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2nd Cir. Holds Entity is Not a ‘CRA’ Unless It ‘Intends’ to Provide ‘Consumer Reports’ Under FCRA

The U.S. Court of Appeals for the Second Circuit recently affirmed entry of summary judgment in favor of a prominent media and information firm against a job seeker’s claims that it furnished false information in a purported “consumer report” obtained by a prospective employer in alleged violation of the Fair Credit Reporting Act.

In so ruling, the Court concluded that the media company was not a “consumer reporting agency,” because it did not intend to furnish “consumer reports” through its services, and thus was not subject to the FCRA, 15 U.S.C. § 1681, et seq.

A copy of the opinion in Kidd v. Thomson Reuters Corp. is available at:  Link to Opinion.

A job seeker (“applicant”) was subject to a background check as part of an employment application process with the Georgia Department of Health. The department was a subscriber of a prominent multinational mass media and information firm’s online investigation software (“platform”).

Notwithstanding the company’s prohibitions against subscribers using the platform for any purpose covered by the FCRA — including credit inquires or employment background checks — the department used the platform to conduct a background check into the applicant.

Of note, such misuses of the platform are rare, with only 46 of the over 144 million searches between 2012 and 2016 alleged to be for a FCRA purpose.  In this instance, the report included false information that the applicant had a prior state conviction for theft.  Accordingly, she was not hired by the department for the open position.  However, the information about the applicant was not correct.

The applicant filed a putative class action complaint against the company in the Southern District of New York alleging that its platform renders it a “consumer reporting agency” under the FCRA and that it violated several provisions of the FCRA in providing false information to the department.

The media company moved for summary judgment, arguing it did not qualify as a “consumer reporting agency” under the FCRA, because it did not intend to furnish “consumer reports” through the platform.  The trial court agreed and granted summary judgment in the media company’s favor.  The instant appeal followed.

The appeal presented a novel question for the Second Circuit:  whether, to qualify as a “consumer reporting agency” under the FCRA, an entity must specifically intend to furnish a “consumer report.”

To answer questions of statutory interpretation, the appellate court first turned to the relevant language of the FCRA.

As you may recall, the FCRA defines a “consumer reporting agency” as “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”  15 U.S.C. § 1681a(f).

The act defines a “consumer report” as:  any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for — (A) credit or insurance to be used primarily for personal, family or household purposes; (B) employment purposes; or (C) any other purpose authorized under section 1681b of this title.”  15 U.S.C. § 1681a(d)(1).

Interpreting the ordinary meaning of the word “purpose,” the Second Circuit concluded that the meaning of “for the purpose of” in § 1681a(f), a “consumer reporting agency” is an entity that intends the information it furnishes to constitute a “consumer report.” See Williams v. Wilmington Trust Co., 345 F.3d 128, 133 (2d Cir. 2003) (“[W]hen Congress uses in a statute a term of art with a long history of judicial interpretation, we must presume that Congress intends to use the word in its technical sense.”).

The Second Circuit noted that other circuits have concluded that the FCRA includes a specific intent requirement in its definition of a “consumer reporting agency.”  See Zabriskie v. Fed. Nat’l Mortg. Assoc., 912 F.3d 1193 (9th Cir. 2019) (government-sponsored enterprise who provided software to allow lenders to evaluate consumer information not a consumer reporting agency under the FCRA because it did not assemble the information to furnish consumer reports to third parties); Tierney v. Advocate Health & Hosps. Corp., 797 F.3d 449 (7th Cir. 2015) (hospital not a consumer reporting agency under the FCRA because patients’ information was collected to obtain payments from medical insurers and government agencies, not for the purpose of furnishing consumer reports).

On appeal, the applicant argued that the media company should be deemed a consumer reporting agency subject to the FCRA, because (i) an entity that assembles consumer information to sell reports need not specifically intend to furnish a “consumer report” to qualify as a “consumer reporting agency,” and; (ii) the company’s use of disclaimers in its contractual and promotional language should not permit avoidance of liability under the FCRA.

As to the first argument, the Second Circuit rejected the applicant’s suggestion that section 1681a(f) imposes a “general intent” requirement that would qualify an entity as a “consumer reporting agency” if it assembles customer information to furnish a report (consumer or otherwise) to qualify as a “consumer reporting agency,” because no such language exists in the plain text of the statute.

The applicant’s second argument was also rejected by the Second Circuit. “For the purposes of the FCRA, indeed for any scienter determination, the totality of a defendant’s actions is the determining factor, not the defendant’s mere disclaimer of the requisite intent.”  Cf., Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-24 (2007) (holding, in the securities fraud context, that courts must consider the total mix of allegations when determining if the defendant had the requisite intent); Ricci v. DeStefano, 557 U.S. 557, 579-80 (2d Cir. 2009) (considering the whole of the defendant’s conduct in determining discriminatory intent in the employment discrimination context).   Thus, an entity may not escape regulation as a “consumer reporting agency” by merely disclaiming an intent to furnish “consumer reports.”

Having concluded that an entity must intend to furnish a “consumer report” to qualify as a “consumer reporting agency” under the FCRA, the Second Circuit next turned to the trial court’s finding that the media company did not intend for information provided by its platform to constitute a “consumer report.”

Here, it was undisputed that the media company took numerous, effective measure to prevent the platform’s reports from being utilized as “consumer reports,” including (i) explaining in marketing material that the platform was to be used for law enforcement, fraud prevention, and identity verification (non-FCRA) purposes only; (ii) requiring its users to affirm their understanding that the platform was not to be used for FCRA purposes, and; (iii) maintaining a compliance office to employ additional measures to prevent misuses of the platform.

Notwithstanding those efforts, the applicant argued that it can infer intent to furnish “consumer reports” because it was aware that its controls did not prevent all misuse of the platform by its subscribers.

Here, although the media company was aware of some instances of misuse of the platform, the Second Circuit pointed to the minuscule number of such instances in comparison to the number of reports generated, coupled with its extensive efforts to prevent such misuses and investigate and terminate offending subscribers to conclude that it did not intend for information obtained from the platform to be used as “consumer reports” under the FCRA.

Accordingly, the Second Circuit agreed that the trial court was correct in deciding that the media company does not qualify as a “consumer reporting agency” under the FCRA, and affirmed the trial court’s judgment in favor of the defendant media company.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions.

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