notices and the right to dispute is a critical component in the effort to maximize the accuracy of consumer reports. Consumers are most likely to recognize the errors in their credit history and are more highly motivated to raise their concerns once they know that an adverse action was based on their credit report. The Commission has given high priority to assuring compliance with this provision.4
Consumer dispute rights. The consumer initiates a dispute by notifying the consumer reporting agency of an error in the completeness or accuracy of any item of information contained in the file. The consumer reporting agency must reinvestigate the dispute, generally within 30 days, record the current status of the information and delete it if it is found to be inaccurate or unverifiable. The consumer reporting agency is required to provide “all relevant information" to the original furnisher of the disputed information, to help ensure that the furnisher fully investigates the dispute. The agency must report the results of the investigation to the consumer. If the investigation does not resolve the dispute, the consumer may file a statement with his or her version of the facts, which must then be furnished with the credit report.
For the first time, the 1996 Amendments imposed certain accuracy and reinvestigation duties on furnishers of information to credit bureaus. These requirements recognize that furnishers—the original source of the information-have a critical role to play in the overall accuracy of consumer report information.
The 1996 Amendments also sought to address the problem of recurring errors by prohibiting consumer reporting agencies from reinserting into a consumer's credit file previously deleted information without first obtaining a certification from the
44 15 U.S.C. § 1681g. 45 Section 612 provides that consumer reporting agencies must make free disclosure if a consumer makes a request within 60 days of receipt of an adverse action notice, and may charge a maximum of $8 in other cases. 15 U.S.C. § 1681j. The Commission is charged in the FCRA with modifying the maximum amount, based proportionally on changes in the Consumer Price Index. The latest annual finding on the matter raised the maximum allowable charge to $9. 67 Fed. Reg. 77282 (Dec. 17, 2002); see also http://www.ftc.gov/opa/2002/12/fyi0265.htm. 46 In the original FCRA, adverse action notices were required only when "credit or insur
.or employment. ..is denied or the charge for such credit or insurance is increased. After changes enacted in the 1996 Amendments, adverse action for purposes of credit transactions is tied to the interpretation of "adverse action” in the Equal Credit Opportunity Act. For use of consumer reports in insurance, the scope of "adverse action” was expanded to include “a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for. Similar expansion of the scope of “adverse action” was enacted for employment purposes (“a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee”) and other permissible purposes. See Section 603(k); 15 U.S.C. 1681a(k).
47 See, e.g., Quicken Loans Inc., D-9304 (April 8, 2003) at Note 67, infra, and text accompanying
furnisher that the information is complete and accurate, and then notifying the consumer of the reinsertion.
Other important FCRA provisions. Under the FCRA, adverse items of information may, with certain exceptions, be reported for only 7 years. The 1996 Amendments clarified the date from which the 7 years should be calculated.
The 1996 Amendments expanded the obligations of certain users of consumer reports. In the employment context, these changes were quite significant; they include requirements that an employer obtain the consent of a job applicant or current employee before obtaining a consumer report and, before taking adverse action based on the report, provide a copy of it to the individual.48
The 1996 Amendments also made changes in the relationship between the FCRA and State laws. As originally enacted in 1970, the FCRA provided that the Federal statute did not exempt persons from complying with State laws "with respect to the collection, distribution, or use of any information on consumers, except to the extent that those laws are inconsistent” with the FCRA. The 1996 Amendments retained this language, but significantly modified the provision to preempt State laws in certain specified areas covered by the amended FCRA.49
Section 624 of the FCRA (“Relation to State Laws”) now provides that no State laws may be imposed in the areas of (i) prescreening (including the definition of the term “firm offer of credit or insurance" and the disclosures which must be made in connection with prescreened offers), (ii) the time within which a consumer reporting agency must complete its investigation of disputed information, (iii) the adverse action notice requirements of Section 615, (iv) the obsolescence limitations and other provisions of Section 605, (v) furnisher obligations under Section 623, (vi) the consumer summary of rights required by Section 609(c) to be provided by consumerreporting agencies to consumers who obtain disclosure of their files, and (vii) information sharing by affiliates.50 The specific preemptions are qualified in a number of respects, including specifying particular preexisting State enactments to which the preemptions do not apply.51 The primary proviso with respect to the preempted provisions, however, is that after January 1, 2004, States may enact laws that (i) are specifically intended to supplement the FCRA, and (ii) give greater protection to consumers than is provided under the FCRA.
Finally, other significant additions of the 1996 Amendments include authorizing
When it enacted the FCRA in 1970, Congress provided that the Commission would be the principal agency to enforce the statute. To help foster understanding and ensure compliance with the law, the Commission engaged in extensive business education and guidance, including, in the first two decades, publishing over 350 staff opinion letters, a staff guidance handbook, and six formal Commission interpretations.52 All of this material was then brought together in the Commission's 1990 Commentary on the FCRA.53 The Commentary was well received and has
48 Because the new employer obligations imposed by the 1996 Amendments apply also to investigative consumer reports and Congress removed a prior exemption for use of investigative reports in certain employment circumstances, employers may encounter difficulties when using outside entities to assist by preparing reports based on interviews in investigations of alleged workplace misconduct. Concerns arose because such investigations might be hampered by FCRA obligations, such as the requirement that an employer obtain the authorization of an employee before obtaining a consumer report, and the requirement that the employee be provided a copy of the report before the employer can take adverse action. Several Congressional proposals to amend the FCRA to meet the workplace investigation concerns have been introduced. In 2000, the Commission commented (see http://www.ftc.gov /os/2000/03/ltrpitofskysessions.htm) and testified with respect to one such proposal (see http://www.ftc.gov/os/2000/05/fcratest imony.htm). The Commission remains of the opinion that a legislative remedy of the type endorsed by the Commission in 2000 is the most appropriate response to these concerns.
49 Thus, both before and after the 1996 preemptions, States were free to legislate in areas covered by the FCRA but not specifically preempted. See, e.g., Colo. Rev. Stat. § 12–14.3–104 (providing for free annual credit reports).
50 Section 624(b); 15 U.S.C. $ 1681t1b).
51 Section 624(d); 15 U.S.C. $ 1681t(d). There is, moreover, a blanket “grandfathering” of State laws relating to the obsolescence limits of Section 605. Section 624(b)(1)(E); 15 U.S.C. $ 1681t(b)(1)Ě). An example is N.Y. Gen. Bus. L. $380_j(f)(1Xii) paid judgments may not be reported for more than 5 years).
52 The interpretations were published at 16 CFR $600 and were withdrawn when the Commission published the 1990 Commentary.
53 55 Fed. Reg. 18804 (May 4, 1990). The 1990 Commentary was the culmination of a proposal published in August 1988 and the Commission's review of over 100 submissions it received in 55 See, e.g.,
served as a valuable explanatory and enforcement guide to industry and other affected parties. It also has assisted the staffs of the Commission and other regulatory agencies in interpreting the Act efficiently and consistently.
After the 1996 Amendments, the Commission intensified its long-standing program of consumer and industry education.54 In view of the extension of enforcement authority to the States, the Commission conducted a nationwide series of training sessions on the FCRA for State officials. The Commission's informal guidance expanded to meet the interpretive needs prompted by the amendments. As one result of that effort, the Commission staff published an additional 85 opinion letters. The letters can be found on the Commission's website, which also features easy access to other useful FCRA information for both business and consumers.55 The Commission and its staff maintain active participation in many industry and consumer outreach efforts and respond daily to callers with FCRA questions.5
Current interpretive efforts at the Commission are focused on a revision to the 1990 Commentary.57 The passage of time generally, and the 1996 Amendments specifically, have rendered the 1990 Commentary partly obsolete. The new Commentary will draw on the staff opinion letters that post-dated the 1990 effort, as well as other Commission enforcement and interpretive experience.
Over the entire pe of the FCRA, the Commission has gaged in extensive consumer education.58 The Commission continues to regard consumer education as particularly vital to the FCRA because the statute contains self-enforcing elements, such as the right to dispute inaccurate or incomplete information.
The Commission has also brought a number of formal actions to enforce the FCRA. These actions have included cases to ensure (1) compliance with the adverse action notice requirements on the part of creditors 59 and employers; 60 (2) compliance with privacy and accuracy requirements by the major nationwide credit bureaus; 61 (3) compliance by resellers of consumer reports (agencies that purchase
response to its request for public comments on that proposal. 53 Fed. Reg. 29696 (August 8, 1988).
54 The Commission also drafted and published language for the three notices required by the 1996 Amendments to be distributed by credit bureaus: (1) a notice to consumer report users of their FCRA responsibilities; (2) a notice to furnishers explaining their new obligations; and (3) a notice to consumers, describing their FCRA rights, which must be included with any credit report requested by the consumer. The Commission believes that Congress' aim in requiring these notices has been achieved—the notices seem to be effective in conveying to consumers and businesses their rights and obligations under the Act.
the Commission's FCRA “home page,” http://www.ftc.gov/os/statutes / fcrajump.htm, and plain-English consumer information, http://www.ftc.gov/bcp/conline/ edcams/fcra /index.html.
56 To achieve compliance, the Commission has also periodically worked with industry and selfregulatory groups where appropriate.
57 See Commission press release at http://www.ftc.gov/opa /2003/01/fyi0302.htm, and “Notice of intent to request public comments” at http://www.ftc.gov/os/2003 101 / 16cfrlfrn.htm.
58 Over the past 7 years, 3.9 million of the five most popular FCRA brochures were distributed by the Commission. The information is duplicated on the Commission's web site, where the same brochures have registered over 1.6 million visits during the past 5 years. FCRA brochures such as “Building a Better Credit Record,” “How to Dispute Credit Report Errors,” and “Fair Credit Reportinghave each been distributed in numbers exceeding 100,000 per year over the past 5 years.
59 Hospital & Health Services Credit Union, 104 F.T.C. 589 (1984); Associated Dry Goods, 105 F.T.C. 310 (1985); Wright-Patt Credit Union, 106 F.T.C. 354 (1985); Federated Department Stores, 106 F.T.C. 615 (1985); Winkleman Stores, Civ. No. C 85–2214 (N.D. Ohio 1985); Strawbridge and Clothier, Civ. No. 85-6855 (E.D. Pa. 1985); Green Tree Acceptance, Civ. No. CA 4 86 469 K (M.D. Tex. 1988); Quicken Loans Inc., D-9304 (April 8, 2003). See also, Aristar, Civ. No. C-83–0719 (S. D. Fla. 1983); Allied Finance, Civ. No. CA3–85–1933F (N.D. Texas 1985); Norwest Financial, Civ. No. 87 06025R (C.D. Cal. 1987); City Finance, Civ. No. 1:90-cv246-MHS (N.D. Ga. 1990); Tower Loan of Mississippi, Civ. No. J90–0447 (J) (S.D. Miss. 1990); Barclay American Corp., Civ. No. C-C-91-0014-MU (N.C. 1991); Academic International, Civ. No. 91-CV-2738 (N.D. Ga. 1991); Bonlar, Civ. No. 97C 7274 (N.D. Il. 1997); Capital City Mortgage, Civ. No. 1:98CV00237 (D.D.C. 1998).
50 Electronic Data Systems, 114 F.T.C. 524 (1991); Kobacker, 115 F.T.C. 13 (1992); Keystone Carbon, 115 F.T.C. 22 (1992); McDonnell Douglas Corp., 115 F.T.C. 33 (1992); Macy's, 115 F.T.C. 43 (1992); Marshall-Field, 116 F.T.C. 777 (1993); Bruno's, Inc., 124 F.T.C. 126 (1997); Aldi's, 124 F.T.C. 1354 (1997); Altmeyer Home Stores, Inc., 125 F.T.C. 1295 (1998).
61 TransUnion Corp., 102 F.T.C. 1109 (1983); FTC v. TRW Inc., 784 F. Supp. 362 (N.D. Tex. 1991); TransUnion Corp. 116 F.T.C. 1357 (1993/consent settlement of prescreening issues only in 1992 target marketing complaint; see also TransUnion Corp. v. FTC, 81 F.3d 238 (D.C. Cir. 1996) ); Equifax Credit Information Services, Inc., 130 F.T.C. 577 (1995). Each of these "omnibus” orders differed in detail, but generally covered a variety of FCRA issues including accuracy, disclosure, permissible purposes, and prescreening.