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More Supreme Court Action on Credit Issues

posted by Katie Porter

Earlier this week, the Supreme Court granted certiorari in two cases (Safeco Insurance v. Burr and GEICO v. Edo) about the proper interpretation of the Fair Credit Reporting Act (FCRA). As Ronald Mann noted in one of his guest blog posts, the big action in this area is shifting away from correcting errors in credit reports, the traditional emphasis of FCRA.The narrow issue in the pending cases is the correct standard for determining whether a violation of FCRA is  "willful." (Read more about this  issue at the Consumer Law & Policy Blog.) For me, these cases raise the specter of a much broader issue. What should be the permissible uses of a credit report?  Is it desirable or responsible to use credit reports for "off-label" purposes--i.e., those not concerning a decision to grant credit--such as a decision to insure someone?

The pending Supreme Court cases, which were consolidated for hearing, arise from an increasingly common factual context. The insurance companies used the consumers' credit reports to make decisions about insurance rates and insurability. The alleged FCRA violation was the insurance companies' failure to tell the consumer that it took adverse action based on the credit. report See 15 USC 1681(m)(A). Note that insurance is prepaid; it is not a credit transaction. As my husband's bad habits with opening mail taught us, if you don't pay the bill in advance, they do not insure you for the future period. Why do insurers use credit reports then?  It must be because these reports contain acturarial gold nuggets. That is, a higher credit score may correlate with safer driving or living in a neighborhood with less automobile theft. Or certain things on your credit report, such as late mortgage payments, may correlate with an increased chance of your car having a tree fall on it. Who knows exactly? And the insurers and credit bureas aren't required to tell anyone. Credit reports are also widely used as a screen for employment. Again, employees won't generally be loaning their employers money. Instead, the report is used as a rough measure of whether the potential employee is under financial strain, since this is perceived to increase the likelihood that the employee engaging in theft. (I suspect the real harm to an employer is actually that the stress and anxiety that the employee suffers that distracts them from their job duties). What's next? Using credit reports as part of college admissions? As part of E-Harmony's 20 gazillion point matching process? I predict  "off-label" use of credit reports will become increasingly common and contentious in the next few years. The practice raises many of the same ethical and practical issues that trouble this practice in the pharmaceutical context. The existing legal regime, FCRA, wasn't designed to prevent the potential harms from this practice, and it may not be reasonable to expect consumers to understand the myriad impacts of their credit behavior on their life. Further, the only way that new uses for credit reports are discovered is by "experimenting" and looking for correlations. Who wants to be a guinea pig for this practice? Are there privacy concerns implicated in sharing a credit report--say with a bunch of delinquencies to hospitals reported--with Blue Cross and Blue Shield?


I'm curious about what constitutes "off label" use for a credit report.

For example, I've has a credit report run on me almost every time I've rented an apartment. That's not really credit, per se, but it doesn't seem all that unreasoanble.

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