Consumer Reporting Agencies

Here is how the FCRA defines “consumer reporting agency”:

To understand this definition, you need to understand some of the terms it uses. We’ll go through them in roughly the order they appear above.

A “person” is just about any sort of entity you can imagine. Federal statutes traditionally use this term very broadly. Here it means: “any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.” [15 USC 1681a(b)] Even though you might not think of your lending institution as a “person,” it is for purposes of the FCRA.

The terms “monetary fees,” “dues,” and “cooperative nonprofit basis” are not defined. It appears that the statute is trying to include only persons who collect and distribute information either for profit or, if not for profit, in cooperation with others who do the same thing. In other words, only those who do this as a business or cooperatively with others are consumer reporting agencies.

Only persons who “regularly” assemble or evaluate consumer credit information or other information on consumers for consumer reports are within the definition. “Regularly” is not defined, but the intent must be to exclude persons who occasionally, but rarely, engage in these activities or persons who may have, but no longer, engage in these activities. “For example,” says the FTC Commentary, “a creditor that furnished information on a consumer to a governmental entity in connection with one of its investigations, would not ‘regularly’ be making such disclosure for a fee or on a cooperative nonprofit basis, and therefore would not become a consumer reporting agency, even if the information exceeded the creditor’s transactions or experiences with the consumer.” [16 CFR § 600, Appendix § 603(f)—2]

Persons who regularly assemble or evaluate “consumer” credit information or other information on consumers for consumer reports are within the definition. The term “consumer” is defined as “an individual.” [15 USC 1681a(c)] This means a natural person, as opposed to some sort of legal entity such as a corporation or partnership. [16 CFR § 600, Appendix § 603(c)—2] A person who assembles or evaluates information about only corporations, partnerships, etc. and not individuals would not be a consumer reporting agency.

Although “consumer” is defined, “consumer credit” is not. The term could mean any credit extended to individuals, since “consumer” means “individual.” In that case, persons who regularly assemble or evaluate information relating to credit extended to individuals, whether the credit is for business, agricultural, or personal purposes, would be consumer reporting agencies. On the other hand, “consumer credit” may have the meaning given it in Regulation Z (Truth in Lending), which is “credit offered or extended to a consumer primarily for personal, family, or household purposes.” [12 CFR 226.2(a)(12)] In that case, you would not be a consumer reporting agency if you only collected information relating to business or agricultural credit and not personal credit, even though the information may concern individual borrowers.

Language in the FCRA and the FTC Commentary suggest that the second approach is the correct one. However, the issue is not entirely clear.

To be a consumer reporting agency, you must collect this information for the purpose of furnishing “consumer reports” to third parties. This term is defined as follows:

When you read this definition together with the definition of consumer reporting agency, you will see a flaw. A consumer report, according to the definition above, can only be made by a consumer reporting agency. A consumer reporting agency is a person who collects information for the purpose of furnishing consumer reports. The definition of each term includes the other term, and the result is a circular definitional scheme. You don’t know whether you are a consumer reporting agency until you know whether you make consumer reports. But you don’t know whether you make consumer reports until you know whether you are a consumer reporting agency. What can you do? The solution, in our opinion, is to pretend that the words “by a consumer reporting agency” are not in the definition of consumer report. That way, an institution can decide whether it makes consumer reports without that determination being dependent on whether the institution is a consumer reporting agency, which is what we started out trying to decide in the first place.

Making this adjustment, most financial institutions probably do not make consumer reports as defined above. This is because the only sort of consumer report-type information they produce falls within exemption (2)(A)(i) above. Exemption (2)(A)(i) says the term consumer report does not include any report relating only to transactions or experiences between the consumer and the person making the report. If a lending institution makes this sort of report, as most probably do on a regular basis, and does not regularly make any other report that could fit within the definition (as adjusted), then the lending institution does not make consumer reports. That institution would not be a consumer reporting agency because consumer reporting agencies collect information for the purpose of furnishing consumer reports.

On the other hand, if a financial institution regularly reports information beyond its own experiences with consumers, the institution might be making consumer reports and could be a consumer reporting agency. Whether it is or not depends on who the recipients of those reports are. If the recipients are related by common ownership or are corporate affiliates, then the exemption in (2)(A)(iii) might apply. In order for that exemption to apply, the institution providing the report would have to have given the consumer a disclosure and an opportunity to direct that the information not be shared with affiliates. If that exemption does not apply and the institution is regularly reporting information beyond its own experiences with consumers, the institution is probably making consumer reports and is likely a consumer reporting agency.

Exemption (2)(C) above also provides some comfort to lending institutions. It says that the term consumer report does not include “any report in which a person who has been requested by a third party to make a specific extension of credit directly or indirectly to a consumer conveys his or her decision with respect to such request, if the third party advises the consumer of the name and address of the person to whom the request was made and such person makes the disclosures to the consumer required under Section 1681m of this title.” This exemption is intended to address the situation where a retailer attempts to obtain credit from a creditor on behalf of a customer. When the creditor communicates its decision, that communication could be seen as fitting within the definition of consumer report since it is a communication bearing on the customer’s credit worthiness and relates to a consumer credit transaction. Exemption (2)(C) makes it clear that such a communication is not a consumer report and so lenders who are otherwise not consumer reporting agencies do not become consumer reporting agencies for having regularly communicated such decisions. Of course, the exemption applies only if the retailer advises the consumer of the name and address of the creditor and the creditor makes the required disclosures (relating to whether or not a consumer report or outside information contributed to adverse action).

The next section is a summary of the restrictions and requirements imposed on consumer reporting agencies by the FCRA. It is worth reading, even if you think you are not a consumer reporting agency, because the restrictions and requirements have an indirect effect on you if you use consumer reports.