FTC Settles FCRA Enforcement Actions Alleging Wrongful Sale and Use of Prescreened Lists

by Ballard Spahr LLP
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The Federal Trade Commission announced on October 10, 2012, that it had settled enforcement actions filed against a consumer reporting agency (CRA) and companies to whom the CRA sold prescreened lists of consumers who were late on their mortgage payments. The actions demonstrate again that even though the FTC shares Fair Credit Reporting Act (FCRA) enforcement authority as to non-banks with the Consumer Financial Protection Bureau, it remains focused on FCRA enforcement.

The settlements provide for the payment of a $1.2 million civil penalty by the companies that purchased the lists. They also require a $392,803 payment by the CRA, which is labeled "disgorgement" in the FTC's analysis of the CRA settlement and described in the proposed consent order as "equitable monetary relief [that] is solely remedial in nature and is not a fine, penalty, punitive assessment, or forfeiture."

The complaint alleged that the CRA sold prescreened lists of consumers who met criteria that included having a 30-, 60-, or 90-day mortgage payment delinquency, and the purchasers resold the lists to third parties who used the lists to market products and services aimed at financially distressed consumers, such as loan modification, debt relief, and foreclosure relief services. The FTC charged that the CRA had violated the FCRA by furnishing consumer reports to someone without a "permissible purpose," and the purchasers had violated the law by obtaining and using such reports without a "permissible purpose." Under the FCRA, only the use of prescreened lists to make a firm offer of credit or insurance constitutes a "permissible purpose." The FTC also charged that the purchasers had violated the FCRA requirements for resellers of consumer reports, such as by reselling the prescreened lists to persons without a permissible purpose, not disclosing to the CRA who would be the end users of the lists, and, to the extent the lists were used to make firm offers of credit, failing to maintain records of certain information.

In addition, the FTC alleged that the same conduct by the CRA and the purchasers also violated Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices. The FTC used the theory that the CRA and the purchasers failed to employ appropriate measures to control access to sensitive consumer financial information. According to the FTC, such failures constituted an unfair act or practice.

In addition to the monetary payments, the settlements require the CRA to maintain certain records for a five-year period and the purchasers to create certain records for a 20-year period and retain each such record for five years.

Lawyers in Ballard Spahr’s Consumer Financial Services Group regularly provide advice to clients on FCRA compliance and defend clients in FCRA lawsuits and enforcement matters. The group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. The group also produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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