A recent court case between a landlord and tenant prompts an interesting discussion. In the lawsuit, the tenant admitted to defaulting on the lease. The debt was then sent to a debt collections company to recover the account. The debt collections company obtained the tenant's credit report as part of its process of attempting to collect the debt. The tenant is now suing the collections agency claiming a violation the FCRA's "permissible purpose" clause.
What is "permissible purpose" and how does it relate to obtaining credit reports?
Permissible Purpose for Credit Reports Defined
American consumer rights for fair credit reporting and the distribution of those reports are protected under the Fair Credit Reporting Act (FCRA). The FCRA was passed to end industry abuse including false information on consumer credit reports, how the reports were being used and how they affected consumer privacy. The FCRA establishes a number of key clauses including:
- Who can report information on credit reports
- Who can obtain credit reports
- When credit reports can be obtained
- What is required before a credit report can be obtained
- Consumer rights to dispute false information
Permissible purpose defines the circumstances in which the FCRA allows credit reports to be obtained. These purposes are documented in section 604 of the FCRA as:
- In response to a court order
- After receiving permission from the consumer
- To someone who:
- intends to use the information in connection with a credit transaction such as the extension of credit
- intends to use the information for employment purposes
- intends to use the information when underwriting insurance for the consumer
- intends to use the information to determine a consumer's eligibility to obtain a license
- intends to use the information to assess credit or repayment risk
- or otherwise has a legitimate business need for the information, a business transaction or reviewing an account
- is an executive or government agency intending to use the information for travel charge cards
When do Debt Collection Agencies Violate Permissible Purpose?
In the case of the tenant and debt collection agency mentioned above, the argument is whether the agency violated the permissible purpose clause of the FCRA. The tenant reviewed her credit report and found that the debt collection agency had acquired her credit report without getting prior approval from her and without permissible purpose. The FCRA permissible purpose statute in question states:
"Any consumer reporting agency may furnish a consumer report . . . to a person which it has reason to believe intends to use the information (1) in connection with a credit transaction involving the consumer on whom the information is to be furnished and (2) involving the (a) extension of credit to or (b) review or collection of an account of the consumer."
The collection agency claimed that because the tenant admitted defaulting on the lease, they pulled her credit report for the purpose of "collection of an account". The tenant argued that the debt collection agency was overlooking the beginning of the permissible purpose statute "in connection with a credit transaction". Since a lease agreement is not a credit transaction, the collection agency overstepped.
The federal judge in the case has ruled that the lawsuit should not be dismissed and that the plaintiff (tenant) does has a case moving forward.
Does BYL Collections pull credit reports in cases like this?
At BYL Collections, we don't procure a credit report on a consumer / debtor. We do report delinquent accounts to the Credit Bureaus but we don't pull a "hard inquiry" report on someone since there is too much risk involved and there are other ways to obtain current contact information and bankruptcy data. Our goal is to get our clients paid within the compliance of federal and state regulations.