When can Debt Collectors Use my Credit Reports Without my Express Permission?

Let's explore the scope of the Fair Credit Reporting Act (FCRA), which sets strict guidelines for the release and use of credit reports by Credit Reporting Agencies (CRAs) and their recipients.

The Fair Credit Reporting Act (FCRA) governs the circumstances under which Credit Reporting Agencies ("CRAs") may release credit reports,[1] as well as the circumstances under which users may obtain credit reports and use them once released.

"User" is not defined by the FCRA, but the FCRA applies to anyone receiving a credit report and applying it to a consumer.

"Uses" of a Credit Report

Some "uses" of your credit report are permitted even without your knowledge or consent.

Below is a list of the permissible purposes granting the use of your credit report:

1. In connection with a Credit Transaction[2]
2. Insurance
3. Employment
4. Public benefits and licenses
5. Child Support enforcement
6. Counterintelligence
7. Business transactions initiated by you.

7 Examples of the use cases in action

1. Credit Transaction: When you apply for a mortgage, the lender pulls your credit report to assess your creditworthiness before approving the loan.

2. Insurance: An auto insurance company checks your credit report to determine your insurance premiums, as part of their risk assessment process.

3. Employment: A potential employer conducts a background check that includes accessing your credit report to gauge financial responsibility before offering you a job.

4. Public Benefits and Licenses: A government agency reviews your credit history before granting you a professional license or determining eligibility for public assistance.

5. Child Support Enforcement: The child support enforcement agency accesses your credit report to locate your assets or employment for setting or enforcing child support payments.

6. Counterintelligence: A security agency conducts a credit check as part of a clearance review for a government position requiring access to sensitive information.

7. Business Transactions Initiated by You: When opening a new account with a wholesale distributor for your business, the distributor checks your credit report to decide on payment terms.

This blog focuses on the first, "Credit Transaction," which broadly grants creditors and debt collectors the use of your credit reports for informational purposes.

Three situations that generally involve the credit-transaction permissible purpose:

1) Decisions to extend credit

Once you express a desire to obtain credit, creditors have the valid purpose of analyzing your credit worthiness. Watch out for the car dealer who shops your credit to third-party financiers who then inquire (use) into your credit. Hard inquiries can pull down your credit score. Third party lenders have a permissible purpose to inquire unless you instruct the dealer otherwise.

2) Account review of current credit customers

Creditors may obtain your credit reports to determine whether you continue to meet the terms of the account, or for the purpose of deciding to retain or modify current accounts. This section generally applies to "open-ended" credit like credit cards but not to "close-ended" credit like loans since their terms are predetermined and can't be changed unilaterally. This account-review purpose also applies if the account is closed but remains unpaid.

3) Collection of credit accounts and judgment debts

Basically, only collectable credit accounts (not debts discharged in Bankruptcy or residential leases[3]) and judgments[4] are permissible bases to "use" your credit report, usually to locate you or your assets. Authorized users of credit – those not obligated to repay – are NOT part of the underlying credit transaction and no creditor can obtain or use the authorized person's credit report.[5] A collection agency has a permissible purpose to obtain a credit report if the agency has reason to believe that the consumer owes the debt, even if it turns out that the account was turned over to the collection agency by the merchant in error.[6]

This blog arose from my need to determine if debt buyers run into problems with a permissible purpose challenge if its error(s) result in obtaining and/or using a credit report based on inaccurate data (i.e. identity error leads to obtaining and using wrong consumer's credit report; debt buyer cannot prove underlying credit transaction; account was turned over to collection agency for debt already paid).

Courts evaluate whether it is reasonable for creditors and debt collectors to rely on data that indicates a consumer's responsibility for a credit transaction. Upcoming blog entries will discuss this further, including a review of the Capetta case. This case sets a precedent that debt collectors cannot use the credit reports of authorized credit card users for credit transaction purposes. Additionally, we'll examine the Shah case, where the court overlooked the actions of a debt collector who accessed a consumer's credit report for a debt that had already been settled.

The FCRA is a comprehensive law designed to protect your privacy and your credit. Call us if you believe that your credit history is being tampered with or used improperly.

Feel free to read more about how we address credit reporting abuse.

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