As we have referenced in previous posts, the Federal Trade Commission (FTC) has launched an aggressive push against data brokers and credit reporting agencies in its enforcement of the rules under the Fair Credit Reporting Act (FCRA).  That push continues today with the U.S. Department of Justice’s announcement of the prosecution of a matter referred to it by the FTC. 

In U.S. v. Direct Lending Source Inc., filed by the DOJ on October 9, 2012, the DOJ alleges that Direct Lending Source and two other companies bought and sold consumer credit reports when they bought thousands of pre-screened consumer lists and credit report data and resold that information to dealers who marketed credit relief services instead of making firm offers of credit.  The DOJ alleges such practice violates the FCRA because the companies failed to comply with provisions forbidding the sale of credit reports without a “permissible purpose.” The only permissible purpose under the FCRA for using such pre-screened lists is to make “firm offers of credit or insurance” to consumers. The complaint further alleges that certain purchasers of the defendants’ credit report information have become the subject of law enforcement actions for consumer fraud against persons in financial trouble.   

The complaint also alleges that the defendants did not take reasonable steps to identify the ultimate purchasers of the credit reports. In some cases, according to the complaint, the defendants sold lists to brokers who then re-sold them to unidentified entities.

The FCRA regulates the collection, dissemination, and use of consumer information, including consumer credit information (broadly defined to include personally identifiable information contained in consumer financial records). Under the statute, a consumer report is any written, oral, or other communication of any information by a consumer reporting agency that bears on a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.

The DOJ has entered a preliminary consent decree with the defendants, requiring them to pay a combined $1.2 million and to agree to injunctive relief against further FCRA or FTC violations.  In addition, the defendants would be mandated to use, collect or resell consumer reports only for authorized purposes.  Under the order, defendants would be prohibited selling consumer reports in connection with credit relief services.

Like other recent FTC actions, this matter reminds companies to use credit report information in conformance with the FCRA.  We expect continued FTC, and potential DOJ, action under the FCRA.