Collector - January 2021 - 44

Pulling Credit Reports: What's Permissible?
FCRA amendments and certain court decisions have narrowed the scope of debt collection as a permissible purpose.

T

he ability to review a consumer's
credit report can be an important
collection tool. These reports provide
information about a consumer's financial
condition and ability to pay a
debt, which can aid collectors in
determining the best way to help a
consumer resolve the debt.
To access a consumer report, one must
have a " permissible purpose " under the Fair
Credit Reporting Act. Using a consumer
report for debt collection is generally
considered to be a permissible purpose,
because 15 U.S.C. Section 1681b(a)(3)(A)
(Sec. 604 of the FCRA) allows a consumer
reporting agency to furnish a consumer
report to a person who " intends to use the
information in connection with a credit
transaction ... or review or collection of
an account. " Many courts have concluded
that this language provides debt collectors
with a permissible purpose to obtain a
consumer report.
However, over time, FCRA amendments
and certain court decisions have
narrowed the scope of debt collection as
a permissible purpose. For example, in
Pintos v. Pacific Creditors Ass'n, the 9th
Circuit Court of Appeals concluded that
debt collection can only be relied on as a
permissible purpose if the debt arose from
a voluntary credit transaction.
The debt in Pintos resulted from
a consumer's car being towed and
impounded. The court found that to
qualify for the permissible purpose of
debt collection, a transaction must satisfy
two conditions: (1) the credit transaction
must " involve " the consumer; and (2) the
transaction must involve the extension
or review of credit or the collection of an
account. Because the consumer in Pintos
did not participate in obtaining credit,
the court concluded that the permissible
purpose set forth in Section 1681b(a)(3)(A)
did not apply.

44

JUDGMENTS
In Pintos, the 9th Circuit stepped away
from its holding in Hasbun v. County of
Los Angeles, which had provided that a
government agency looking to enforce
a child support judgment " stood in the
shoes of [a] judgment creditor " and
could, " like any other creditor, " obtain
credit reports for collection. The 9th
Circuit noted in Pintos that " Hasbun was
decided prior to the 2003 FACTA [Fair
and Accurate Credit Transactions Act
of 2003] amendments, " which made it
" apparent that debt collection is not always
a permissible purpose for obtaining credit
reports. " Accordingly, the 9th Circuit
held that " FACTA makes clear that debt
collection is a permissible purpose ... only
in connection with a 'credit transaction' in
which a consumer has participated directly
and voluntarily. "
More recent court decisions have clarified
this aspect of Pintos considering the 2003
FACTA amendments, which amended the
FCRA's definition of " credit " to limit the
scope of transactions for which third parties
can seek credit reports.
For example, in Rodriguez v. Experian
Info. Solutions Inc., the U.S. District Court
for the Western District of Washington
denied a debt collector's motion to dismiss,
concluding in light of the " recission of the
FTC commentary on which Hasbun relied
. . . a defendant's status as a judgment
creditor does not automatically indicate
that a debt collection agency has a
permissible purpose for obtaining
consumer credit reports. "
In Rodriguez, the debt collector relied
on Pintos to argue that it had a permissible
purpose to request a copy of a consumer's
credit report to collect outstanding
parking violations because it was a
judgment creditor. The court rejected
this argument, finding that the judgment
debt must arise from a " credit transaction "

to provide a permissible purpose. In
particular, citing Pintos, the Rodriguez
court found that " when deciding whether
a third party has a permissible purpose
for requesting a consumer's credit report,
courts limited their section 1681b(a)(3)
(A) analyses to determining (1) whether
a credit transaction " involved " the
consumer, and (2) whether the transaction
involved the extension of credit to a
consumer, the review of an account of a
consumer, or the collection of an account
of a consumer. "
Likewise, in Baron v. Kirkorsky the U.S.
District Court for the District of Arizona
concluded that " FACTA's definition of 'credit'
limits the scope of Section 1681b(a)(3)(A). "
In light of court decisions like these,
creditors may wish to avoid requesting a
consumer's credit report if the debt did not
arise from a " proper " credit transaction (in
the Pintos court's parlance), regardless of
the whether the debt has been reduced to
a judgment.
Remember, to determine if a permissible
purpose exists a debt collector should apply
the two-pronged test set forth in Pintos and
reiterated in Rodriguez and other decisions:
(1) the credit transaction must " involve "
the consumer; and (2) the transaction must
involve the extension or review of credit or the
collection of an account.
For more information, members
can access the recently updated ACA
SearchPoint #1154, Permissible Purposes
Under the FCRA.
Have you checked out ACA's members-only
SearchPoint library? ACA SearchPoint is
filled with documents that put important
compliance information related to the
FDCPA, FCRA, TCPA, state laws and many
other topics at your fingertips. To access
ACA SearchPoint, visit acainternational.
org/searchpoint or check it out on ACA's new
mobile app.

ACAINTERNATIONAL.ORG


http://www.ACAINTERNATIONAL.ORG

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