On February 25, the U.S. District Court for the Eastern District of Pennsylvania held that a purported public records vendor (Credit Lenders Service Agency or CLSA) is a consumer reporting agency (CRA) under the Fair Credit Reporting Act (FCRA). A copy of the decision in McGrath v. Credit Lenders Service Agency, Inc. can be found here.
As background, plaintiffs Donna and Patrick McGrath applied to refinance their home mortgage. In connection with that application, the bank engaged CLSA to conduct a public records search pertaining to the McGraths. According to CLSA’s deposition, the agency prepares “Judgment Reports” by “subcontract[ing] with people who go out to the various repositories of records and actually do the physical search.” Regarding the McGraths, CLSA engaged an independent contractor to go to the courthouse and review indices, looking for any match to the McGraths’ name and address. That contractor then sent those results back to CLSA. CLSA compiled the information into a “Judgment Report” then “included this Judgment Report as one part of a larger report that it sent back to the Bank.” The other parts of the report included information about the McGraths’ deed to their home, outstanding liens on their property, and a valuation of their property. The McGraths claimed CLSA reported seven inaccurate judgments about them to the bank, which caused the bank to delay approval. The McGraths filed a lawsuit against CLSA, alleging violations of Sections 1681e(b) and 1681i of the FCRA.
CLSA filed a motion for summary judgment. A summary of CLSA’s arguments and the court’s decision on each follow.
First, CLSA argued it is not subject to the FCRA — i.e., it is not a CRA, and its reports are not consumer reports. Rather, CLSA merely reports public information. The court, however, disagreed. First, the court rejected CLSA’s argument that the terms “consumer reporting agency” and “consumer report” are mutually dependent (despite FTC guidance to the contrary). The court stated: “Reading both definitions [of CRA and consumer report] together, to be a ‘consumer reporting agency,’ an entity does not actually have to furnish a ‘consumer report.’ Instead, it must act ‘for the purpose of furnishing consumer reports.’ … In other words, the Court does not need to determine that an entity actually produced a ‘consumer report’ to find that it is a ‘consumer reporting agency.’ But, however, the opposite is not true. The definition of ‘consumer report’ within the FCRA clearly requires that the report come from a ‘consumer reporting agency.’”
After analyzing the statutory language, the court found that CLSA is a CRA because: (1) it received monetary fees for its services; (2) used a facility of interstate commerce (i.e., email); (3) CLSA’s activities constituted “assembling” (the Judgment Report is only one piece of the larger report that CLSA provided to the Bank”; “If the Agency had only transmitted the Judgment Report in isolation, this might be a much tougher issue of statutory interpretation); and (4) public record information constituted “consumer credit information” used for an eligibility determination.
CLSA also argued that even if it is subject to the FCRA, CLSA’s procedures were reasonable because CRAs “are not required to look beyond the face of court documents to verify the accuracy of the information.” The court also rejected this argument. Specifically, the court rejected CLSA’s argument that the decision in Henson, where the Seventh Circuit held that a CRA is not liable under the FCRA for reporting inaccurate information obtained from a court’s docket absent prior notice from the consumer that the information may be inaccurate, was controlling law in the Third Circuit. The court found a genuine dispute of material fact as to whether CLSA followed reasonable procedures under Section 1681e(b) and denied CLSA’s motion as to the plaintiff’s negligence claim.
However, the court granted CLSA’s motion as to the plaintiff’s willfulness claim, agreeing that CLSA’s reading of the FCRA was not objectively unreasonable.
Troutman Pepper will continue to monitor the case for further updates.