Federal district court concludes FCRA does not require consumer reporting agencies to verify legitimacy of end users’ businesses

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A Florida federal district court has dismissed a lawsuit filed by a borrower alleging FCRA violations by Clarity Services, Inc. (Clarity), the consumer reporting agency that provided the borrower’s consumer report to her lender.  In dismissing the plaintiff’s FCRA claims, the district court rejected the plaintiff’s argument that the FCRA requires a consumer reporting agency, before providing a consumer report, to verify the legitimacy of the business of the report’s end user.

In Beckford v. Clarity Services, Inc., the plaintiff initially filed a lawsuit against her lender, various related companies and individuals, and Clarity alleging violations of the FCRA and Florida law.  The plaintiff subsequently settled her claims against all of the defendants other than Clarity.  The plaintiff thereafter filed an amended complaint against Clarity alleging that it violated: (1) FCRA Section 1681b by providing a consumer report without a permissible purpose, and (2) FCRA Section 1681a(b) by failing to maintain reasonable procedures to ensure consumer reports are furnished only for permissible purposes.  Based on the allegations of the amended complaint, it was undisputed that the plaintiff applied for and received credit from the lender to which Clarity had provided the plaintiff’s consumer report.

As described by the court, the plaintiff contended that the lender was “an online loan shark” and “[t]he crux of [her] FCRA claims against Clarity is that Clarity failed to verify that [the lender] is a legitimate business.”  The lender claimed it was entitled to sovereign immunity from state usury laws as an “arm of the tribe.”  The plaintiff alleged having a good faith belief that the lender was actually operated by non-tribal investors who used a tribe to serve as a straw owner of the lender in order to claim the tribe’s sovereign immunity.  The plaintiff alleged that Clarity’s records reflected an address for the lender that was for “a small residential apartment and not the home base of a large lending enterprise” and that Clarity did not have a phone number for the lender.  Based on these two facts, the plaintiff contended that “Clarity is aiding and abetting the proliferation of illegal payday lenders.”

In her response to Clarity’s motion to dismiss, the plaintiff argued that despite her having obtained a loan from the lender, “Clarity had a duty to prevent companies, like [the lender], from obtaining [her] consumer report.”  The court rejected this theory, stating simply that “[t]he FCRA does not impose such a duty.”  It found that the plaintiff’s application and receipt of credit from the lender was “plainly a permissible purpose under the FCRA.”   The court stated that because the plaintiff had “alleged facts that affirmatively demonstrate that Clarity did not violate Section 1681b, her claim should be dismissed with prejudice.”

The court also dismissed with prejudice the plaintiff’s reasonable procedures FCRA claim, stating that it was well-established that a reasonable procedures claim requires a plaintiff to first show that the consumer reporting agency provided a consumer report without a permissible purpose.  According to the court, because the plaintiff’s own allegations defeated her permissible purpose claim, it was necessary to also dismiss her reasonable procedures claim.

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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