The Federal Trade Commission continues to aggressively enforce the Fair Credit Reporting Act (FCRA) against data brokers, as shown by its recent settlement with TeleCheck Services, Inc. The settlement requires TeleCheck to pay a $3.5 million civil penalty (matching the FTC’s second largest penalty in a FCRA case).

TeleCheck, a check authorization service company, is deemed a “data broker” by the FTC because it compiles, maintains, and sells sensitive consumer information. The FTC also deems the check authorization recommendations that TeleCheck provides to merchants to be “consumer reports,” making TeleCheck a “consumer reporting agency” (CRA) under the FCRA.

The FTC’s press release announcing the TeleCheck settlement describes the matter as “part of a broader initiative to target the practices of data brokers.” According to recent FTC testimony to Congress, that initiative includes ongoing examination of data broker privacy practices as well as aggressive enforcement. Recent FTC enforcement activity has included warning letters to providers of rental histories and an enforcement action against an employment background screening company. Like the TeleCheck settlement, all of these actions focus on data broker compliance with the FCRA.

The FCRA requires a merchant who rejects a consumer’s check based on TeleCheck’s recommendation to give the consumer an adverse action notice. In addition to other mandated disclosures, the notice must advise the consumer that the rejection was based on TeleCheck’s information and that the consumer has the right to dispute that information with TeleCheck.

The FTC’s complaint charged that TeleCheck violated the FCRA’s requirement for it to conduct, upon receiving a consumer’s dispute, a reasonable reinvestigation to determine the accuracy of the disputed information. Among TeleCheck’s alleged unlawful actions were:

  • Incorrectly informing consumers that the FCRA only allows them to dispute the transaction amount or date and whether services were rendered
  • Instructing consumers who stated that they did not authorize a transaction to, under certain circumstances, contact the merchant rather than initiating a reinvestigation by TeleCheck
  • Under certain circumstances, refusing to reinvestigate and/or clear information disputed by a consumer alleging fraud unless the consumer provided a police report identifying the suspect and agreed to participate in the suspect’s prosecution

The complaint also alleges that TeleCheck failed to comply with various FCRA timing requirements for reinvestigations. These requirements include the 30- or 45-day periods for completing reinvestigations, as well as the five-business-day time period for notifying furnishers of disputed information and notifying consumers of the results of either a completed reinvestigation or when a reinvestigation was terminated because the dispute was determined to be frivolous or irrelevant. In addition, TeleCheck was alleged to have failed to promptly correct errors in its consumer files.

A debt collector affiliated with TeleCheck also was charged with violating the FCRA. The FTC alleged that the collector failed to comply with the FTC’s “Furnisher Rule,” which requires furnishers of consumer information to CRAs to establish and implement reasonable procedures regarding such information and consider the rule’s guidelines. The complaint alleges that the debt collector failed to consider the guidelines in its written policies and procedures regarding the accuracy of information it furnished to TeleCheck. In addition to payment of the $3.5 million civil penalty, the settlement includes injunctive relief that requires TeleCheck and the collector to comply with relevant FCRA and Furnisher Rule requirements.