- Are Consumer Reports Available For Use In The Collection of Debts Owed to Governmental Agencies?
- April 14, 2015 | Author: James C. Warmbrodt
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Pittsburgh Office
Consumer reports obtained from credit reporting agencies can be a valuable tool in debt collection. The purposes for which consumer reports may be issued and used are governed by the Fair Credit Reporting Act (FCRA). The FCRA contains specific provisions permitting the issuance of consumer reports to governmental agencies that include identifying information respecting any consumer, limited to the consumer's name, address, former addresses, places of employment, or former places of employment.1
To the extent that a governmental agency desires a consumer report containing more extensive information, the FCRA limits the availability and use of consumer reports to specifically enumerated permissible purposes. As it relates to the use of consumer reports for debt collection, the FCRA provides in relevant part as follows:
(a) In general . . . [A]ny consumer reporting agency may furnish a consumer report under the following circumstances and no other: . . .
(3) To a person which it has reason to believe--
(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer;2
Governments and governmental subdivisions or agencies are "persons" under the FCRA to whom the permissible purpose requirements of §1681b(a)(3)(A) apply.3 Courts have consistently held that the collection of a debt constitutes "collection of an account".4 However, it has become increasingly evident that not all debt collection constitutes a permissible purpose under the FCRA. For debt collection to qualify as a permissible purpose, the FCRA requires both (1) "a credit transaction involving the consumer on whom the information is to be furnished" and (2) involve "the extension of credit to, or review or collection of an account of, the consumer".5 A consumer is "involved" in a credit transaction for purposes of §1681b(a)(3)(A) where the consumer is "drawn in as a participant" in the transaction, but not where the consumer is "obliged to become associated" with the transaction.6 Nevertheless, a judgment creditor is authorized under the FCRA to obtain a credit report in connection with collection efforts; once a debt has been judicially established, there is a "credit transaction involving the consumer" no matter how it arose.7
Government agencies take collection action for a variety of debt against consumers. Utilities (water, electric, sewer)8 and ambulance service9, where billing and payment are deferred until after the services are provided, satisfy the "credit transaction" requirement of the FCRA, and therefore collection of those debts would be a permissible purpose for obtaining consumer reports. Other obligations, such as taxes and damages caused to property, are involuntary debts, where the consumer is "obliged to become associated with the obligation". The FCRA's prohibition against obtaining consumer reports to collect involuntary debts might appear to rule out governmental agencies' use of consumer reports unless and until a judgment is entered against the consumer. However, the practice of many governmental agencies of entering into payment arrangements with consumers pursuant to promissory notes may open the door to obtaining consumer reports that might otherwise be closed.
The definition of "credit" under the FCRA includes "the right granted by a creditor to a debtor to defer payment of debt".10 Consequently, a consumer entering into a promissory note that offers deferred payments in connection with an involuntary debt that would otherwise be immediately due and payable would appear to constitute a "a credit transaction involving the consumer,” thereby making the collection of the debt a permissible purpose under the FCRA. There are no reported opinions where the courts have addressed the question of permissible purpose in the specific context of a consumer who has entered into a promissory note to pay an involuntary debt. However, a conclusion that the collection of such a debt constitutes a permissible purpose would be consistent with the plain language of the FCRA, and is a logical extension of opinions holding that collection of any debt is a permissible purpose once judgment has been entered on the debt. Proactively, the safest approach is to include a provision in each promissory note whereby the debtor consents to the government entity obtaining a consumer report.11
In summary, governmental agencies may obtain consumer reports containing identifying information for any consumer, and may be able to obtain full consumer reports to aid in the collection of many other consumer debts. As a cautionary note, all creditors, including governmental agencies, must be mindful that the FCRA remains a dynamic area of the law as the courts continue to define what constitutes a permissible purpose. Regulations12containing the Federal Trade Commission's Commentary on the FCRA, on which many courts had relied, were removed in 2011 following the creation of the CFPB, and the CFPB has yet to fill the void with its own regulations interpreting the FCRA. Weltman, Weinberg & Reis Co., L.P.A., is available to guide clients in determining whether a permissible purpose exists to obtain a consumer report, as well as with all other issues related to debt collection.
1 15 USCS § 1681f
2 15 USC § 1681b(a)(3)(A)
3 15 USC § 1681a(b)
4 See, e.g., Searle v. Convergent Outsourcing, Inc., 2014 U.S. Dist. LEXIS 125864 (D. MA 2014)
5 Pintos v. Pac. Creditors Ass'n, 605 F.3d 665, 674 (CA9 2010)
6 Id., at 675
7 Id., at 676
8 See, e.g., Riddle v. Portfolio Recovery Assoc., Inc., 2014 U.S. Dist. LEXIS 40034 (ED KY 2014)
9 See, e.g., McNall v. Credit Bureau of Josephine County, Inc., 689 F. Supp. 2d 1265, 1274 (D. OR 2010)
10 15 USC §1681a(r)(5), incorporating 15 USC §1691a(d)
11 A consumer reporting agency may furnish a consumer report in accordance with the written instructions of the consumer to whom it relates. 15 USC § 1681b(a)(2)
12 16 C.F.R. Part 600