Consumer Law

When Can a Creditor Pull a Consumer's Credit Report? The Ninth Circuit Ignites a Controversy

By Kemnitzer, Anderson, Barron, Ogilvie & Brewer

Last month the Ninth Circuit Court of Appeals decided an important consumer protection issue concerning when creditors trying to collect consumer debts can permissibly pull consumers' credit reports. The Court held that creditors can only pull credit reports if the debt involves a "credit transaction," in which the consumer directly participated and voluntarily sought credit.

This was an important victory for our client, Maria Pintos. Her car was towed for a registration violation and sold, but the sale price didn't cover the towing and impound charges. The towing company assigned the outstanding debt to a debt collector, which pulled her credit report to assess whether she had sufficient assets to be worth pursuing for those charges. Apparently it decided she did, because she began to receive nonstop collection calls.

Andy Ogilvie of our firm sued the debt collector on Ms. Pintos' behalf under the Fair Credit Reporting Act (FCRA) on grounds that it could not pull Ms. Pintos's credit report in the absence of a "credit transaction." Ms. Pintos also sued Experian for violating the FCRA by furnishing the credit report to the debt collector.

The trial court ruled in favor of Experian and the debt collector, but the Ninth Circuit Court of Appeals reversed. That Court found that the FCRA only allows debt collectors to obtain credit reports "in connection with a credit transaction involving the consumer." In our case, Ms. Pintos did not voluntarily seek credit. Rather, the debt arose when the sale price of her vehicle failed to cover the towing and impound charges. Thus, the Court concluded that the debt collector had no permissible purpose under the FCRA to obtain Ms. Pintos's credit report.

The Court's decision has ignited a flurry of opposition. Experian and the debt collector have both asked the Ninth Circuit to re-hear the case or hear it en banc, meaning the entire Ninth Circuit would decide the issue, not just the three-judge panel that decided the case. They have been joined by a Who's Who of debt collectors, including the Association of Credit and Collection Professionals, the Consumer Data Industry Associaiton, the Commercial Law League of America, DBA International (f/k/a Debt Buyer's Association) and the Center for Enforcement of Family Support. All of these industry groups urge the Court to reverse its holding. Among other arguments, they complain that this case may deprive debt collectors of a "well-established" permissible purpose under the FCRA to obtain credit reports to collect judgment debts, liens, health care receivables, or overdue child support payments.

We believe that the FCRA is intended to provide important protections to consumers, including that a creditor may not access a consumer's credit report unless it is associated with a "credit transaction." In the view of the various industry groups listed above, a "credit transaction" can just mean a claim that something is owed. It remains to be seen whether the Ninth Circuit will take another look at his case and ultimately, whether it will continue to view the FCRA as an important consumer protection statute.

The case is Pintos v. Pacific Creditors Ass'n, --F.3d--, 2007 WL 2743502 (9th Cir. 2007).

Full post as published by California Credit Law Blog on October 22, 2007 (boomark / email).