Advisory Opinion to Long (07-06-00)

July 6, 2000

Kevin Jay Long, B.S.
Medicolegal Research Company
4572 N. Milwaukee Ave. (#5B)
Chicago, Illinois 60630-3745

Dear Mr. Long:

This is in response to your letter requesting a staff opinion concerning Section 604 of the Fair Credit Reporting Act ("FCRA"). Specifically, you request the Commission staff's view as to whether a landlord's attorney, seeking to collect a disputed debt arising from a month-to-month lease, has a permissible purpose under Section 604 to obtain a consumer report in connection with legal action after the tenant has vacated the apartment. For the reasons set forth below, we believe that no permissible purpose exists under Section 604 in such a case. You also request information as to remedies available to consumers under the FCRA for such violations.

Section 604 of the FCRA provides that a consumer reporting agency ("CRA") may furnish a consumer report only for specified permissible purposes. Only Section 604(a)(3)(A) and 604(a)(3)(F) are arguably applicable to the factual scenario described in your letter.(1) It is our view that neither of these provisions would provide a landlord or landlord's attorney with a permissible purpose to obtain a consumer report in the situation you present.

Section 604(a)(3)(A) allows a third party to receive a consumer report if the third party "intends to use the information in connection with a credit transaction involving the consumer . . . and involving the extension of credit to, or review or collection of an account, of the consumer." In our view, this provision is inapplicable to the residential lease outlined in your letter. Section 604(a)(3)(A) applies only to the review or collection of a credit account, as well as to an extension of credit to a consumer.(2) As discussed in the enclosed staff opinion letter (Riddle, 3/17/99), a typical residential lease does not constitute a credit relationship under the FCRA. Section 604(a)(3)(F) allows a person to obtain a consumer report in connection with non-credit transactions. Section 604(a)(3)(F)(i) provides a permissible purpose on behalf of a party who has a legitimate business need for a report "in connection with a business transaction that is initiated by the consumer." Thus, for example, a merchant may procure a report on a consumer who offers to pay for goods with a personal check. Section 604(a)(3)(F)(ii) provides a permissible purpose for a party that has a legitimate business need in connection with an ongoing relationship "to review an account to determine whether the consumer continues to meet the terms of the account." Thus, a financial institution may obtain a report on an existing checking or savings account customer. For the reasons set forth in the following paragraphs, it is our opinion that Section 604(a)(3)(F) does not provide a permissible purpose for a landlord or landlord's attorney to obtain a consumer report when considering legal action against a former tenant.

Section 604(a)(3)(F)(i) is clearly inapplicable in the fact situation presented, where the tenant has vacated the apartment when the landlord's attorney obtained the report. Certainly, this provision would permit a landlord to procure a consumer report to evaluate a consumer's rental application (that is, when the lease "transaction . . . is initiated by the consumer"). However, it does not give any business the right to obtain a report on a customer long after the transaction commenced. Given that Congress (1) amended the FCRA in 1996 so that this purpose is contingent on the consumer initiating the transaction, and (2) conspicuously omitted the "review" purpose allowed in the case of credit and non-credit accounts by Sections 604(a)(3)(A) and (F)(ii), it would not be consistent with the legislative scheme to interpret Section 604(a)(3)(F)(i) to provide a permissible purpose for a landlord or attorney to obtain a consumer report to consider suing a former tenant.

Section 604(a)(3)(F)(ii) is inapplicable because it permits a report user to obtain a consumer report only "to review an account to determine whether the consumer continues to meet the terms of the account." The legislative history shows the narrow focus of this subsection: "The permissible purpose created by this provision . . . is limited to an account review for the purpose of deciding whether ro retain or modify current account terms."(3) When a tenant has vacated an apartment, a landlord (or attorney) has no need for a "review" to see if the former tenant "continues to meet the terms of the account" as required by the subsection, and the "limited ... purpose of deciding whether to retain or modify current account terms" does not exist.

Civil liability and the amount of redress available for violations of the FCRA depends on the culpability of the violator. Sections 616 and 617 impose liability for willful noncompliance and negligent noncompliance with the FCRA, respectively. Both sections provide for redress in the form of actual damages proven by the consumer, plus costs and attorneys fees. For willful violations of the FCRA, the court may also award punitive damages. A person who obtains a consumer report under false pretenses, or knowingly without a permissible purpose, is liable for the consumer's actual damages or $1000, whichever is greater.

The opinions set forth in this informal staff letter are not binding on the Commission.

Sincerely,

Clarke W. Brinckerhoff

Endnotes:

1. The other permissible purposes set forth in Section 604 are not at issue in the fact situation outlined in your letter. Under that section, a CRA may also furnish a consumer report based on a court order or subpoena, the written instructions of the consumer, in connection with employment, insurance, licenses or benefits, and in some circumstances involving child support. For example, a landlord could arrange for the tenant to authorize a credit report at the time he or she applies to rent the apartment, providing a permissible purpose under Section 604(a)(2).

2. See S. Rep. No. 103-209, at 11.

3. S. Rep. No. 103-209, at 11.