Court Finds Agency Is Consumer Reporting Agency Under Fair Credit Reporting Act (FCRA)

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Court Finds Agency Is Consumer Reporting Agency Under Fair Credit Reporting Act (FCRA)

In February of 2022, a Federal Court in Pennsylvania denied summary judgment to Defendant “Agency” in a lawsuit where the Agency did not think it should be defined as a “Consumer Reporting Agency” or “CRA” that assembled “consumer reports” and therefore was not subject to a federal law called the Fair Credit Reporting Act (FCRA).

However, in ruling on the issue of whether Defendant fell outside the FCRA, the United States District Court, Eastern District of Pennsylvania noted that “the Agency’s position that it is not subject to the FCRA essentially amounts to putting its head in the sand… moving forward, the ostrich approach to matters of federal law will not suffice.”

In the lawsuit, Plaintiffs were a married couple who applied to refinance their home mortgage with a bank that engaged a third-party Agency to conduct a public records search of the open judgment directory and the municipal lien directory pertaining to the Plaintiffs and prepare a report for the bank.

Plaintiffs claimed the report the Agency sent to the bank erroneously stated they had outstanding civil judgment debts and they alleged the inaccuracies in the report caused the bank to delay approval, cost them money in the form of higher payments, damaged their credit, and caused emotional distress.

As a result, Plaintiffs sued the Agency for negligently and willfully violating the FCRA by failing to follow “reasonable procedures to assure maximum possible accuracy” when preparing a consumer report (15 U.S.C. Sec. 1681e(b)) and by failing to conduct a reasonable reinvestigation of their dispute (15 U.S.C. Sec. 1681i(a)).

The Agency argued that the FCRA did not apply because it is not a “Consumer Reporting Agency” and did not supply “consumer reports” within the meaning of the FCRA. However, the Court found that the Agency’s operations satisfied the elements of a CRA and consumer reports as defined by the FCRA.

The Court’s ruling stated that be a CRA under the FCRA, an individual or business must (1) “regularly engage … in the practice of assembling or evaluating consumer credit information or other information on consumers,” (2) “for monetary fees,” (3) “for the purpose of furnishing consumer reports to third parties.”

A “consumer report” is a (1) communication of any information from a “Consumer Reporting Agency,” (2) bearing on one of the specified attributes of a consumer, (3) for “credit or insurance to be used primarily for personal, family, or household purposes; employment purposes; or any other purpose authorized under section.”

The Court found that a Consumer Reporting Agency does not actually have to furnish a consumer report but must act “for the purpose of furnishing consumer reports.” An entity could be a CRA within the FCRA if it acted for the purpose of furnishing a consumer report, even if it never produced that report.

However, the Court also found that while the definition of “Consumer Reporting Agency” does not require an entity to produce a “consumer report,” a consumer report must come from a Consumer Reporting Agency. So the Court can first determine if an entity is a CRA and if that Agency issued a consumer report.

Enacted in 1970, the FCRA promotes the accuracy, fairness, and privacy of consumer information contained in the files of CRAs and protects consumers from the willful and negligent inclusion of inaccurate information in their credit reports. The FCRA also regulates the collection, dissemination, and use of consumer information.

ClearStar – a leading provider of Human Capital Integrity℠ technology-based services specializing in background, credit, and medical screening – offers FCRA-compliant background checks to empower smarter hiring decisions by employers in a multitude of industries. To learn more, please contact ClearStar today.

 

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    Thomas Ahearn - News Blog Editor and Public Relations Specialist

    Thomas Ahearn is our News Blog Editor and Public Relations Specialist. Our News Blog provides information about the background check industry to employers, HR professionals, recruiters, and consumers. ClearStar's News covers a variety of topics including Ban the Box, credit reports, criminal records, data breaches, drug testing, Equal Employment Opportunity Commission (EEOC), E-Verify, Fair Credit Reporting Act (FCRA), HR technology, identity theft and fraud, jobs reports, lawsuits involving screening, Millennial workforce, privacy issues, social media background checks, and workplace violence.

    At ClearStar, we are committed to your success. An important part of your employment screening program involves compliance with various laws and regulations, which is why we are providing information regarding screening requirements in certain countries, region, etc. While we are happy to provide you with this information, it is your responsibility to comply with applicable laws and to understand how such information pertains to your employment screening program. The foregoing information is not offered as legal advice but is instead offered for informational purposes. ClearStar is not a law firm and does not offer legal advice and this communication does not form an attorney client relationship. The foregoing information is therefore not intended as a substitute for the legal advice of a lawyer knowledgeable of the user’s individual circumstances or to provide legal advice. ClearStar makes no assurances regarding the accuracy, completeness, or utility of the information contained in this publication. Legislative, regulatory and case law developments regularly impact on general research and this area is evolving rapidly. ClearStar expressly disclaim any warranties or responsibility or damages associated with or arising out of the information provided herein.

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