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FTC Penalizes Check Authorization Provider and Associated Collection Agency $3.5 Million for FCRA Violations

Troutman Sanders LLP - Atlanta Office

January 30, 2014

Previously published on January 21, 2014

TeleCheck Services, Inc. (Telecheck), one of the nation’s largest check authorization service companies, along with its associated debt collection entity, TRS Recovery Services, Inc. (TRS), agreed to pay a fine of $3.5 million to settle Federal Trade Commission (FTC) charges for violating the Fair Credit Reporting Act (FCRA).

The FTC Lawsuit and Consent Order

Telecheck is a data broker that compiles personal information of consumers and sells information to companies making important decisions about consumers, such as on-the-spot recommendations about the ability of a consumer to pay for goods and services by check. TeleCheck’s recommendations are “consumer reports” as defined by the FCRA, triggering certain consumer rights. Its affiliate, TRS, is a collection agency that handles consumer debt taken on by TeleCheck.

Under the FCRA, consumers whose checks are denied based on information Telecheck provided to a merchant have the right to dispute that information, requiring Telecheck to conduct a reasonable reinvestigation and to correct any inaccuracies. But that’s not always happening according to the FTC’s complaint filed in the United States District Court for the District of Columbia. Also, the FTC’s complaint alleges that TRS, which handles consumer debt taken on by Telecheck, violated the requirements of the Duties of Furnishers of Information to Consumer Reporting Agencies Rule, 16 C.F.R. § 660.3, recodified at 12 C.F.R. § 1022.42 (Furnisher Rule), which requires entities furnishing information to CRAs to ensure the accuracy and integrity of the information under the FCRA. In particular, the order noted TRS violated the FCRA by failing to consider the guidelines in subpart E of 12 C.F.R. § 1022, in TRS’s written policies and procedures.

In addition to the $3.5 million penalty, the order settling the FTC’s charges requires Telecheck and TRS to alter their business practices to comply with the requirements of the FCRA and the Furnisher Rule in the future.

This is the second highest penalty ever obtained by the FTC in an FCRA case - in August 2013 another check authorization company also agreed to pay a fine of $3.5 million to settle similar claims. A $10 million fine imposed against a consumer data broker in 2006 remains the largest penalty to date.

What does this mean?

This case is part of a broader initiative by the FTC to target the practices of data brokers, which often compile, maintain, and sell sensitive consumer information. The FTC said in 2013 that it plans to continue to increase its enforcement efforts under the FCRA, which sets out rules for companies that use data to make certain eligibility decisions. In addition, the FTC has advised that it will also continue its work to crack down on what it has called the "invisible" data broker industry, which the agency has called on Congress to regulate through formal legislation.

Moreover, this regulatory enforcement action is a reminder that companies who furnish information to CRAs should consider the Furnisher Rule, in particular, incorporating the guidelines in subpart E of 12 CFR § 1022, in developing their own policies and procedures to comply with the requirements of the FCRA.

Finally, the case reinforces the need for consumer reporting agencies and furnishers, and especially data brokers, to formalize their FCRA policies and procedures for FCRA compliance. These entities also are well-advised to conduct regular internal audits of those policies and procedures. This case also counsels consumer reporting agencies and furnishers to pay heightened attention to consumer disputes and reinvestigations, as such disputes have been the subject of heightened regulatory attention, and they may also provide advance notice of potentially troublesome sources of consumer data and information.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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