Written By ESR News Blog Editor Thomas Ahearn

On February 25, 2022, the United States District Court in the Eastern District of Pennsylvania ruled in a lawsuit that a public records vendor was a consumer reporting agency (CRA) that assembled “consumer reports” under a federal law called the Fair Credit Reporting Act (FCRA) that regulates background checks in America.

The Plaintiffs in the case were a married couple who applied to refinance their home mortgage with a bank. As part of that application, the bank engaged a company to conduct a public records search of the open judgment directory and the municipal lien directory pertaining to the Plaintiffs and prepare a report for the bank. 

According to the Plaintiffs, the report to the bank erroneously stated that they had outstanding civil judgment debts. The Plaintiffs claimed the inaccuracies in the report caused the bank to delay approval, cost them money in the form of higher interim payments, damaged their credit reputation, and caused them emotional distress.

The Plaintiffs sued the public records vendor for negligently and willfully violating the FCRA by failing to follow reasonable procedures to assure maximum possible accuracy when preparing a consumer report (15 U.S.C. Sec. 1681e(b)) and by failing to conduct a reasonable reinvestigation of their dispute (15 U.S.C. Sec. 1681i(a)).

The public records vendor argued that the FCRA did not apply because it is not a “consumer reporting agency” and does not supply “consumer reports” within the meaning of the FCRA. However, the court found that the company’s operations satisfied the elements of a “CRA” and “consumer reports” as defined by the FCRA.

Under the FCRA, to be a “consumer reporting agency,” the individual or business must (1) “regularly engage[] … in the practice of assembling or evaluating consumer credit information or other information on consumers,” (2) “for monetary fees”, (3) “for the purpose of furnishing consumer reports to third parties,” the ruling stated.

A “consumer report” is a (1) communication of any information from a “consumer reporting agency,” (2) bearing on one of the specified attributes of a consumer, (3) for “credit or insurance to be used primarily for personal, family, or household purposes; employment purposes; or any other purpose authorized under section.”

The Court found that a “consumer reporting agency” does not actually have to furnish a “consumer report” but must act “for the purpose of furnishing consumer reports.” An entity could be a “consumer reporting agency” within the FCRA if it acted for the purpose of furnishing a consumer report, even if it never produced that report.

However, the Court ruled that while the definition of “consumer reporting agency” does not require an entity to produce a “consumer report,” a “consumer report” must come from a “consumer reporting agency.” So the Court can first determine if an entity is a “consumer reporting agency” and if that agency issued a “consumer report.”

As a result, the Court denied summary judgment to the public records vendor on the issue of whether it fell outside the FCRA and noted that “the Agency’s position that it is not subject to the FCRA essentially amounts to putting its head in the sand… moving forward, the ostrich approach to matters of federal law will not suffice.”

Enacted in 1970, the FCRA promotes the accuracy, fairness, and privacy of consumer information contained in the files of CRAs and protects consumers from the willful and negligent inclusion of inaccurate information in their credit reports. The FCRA also regulates the collection, dissemination, and use of consumer information.

Employment Screening Resources (ESR) – a service offering of ClearStar, a leading provider of Human Capital Integrity℠ technology-based services, specializing in background, credit, and medical screening – offers background screening solutions that help employers comply with the FCRA. To learn more, contact ESR today.

NOTE: Employment Screening Resources (ESR) – a service offering of ClearStar – does not provide or offer legal services or legal advice of any kind or nature. Any information on this website is for educational purposes only.

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