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Ruling Stipulates Users, Not Consumers, Are Required to Prove Authorized Purpose When Securing Consumer Reports

The Ninth Circuit issued an opinion stating that in order to withstand a motion to dismiss, a consumer-plaintiff is only required to allege that a credit report was obtained for a purpose not authorized by the Fair Credit Reporting Act (FCRA), regardless of whether the report is published or otherwise used by the third party.

In arriving at this opinion, the Ninth Circuit considered two prime factors:

  1. whether a concrete injury was inflicted on the consumer as a result of a third-party obtaining a credit report for a purpose not permissible by the FCRA; and
  2. whether the consumer-plaintiff must plead the third-party's actual unauthorized purpose in obtaining the report to survive a motion to dismiss.

The opinion arrived at by the Ninth Circuit was a rejection of an earlier district ruling in the case of Nayab v. Capital One Bank. In June 2016, Nayab learned that Capitol One had submitted numerous inquiries on her credit report. Nayab sued, claiming that the unauthorized inquiries violated the FCRA since she had never conducted any business with nor incurred any financial obligations to Capitol One. Upon Capitol One moving to dismiss, the plaintiff filed an amended complaint. The complaint cited the various permissible purposes under the FCRA for securing a credit report and alleged that Capitol One's credit report inquiries did not align with any of those purposes. Ultimately, this case was dismissed, citing that regardless of the FCRA permissibility of the financial institution's credit inquiries, the plaintiff did not suffer identifiable harm. The district court also determined that only alleging the defendant did not have permissible purpose for obtaining the credit report was insufficient.

In this latest opinion, the Ninth Circuit held that Nayab had standing to pursue these FCRA claims because "obtaining a credit report for a purpose not authorized under the FCRA violates a substantive provision of the FCRA," and thus "Plaintiff need not allege any further harm to have standing." The Ninth Circuit also found that the district court incorrectly held that the plaintiff carried the burden to plead Capitol One's purpose in procuring the credit report. It was determined that assigning burden to the plaintiff was unjust, as that would require the plaintiff to have knowledge of the defendant's intentions. Per these findings, a split Ninth Circuit reversed the district court's original dismissal and remanded the case to the district court.

As a result of this opinion, it is recommended that entities obtaining consumer reports (such as credit reports or criminal background checks) should review internal policies and practices to verify that procedures have been established to ensure that reports are secured for permissible purposes only. Permissible purposes under the FCRA includes "information for employment purposes", which is commonly relied upon for pre-employment screening.

Posted: November 22, 2019


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