Credit Reports: be cautious when you access them

We've said this before, and it bears repeating, that theUnited States District Court in the Ninth Circuit held that the Fair Credit Reporting Act severely limits when a creditor can access a consumer credit report. Specifically, the court held a consumer credit report (Experian, Equifax, and Trans Union are the key players in this arena) could only be drawn when the underlying debt involves a “credit transaction.”

So, what is a CREDIT TRANSACTION? Well, it is where the consumer voluntarily seeks credit, such as a credit card, promissory note, or other voluntary credit transaction. Examples of an involuntary credit transaction, where the creditor can’t pull a credit report, would be where the consumer didn’t voluntarily enter into a credit relationship with a creditor, such as where the debt arose from a traffic ticket or towing charges for failure to pay a ticket.

Many industry groups have opposed this ruling as it has become common practice to draw a credit report during the collection process of any debt, no matter how the debt was incurred. How-ever, the United States Supreme Court ( in a January 2011 refusal to grant Certiorari), has refused to review the Ninth Circuit’s decision, thus, the ruling stands.

So, bottom line, a consumer credit report can be drawn only where:

1. There is a judgment against the consumer for a debt, regardless of source. Or,

2. The underlying debt before a judgment is entered is based upon a “credit transaction” which means, according to the court, a voluntary transaction such as a credit card, a note, a debt voluntarily entered into...basically, situations where a consumer requested and re-ceived credit.

The case was Pintos v Pacific Creditors Association. It was heard in May 2010. The U.S. Supreme Court refusal to review the Ninth Circuit holding was done in January 2011.

Where do we go from here? Well, stay tuned as there may be more case decisions on point as we go forward, perhaps from other circuits. However, for now, we must look at the underlying debt on each file to determine whether (unless we have a judgment) we have a permissible purpose to pull a consumer credit re-port—the key being whether the consumer voluntarily requested the credit transaction.