Alert May 29, 2012

Federal Judge Upholds FTC’s Interpretation of “Uses of Consumer Report”

The United States District Court for the District of Columbia granted the FTC’s motion to dismiss, ultimately, agreeing with the FTC’s interpretation of the meaning of “uses of consumer reports” under the Fair Credit Reporting Act.  According to the FTC, an automobile dealer that does not obtain a consumer report nonetheless “uses” it when the dealer executes a credit contract based upon a third-party financing source’s use of the consumer report. The National Automobile Dealers Association disagreed, filing suit against the FTC alleging that its interpretation of “uses of consumer reports” violated the Administrative Procedure Act because the FTC exceeded its statutory authority and its interpretation was arbitrary and capricious.

The section in dispute, 15 U.S.C. § 1681m(h), was added into FCRA by the Fair and Accurate Credit Transactions Act of 2003, and requires users to provide a Risk-Based Pricing Notice whenever the user offers credit at materially less favorable terms than the most favorable terms available to a substantial portion of consumers, based in whole or in part on information in the consumer report.  In May 2008, the FTC issued a notice and proposed rulemaking and sought public comment on its proposed rules on the form, content, time and manner of delivery for the Notice.  The National Automobile Dealers Association commented on the proposed rule arguing that automobile dealers should be exempt from providing the Notice when they engage in “three-party” financing transactions.  In January 2010, the FTC adopted the Fair Credit Reporting Risk-Based Pricing Regulations, which explicitly rejected the Association’s proposed exemption for automobile dealers.  The FTC reaffirmed its interpretation of “uses of consumer reports” after the enactment of the Dodd-Frank Act in its implementing regulations.

The Court, using the two-step analysis established in Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984), found the FTC’s interpretation consistent with the language of the statute and the interpretation of “use” “promote[s] FCRA’s goal of providing consumers with accurate information about their credit report. Click here for the opinion.