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Fair Credit Reporting: 7.2.3.4.1 Introduction

A consumer report may be used “in connection with a credit transaction involving the consumer . . . and involving . . . collection of an account of [] the consumer.”173 Some consumers may be confused or not be familiar with the party accessing their consumer reports because collection is often done by third-party debt collectors.

Fair Credit Reporting: 7.2.3.4.3 Collection of non-credit judgments

It is unclear whether a judgment creditor has a permissible purpose to obtain a consumer report in order to collect a judgment stemming from a debt that is not a credit related. The 2003 FACTA amendments and revisions to the FTC’s position put the issue in question.

Fair Credit Reporting: 7.2.3.6 Investors, Servicers, or Insurers of Credit Obligations

A separate permissible purpose exists for CRAs to furnish consumer reports to a person whom it has reason to believe “intends to use the information, as a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation.”242 In an unreported decision without much analysis, the Sixth Circuit held that this provision gives debt buyers a permissible purpose to obtain the consumer reports of consumers whose debts they are seekin

Fair Credit Reporting: 7.2.4.1.2 Widespread use of credit reports in employment

A significant number of employers have been using credit-based consumer reports as part of their hiring process. Nearly one-third of employers were checking credit reports in 2016, 251 up from nineteen percent in 1996 but down from the nearly one-half in 2012.252 A number of states253 and cities254 have enacted statutes restricting the use of credit reports for employment purposes.

Fair Credit Reporting: 7.2.4.2 Employment Purposes

“Employment purposes”261 is defined to mean “evaluating a consumer for employment, promotion, reassignment, or retention as an employee.”262 An employer may obtain a consumer report on a current employee, not just prospective hires, provided that the employer has obtained prior, written authorization.263 The term “employment purposes” is “interpreted liberally to effectuate the broad remedial purpose of the FCRA.”

Fair Credit Reporting: 7.2.4.3.1 Employer must provide prior certification

A CRA may not release a consumer report for employment purposes unless the employer certifies that the employer has made required disclosures, has received the consumer’s written authorization, will comply with any adverse action requirements, and will not use any information in the report in violation of any applicable federal or state equal opportunity law or regulation.289 The CRA is required only to have received the employer’s certification.

Fair Credit Reporting: 7.2.5 Permissible Use in Connection with Insurance

Another permissible purpose for furnishing consumer reports to users is “in connection with the underwriting of insurance involving the consumer.”303 Underwriting activities include deciding whether to issue or cancel a policy, and determination of coverage, terms, rates, and similar items.304 An actual application for insurance is not necessary as long as the insurer intends to use the report for underwriting.305 In the event there is any adverse

Fair Credit Reporting: 7.2.6 Permissible Use in Connection with Government Licenses or Other Benefits

Another permissible use of a consumer report is “in connection with a determination of the consumer’s eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant’s financial responsibility or status.”317 This provision allows public assistance agencies, for example, to obtain consumer reports for use in evaluating the consumer’s eligibility for benefits.

Fair Credit Reporting: 7.2.7 Risk Assessment of Existing Credit Obligations

Consumer reports may be provided to “a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation.”330

Creditors often sell installment contracts, home mortgages, and other credit obligations. The potential investor, or purchaser, may use information in a consumer report in connection with a valuation or assessment of the credit or prepayment risks associated with the consumer debt.

Fair Credit Reporting: 7.2.8.1 Generally

In addition to the specific purposes described above (in connection with credit transactions, employment, insurance, government benefits and licenses, and risk assessment), the FCRA also lists a more general permissible purpose.

Fair Credit Reporting: 7.2.8.2.1 Introduction

The first legitimate business need for consumer reports is “in connection with a business transaction initiated by the consumer.”337 Three separate questions arise in determining whether a report may be used under this provision. First, what types of business transactions qualify? Second, was the transaction initiated by the consumer? And third, is the business need legitimate?

Fair Credit Reporting: 7.2.8.2.2.1 Business transaction for personal, family, or household purposes

The FTC Staff Summary takes the view that the business transaction must be “with a consumer primarily for personal, family or household purposes.”338 Courts have generally agreed.339 The “business” aspect of the transaction relates to the user’s purpose, not the consumer’s. Obtaining a consumer report for a business transaction that involves purely commercial purposes on both ends is not a permissible use.340

Fair Credit Reporting: 7.2.8.2.2.3 Business transaction must relate to eligibility

The FTC staff has interpreted the business transaction provision to apply only at the point of initiation—that is, for the purpose of determining the consumer’s eligibility for the business transaction at hand.364 The existence of a separate business transaction provision that provides a permissible purpose for account reviews,365 which applies after an account has been established, bolsters the view that the first provision applies only to initial eligibility decisions.

Fair Credit Reporting: 7.2.8.2.3 Initiated by the consumer

The business transaction must be “initiated by the consumer.”372 Prior to the 1996 Reform Act amendments, the business transaction needed only to “involve” the consumer.373 The language now makes clear that the consumer must at least evidence interest in a transaction and perhaps take an explicit first step to initiate the transaction in order for the business to have a legitimate permissible use of a consumer report.

Fair Credit Reporting: 7.2.8.3 Business Need to Review a Consumer’s Account

Even if the consumer has not initiated a new transaction, businesses and others who hold consumer accounts have a permissible purpose to obtain a consumer report if they have a legitimate business need “to review an account to determine whether the consumer continues to meet the terms of the account.”394 The user does not have to be a creditor and can be anyone with consumer accounts.395 In fact, a creditor has a permissible purpose to obtain a consumer report to review a credit account under th