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Wednesday, July 23, 2008

The Fair Credit Reporting Act: Review Before You View

Are you a business owner or commercial landlord? Review the following article by the attorneys at Gross & Romanick about the Fair Credit Reporting Act before you request a credit report or conduct a secret investigative consumer report.

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Before you offer credit, insurance or a job to an individual, you prudently request a Credit Report on the applicant and their spouse. Because the Report displays a history of late and nonpayment, you decline to give the loan, insurance or job but you do not tell them why. You have violated the Fair Credit Reporting Act (FCRA)!

Without informing the applicant for credit, insurance or a job, you decide to conduct a secret Investigative Consumer Report, which involves personal interviews with third persons and a search of public records. Based upon the report, you decide to extend credit or offer the job. You are now subject to suit under the FCRA!

While the FCRA does not apply to credit or insurance applications in connection with business transactions, it does apply to employment evaluations for prospective and new employees.

Consumer Credit Reports

Consumer Credit Reports on individuals are available through credit reporting agencies such as CBI Equifax and TRW. These Reports are quite extensive (see information below). While Reports are not perfect, obvious credit risks are easily determined by a history of late payments, repossession, bad debts, skips or placement for collection.

Partial reliance upon Reports for denial of employment, credit or insurance (even if the charge for such credit or insurance is wholly or partly increased) requires disclosure to the applicant of the name and address of the credit- reporting agency. If reports are obtained from a source other than a consumer- reporting agency, the individual must be informed of the right to the information utilized if such a request is made within 60 days of learning about the adverse decision.

Investigative Credit Reports

Investigative Consumer Reports are defined by the FCRA as a report that contains information "on a consumer's character, general reputation, personal characteristics, or mode of living" and is obtained through personal interviews with "neighbors, friends, or associates of the consumer." These may include Reports prepared by a credit bureau or any other source, such as a private investigator. These types of investigations are subject to special disclosure requirements because of their potentially damaging nature. Employers and insurance companies are frequent users of such Reports due to concerns about personal lifestyle, drinking habits and sexual behavior.

Within 3 days after a report is first requested, the applicant must be advised in writing of the right to request a complete and accurate disclosure of the nature and scope of the investigation. This disclosure is not required "if the Report is to be used for employment purposes for which the consumer has not specifically applied." If requested by the consumer, the disclosure must be mailed or delivered "to the consumer not later than 5 days after the date on which the request for such disclosure was received from the consumer or such Report was first requested, whichever is later."

Penalties

Consumer Reporting Agencies are governed by the FCRA which sets standards for assuring the accuracy of the reports and places strict limitations on the distribution of the Reports. Nevertheless, both the Agency and the user of Reports may be subject to civil liability. Actual damages can be awarded in cases of negligent noncompliance with the FCRA, and punitive damages may be granted for willful noncompliance. In a successful suit, attorney's fees and costs may be assessed.

Avoiding Liability

Since guessing wrong has serious consequences, it is preferable not to try to determine whether the context for the use of the Report is business or consumer. For example, a loan may have mixed personal and business purposes; or worse, a hidden personal purpose. In all cases, obtain written consents from individuals before obtaining either Credit Reports or Investigative Reports; and immediately deliver the final Reports to the individual upon request. If the Report resulted in an adverse action, inform the consumer in writing of their right to request within 60 days the reasons for the adverse action.

Establish and maintain reasonable procedures to assure compliance with the disclosure provisions of the FCRA. If you can prove by a preponderance of the evidence that you maintained such procedures, the FCRA provides that you cannot be held liable for such violations. Don't count on it - know the FCRA and comply.

Permissible Uses of Credit Reports
  • Extension of credit (including checks and leases)
  • Employment
  • Insurance
  • Government benefits

Impermissible Uses of Credit Reports
  • Alimony or support proceedings
  • Market research
  • Service of process Voir dire (jury selection)
  • Collection of taxes
  • Compilation of background reports by private investigators

What Is In a Credit Report?

Credit reports include:
  • Social Security Number
  • Current and former addresses
  • Marital Status and number of dependents
  • Employment information (current and former positions)
  • Credit accounts and payment history (credit cards, loans, mortgages)
  • Current status of all accounts (including a credit rating for each account)
  • Public Records (judgments, bankruptcies, garnishments, foreclosures)
  • Inquiries (number of reports requested, and by whom)

For more information about credit reporting or to seek legal counsel, contact Gross & Romanick today.