Adverse Action Notices Are Required From Third Parties Under the Fair Credit Reporting Act
October 2, 2007
The recent case of Whitfield v Radian Guaranty, No. 05-5017 (3d Cir. Aug. 30, 2007) dealt with the Fair Credit Reporting Act’s requirement that consumers be provided with an “adverse action” letter whenever they are denied for credit. The Whitfield case, however, brought a twist to the issue.
The Whitfields financed a home purchase through Countrywide Home Mortgage and were required to obtain mortgage insurance. This insurance was to be provided by Radian, with the premiums to be paid by Countrywide to Radian out of proceeds Countrywide would receive from the Whitfields.
Radian based the price of the insurance in part on Mr. Whitfield’s credit score, which had been obtained by Countrywide (not Radian). Radian conceded that if the credit score had been higher, the insurance premium would have been lower. As was its custom, Radian did not provide the Whitfields with an adverse action notice under FCRA.
Such a notice would have alerted the Whitfields that the premium was based in part on adverse information in the credit report and allowed them to challenge inaccuracies in the report; such a challenge, in turn, might have led to an improved credit score and a lower insurance premium.
The FCRA requires that if a person who is a permissible user of information from a consumer report (also known as a credit report) takes any adverse action against an individual, such person shall notify the individual of the adverse action. In fact, 15 U.S.C. § 1681m(a) states as follows:
If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall –
(1) provide oral, written, or electronic notice of the adverse action to the consumer;
(2) provide to the consumer orally, in writing, or electronically –
(A) the name, address, and telephone number of the consumer reporting agency . . . that furnished the report to the person; and
(B) a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; and
(3) provide to the consumer an oral, written, or electronic notice of the consumer’s right –
(A) to obtain, under section 1681j of this title, a free copy of a consumer report on the consumer from the consumer reporting agency referred to in paragraph (2), which notice shall include an indication of the 60-day period under that section for obtaining such a copy; and
(B) to dispute, under section 1681i of this title, with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.
Here, Radian did not have a contractual relationship with the Whitfields. Relying on both FCRA’s text and purpose, the court held that the Whitfields were entitled to such a notice even though Radian did not have a direct relationship with the consumers.
Thanks to Consumer Law & Policy Blog for pointing out this fine decision.
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