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

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.

Some uses of your credit report is permitted even without the 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.

This blog focuses on the first "Credit Transaction" purpose, 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:

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.

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.

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 junk 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).

The courts seem to assess creditor/debt collector reasonableness for relying on data that establishes the consumer's liability for the underlying "credit transaction." As will be discussed in the next few blog entries, but alluded to above is the Capetta case which renders unavailable the Credit Transaction purpose to collectors using credit reports of authorized users of credit cards. The Shah court let slide a collector who used a consumer report in connection with a debt that was already paid.

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.

[1] Credit report is used synonymously with "consumer report," which means any communication to a third party of any part of a consumer's credit file.

[2] Fair Credit Reporting Act 15 U.S.C. § 1681b(a)(3)(A).

[3] The Federal Trade Commission opines that that residential leases do not involve the extension of credit.

[4] A judgment, according to the FTC, springs a new "credit transaction" falling within the scope of this section even where the underlying debt did not involve a credit account. The 2003 FACTA amendments and some courts, however, require the judgment to "bear a nexus" to a credit transaction.

[5] Capetta v. GC Services Ltd. P'ship, 654 F. Supp. 2d 453 (E.D. Va. 2009).

[6] Shah v. Collecto, Inc., 2005 WL 2216242 (D. Md. Sept. 12, 2005).