debtor's credit reportImagine that a document exists that gives you a debtor’s financial history, addresses and phone numbers, outstanding and disputed debts, and many other salient facts about your debtor’s financial health. There is, of course: the debtor’s credit report. However, given the power of this document, access is limited and protected by California and federal law. Under both state and federal law, a creditor can face civil liability for wrongfully obtaining a consumer’s credit report. Given the value of a credit report, and the penalties for wrongfully pulling it, it’s important to have a general understanding of when a creditor can obtain a credit report.

Debt collection is generally a permissible purpose. California Civil Code Section 1785.11 mirrors precisely the language of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. Section 1681b. With limited exceptions, both sections allow a creditor to pull a consumer credit report only with either the written authorization of the consumer herself or a court order.

The most important exception to this general rule allows a creditor “to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer…” This phrase is the one generally relied on by creditors to pull the report of a debtor.

Safe Harbors and Danger Zones

The case law interpreting this language has consistently held that a judgment creditor has a permissible reason to pull a consumer’s credit report. In Hasbun v. County of Los Angeles (9th Cir. 2003) 323F.3d 801, 803-804, the court upheld an order granting a motion for summary judgment in favor of the county, who had pulled the plaintiff’s credit report while trying to collect a judgment for child support. Although phrased in terms of a final child support judgment, subsequent case law has uniformly held that any judgment creditor has a permissible purpose to pull the debtor’s credit report.

It is also clear that a creditor can pull a consumer’s report before obtaining judgment or filing suit, as long as the collection is related to a “credit transaction.” While this may seem straightforward, it raises the situation where a creditor is seeking to collect on a debt that is not the result of a credit transaction. The most well-known example comes from Pintos v. Pacific Creditors Association (9th Cir. 2007), 504 F.3d 792. In Pintos, the plaintiff’s car was towed, the vehicle was sold at auction when the plaintiff failed to pay, and the debt was assigned to a collection agency. The collection agency pulled the plaintiff’s credit report while attempting to collect. The court ruled in the consumer’s favor, holding the collection agency liable for violations of the FCRA because the debt being collected was not the result of a credit transaction.

A second example comes from Mone v. Dranow (9th Cir. 1991), 945 F.2d 306, where the court upheld a judgment finding that the defendant had violated the FCRA by pulling the credit report of his former partner while trying to enforce a non-compete clause. It is not sufficient that the creditor claims a debt is owed. Rather, the debt must also arise from a voluntary credit transaction.

Business Credit Reports

Both the FCRA and the California Consumer Credit Reporting Agencies Act expressly apply only to consumer transactions. 15 U.S.C. 1681a(c) defines a “consumer” as “an individual.” Civil Code Section 1785.3(b) defines “consumer” as “a natural individual.” A creditor does not need to be concerned about liability under these statutes when pulling a credit report on a corporation or other business entity.

Consequences

Under the FCRA, 15 U.S.C. 1681o, a creditor who negligently fails to comply with the FCRA is civilly liable to the consumer for actual damages and, more importantly, for costs and reasonable attorney’s fees the consumer incurs enforcing liability. Under 15 U.S.C. 1681n, if the noncompliance is willful, the creditor is liable for punitive damages as well.

Under California law, if you wrongfully pull a consumer credit report, per Civil Code 1785.19, the consumer can sue you for statutory penalties of $2,500. The section also allows the consumer to collect costs and attorneys’ fees. Liability attaches for obtaining information in the credit reporting agency’s file, so the person who requests and receives the information is the person liable.

Note that the California statute expressly allows damages for pain and suffering.

Conclusion

In general, a judgment creditor always has a permissible purpose to pull a debtor’s credit report under the FCRA. Even prior to judgment or litigation, the creditor can pull the debtor’s report, as long as the debt is the result of a credit transaction. Potential liability for noncompliance include actual damages and attorney’s fees, and, if the breach was willful, punitive damages.

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