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.
