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From Banking and Finance Law Daily, May 14, 2014

Obtaining credit reports to prevent identity theft did not violate debt collection act

By Richard A. Roth, J.D.

A satellite television service company would not have violated the Fair Credit Reporting Act by ordering consumer reports about a consumer it believed to be a potential customer in order to verify the customer’s identity, the U.S. Court of Appeals for the Sixth Circuit has decided. According to the court, the company’s need to verify the identity of the service applicant was a legitimate business purpose as required by the FCRA. However, the court agreed that the company failed to show that consumer’s suit was an abuse of process under Kentucky law (Bickley v. Dish Network, LLC, May 13, 2014, McKeague, Circuit Judge).

The facts related by the court were that an individual contacted American Satellite, an independent company that sold the services provided by Dish Network, LLC, and attempted to sign up for satellite television service using her own name but another consumer’s Social Security number. However, her attempt was defeated by the consumer reporting agencies’ identity theft detection procedures.

According to the court, the three nationwide agencies used a “waterfall” process to attempt to verify the individual’s identity. In this case, American Satellite contacted Equifax for verification. If Equifax had been able to verify the consumer’s identity it would have reported an approval; however, since Equifax generated a “no hit” result, it forwarded the individual’s information to Experian. Experian also was unable to confirm the identifying information, so it forwarded the information to TransUnion for yet a third attempt.

When TransUnion also was unable to confirm the prospective customer’s identity, American Satellite declined to open a new account for her. As a result, the real consumer was protected from becoming an identity theft victim, the court pointed out.

Contacts with consumer. A few weeks later, the consumer received a credit report indicating that Dish Network—not American Satellite—had made an inquiry. (Which company made the inquiry was in question, the court noted, but the answer to that question was irrelevant.) Moreover, soon after the consumer received that information he was contacted directly by Dish Network, which told him of the attempt to use his name and even gave him a recording of the telephone conversation between the American Satellite employee and the identity thief.

Trial court proceedings. One year later, in what the court characterized as exemplifying “the axiom that no good deed should go unpunished,” the consumer sued Dish Network—not American Satellite, which apparently was out of business—for alleged negligent and willful violations of the FCRA. According to the consumer, Dish Network obtained a copy of his consumer report without any permissible purpose.

Dish Network responded with a counterclaim for abuse of process under Kentucky law. According to the company, the consumer knew that any credit inquiries had been made by American Satellite but sued Dish Network because American Satellite was out of business and apparently judgment proof.

The federal district court granted pretrial judgments against both claims, and both the consumer and Dish Network appealed.

FCRA violation claims. To establish that Dish Network violated the FCRA, the consumer was required to prove three elements:

  1. There was a consumer report.
  2. The report was obtained or used by the company.
  3. The company acted without a permissible purpose.

The consumer pointed to five separate pieces of information he maintained proved the existence of a credit report, and the court agreed that at least one—a Decision Detail Report—constituted a consumer report. That report included an “Echostar Risk” number that was based on the consumer’s bank account history and credit inquiries. This information clearly related to the consumer’s credit worthiness, so the report was a consumer report as defined by the FCRA (see 15 U.S.C. §1681a).

Dish Network did not contest its receipt of the Decision Detail Report, so the second element was established as well, the court said.

Permissible purpose. One permissible purpose for obtaining or using a consumer report is a legitimate business need in connection with a transaction initiated by the consumer (see 15 U.S.C. §1681b). Dish Network had such a permissible purpose, the court decided.

Verifying a prospective customer’s identity and eligibility is a legitimate business need, the court said. There should be no dispute that there is a legitimate business need to prevent identity theft, the opinion added.

The court easily rejected the consumer’s contrary arguments, noting that he had no supporting precedent. There is a difference between a “no hit” result and a fraud alert, the court added, which explained why it was permissible for the company to continue to discuss an account with the identity thief and obtain a credit report even after the identity information could not be confirmed.

The consumer’s complaint that Dish Network had no permissible purpose because he had not initiated any transaction gave the court more trouble, given that the identity thief, not the consumer, had applied for the account. However, noting that the consumer again could provide no supporting precedent, the court said “We reject such a hollow argument.”

The consumer-initiation requirement is intended to protect consumers’ privacy and credit data from companies that are acting without the consumers’ authority. That kind of misconduct was not present in this situation, the court said. Moreover, the satellite television service transaction had been initiated bya consumer (although that consumer turned out to be an identity thief), and the company believed in good faith that that the consumer who initiated that transaction was who she said she was. Dish Network’s conduct benefitted the consumer rather than intruding on his privacy, the court pointed out.

Abuse of process. The court affirmed the judgment against Dish Network’s abuse of process claim because the company failed to outline that claim adequately. Under Kentucky law, an abuse of process requires “an ulterior purpose,” and Dish Network had not described an ulterior purpose in its complaint. It was too late for the company to make clear on appeal that extorting money through a suit was such an ulterior purpose.

However, the court’s disdain for the consumer’s suit was made clear throughout the opinion. In affirming the rejection of the abuse of process claim, the court explicitly said it was not looking at whether sanctions under Rule 11 of the Federal Rules of Civil Procedure would be appropriate. Whether the consumer’s initial suit, request for reconsideration of the trial court’s decision, and appeal from “a well-considered district court judgment” were for an impermissible purpose; whether the claims were frivolous because they had no case law support; or whether the consumer’s “mischaracterization or omission of key factual contentions”—described elsewhere in the opinion as “bordering on deceitful”—were intended to mislead the court were matters not up for decision, the opinion said.

The case is No. 13-5956/5979.

Attorneys: Zachary L. Taylor (Murphy & Powell, PLC) for Gregory Bickley. Shea W. Conley (Reminger Co., LPA) for Dish Network, LLC.

Companies: American Satellite; Dish Network, LLC

MainStory: TopStory DebtCollection KentuckyNews MichiganNews OhioNews TennesseeNews

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