Improper use of Credit Reports

The Fair Credit Reporting Act (FCRA) limits access to credit reports to parties having a legitimate interest in obtaining the information. If a credit reporting agency provides a "consumer report" to someone for a purpose other than those set forth in the Act, the agency and the recipient are subject to a suit for damages and attorney's fees.

A recent federal case illustrates how the Act may be applied. James was involved in a car accident and submitted claims of bodily injury and property damage to the other driver's insurance company. Suspecting the claims to be fraudulent, an investigator for the insurer obtained from a credit agency a computer-generated "Inquiry Activity Report" (IAR) on James.

An IAR contains a list of all entities, such as lending institutions or collection agencies, that have inquired about a subject's credit history for the previous two years. Although an IAR does not give the purpose of each inquiry, evidence in the lawsuit brought by James indicated that having numerous inquiries on an individual's report is a negative factor in evaluating credit risk.

A federal district court dismissed James's claim under the FCRA on the ground that the IAR was not a consumer report covered by the Act. The appeals court disagreed. Among the necessary elements for a consumer report is the requirement that its initial compilation, its expected use, or its ultimate use be for one of the permissible purposes listed under the FCRA. The IAR in James's file was a consumer report despite the fact that its ultimate use by the insurance company--to evaluate an insurance claim--was not a permissible purpose under the statute. The document constituted a consumer report because the credit agency initially compiled and expected the IAR to be used for credit-related transactions. Both the credit agency and the insurer were exposed to liability under the FCRA for misuse of a credit report.