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Permissable Purpose: Court Ruling

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Permissable Purpose: Court Ruling

HEADLINE: Insurance company doesn't need application to access credit report


An insurance company can obtain a consumer report prior to a consumer's unequivocal application in order to issue a quote for insurance, the U.S. District Court, Western District of Kentucky ruled in a case of first impression. The District Court said the Fair Credit Reporting Act seemed to contemplate a company obtaining a credit report without the consumer's application or knowledge if it provides that consumer with a firm offer for insurance as the provider did in this instance. (Scharpf v. AIG Marketing Inc., et al., No. 00-CV-614(H) (W.D. Ky. 01/30/03).)

Kathleen Scharpf allowed a representative with AIG Insurance to give her a price quote on automobile insurance while she was speaking to an MBNA representative about her credit card account with that company. MBNA and AIG are business partners in a cross-promotional telemarketing program.

During the conversation, Scharpf gave the representative all her personal information. However, she disputes giving the representative her Social Security number. Nonetheless, AIG was able to obtain Scharpf's credit report from Trans Union. The representative provided Scharpf with the price quote, but she declined the insurance offer. AIG, however, sent Scharpf a written application urging her to purchase the insurance at the offered rate.

A year later, Scharpf noticed that AIG had obtained a copy of her credit report. Scharpf maintained that AIG lacked a permissible purpose to obtain her credit report and sued in the U.S. District Court, Western District of Kentucky for violations of the FCRA. She also alleged other violations of her privacy under state law.

The central question the District Court was asked to address was whether under the FCRA, an insurance company could obtain a consumer report prior to the consumer's unequivocal application in order to issue an insurance quote. The District Court said the question posed was important because the vast majority of insurers obtain consumer reports in a similar manner.

Permissible purpose

Both parties agreed that the singular 'permissible purpose' applicable is the provision in Section 1681b(a)© that states a third party may obtain a consumer's credit report if it "intends to use the information in connection with the underwriting of insurance involving the customer."

Scharpf argued that the underwriting purpose is inapplicable because she never applied for insurance. She maintained that AIG had no right to access her credit report even if it was performing an underwriting function. The District Court disagreed with Scharpf. The District Court explained the language in Section 1681b(a)© of the FCRA does not limit the underwriting purpose to those occasions after someone applied for insurance, nor does it limit the purpose for obtaining a consumer's credit report with the knowledge of the consumer.

According to the court, both the practical and strict definitions suggest that consumer reporting agencies can provide a consumer report without evidence that a consumer has made an application.

Therefore, the court concluded it would be counterintuitive to suggest the recipient would need an application before using the information provided by the credit reporting agency. The court explains that in defining "consumer report," Section 1681a(d)(1) states the individual's information could be obtained for serving as a factor in establishing the consumer's eligibility for insurance.

"None of these definitions suggest that an application is the pre-condition to this permissible purpose," the court maintained. "Rather, the terms intimate an insurer may examine a consumer's credit report to assess the risks that person poses."

The court noted that Section 1681a(1) defines "firm offer of credit or insurance" as "any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer."


The court determined that the FCRA seemed to contemplate a company obtaining a credit report without the consumer's application or knowledge if it provides that consumer with a firm offer in connection with one of the permissible purposes. The court pointed out that the quote AIG provided was binding on the company for 60 days and that by making that firm offer, AIG complied with the protections provided in the FCRA.

Scharpf maintained that she did not make an application with AIG. However, the court pointed out that that fact was disputed. "Even assuming the court did agree with [scharpf] on her legal argument, a reasonable person could conclude, based on the evidence presently before the court, that AIG did overcome this implicit 'application' requirement." The court explained this fact made a grant of summary judgment in favor of Scharpf improper.

The District Court ruled that neither specific statutory language nor the broad purpose of the act requires an insurance company to obtain an application for insurance in order to justify access to a credit report.

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Thanks for posting the information.

Of course, this is bull, especially since one doesn't know about the pulling of his or her credit report until much after the fact. In effect, the insurance companies not only can do it, but they don't have to tell you about it either.


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I read this case a couple of days ago. In addition to the language quoted above, the court refused to give substantial deference to FTC opinions. Anyone wishing to use these opinions in Court should read the entire case and be prepared to address it.

On the other hand, the remainder of the case was quite good for the plaintiff. The Court labeled certain of defendant's tactics "highly suspect" and said that discovery revealed defendant "does not appear to be entirely honest with its customers in collecting information". In refusing to dismiss plaintiff's state law invasion of privacy claims, the Court made the following observation:

The Court has not yet made its final determination on that point in this case. Rather it has more narrowly concluded that AIG had a permissible purpose to obtain the report; whether or not the rest of its actions -- in particular how it went about obtaining Plaintiff's social security number -- were permissible the Court is not prepared to say.

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