UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSON
WASHINGTON, D.C. 20580
March 2, 1998
John A. Buchman, Esq.
Holland & Knight
2100 Pennsylvania Ave., N.W.
Washington, D.C. 20037
- Re: Section 604 of the Fair Credit Reporting Act
Dear Mr. Buchman:
This responds to your letter of June 11, 1997, on behalf of a
client. You ask for the staff's opinion as to whether your client
would have a permissible purpose, under Section 604 of the Fair
Credit Reporting Act ("FCRA"), to procure, from a consumer
reporting agency ("CRA"), a list of the credit cards
held by individuals who join a "wallet protection" program
offered by the company.
You describe the program offered by your client as one in which,
for an annual fee, consumers receive a number of benefits if their
credit cards or other cards are stolen or lost. The most significant
of these is notification to the card issuers. Your client will
seek customers for the program by direct mail and telephone solicitations.
(The mailings include a postcard that consumers may return, and
a toll-free number they may call, if they are interested in the
program.) In both methods of solicitation, your client will ask
each applicant to authorize it to obtain a list of the applicant's
credit cards from a CRA. Obtaining the list from a CRA will, according
to your letter, facilitate the marketing of the program since
consumers will not have to take the time to check and list all
their cards and the issuers.
Your letter raises three issues: (1) the status under the FCRA
of the type of information (a list of credit cards and their issuers)
that your client would like to obtain from a CRA; (2) the "permissible
purpose," if any, that your client will have to obtain lists
of applicants' credit cards without written authorization; and
(3) the applicability of Section 604(c) to a solicitation program
such as the one your client proposes. For the reasons set forth
below, we conclude that your client must obtain written permission
from each applicant before obtaining the information that it seeks.
The first issue that you raise concerns the status of the credit
card information that your client seeks. Your client proposes
to obtain only a list of credit card numbers and the issuers of
the cards from the consumer reporting agency. You question whether
a list of credit cards with nothing more is a "consumer report."
Section 603(d)(1) of the FCRA defines a "consumer report"
to include information that is "used or expected to be used
or collected in whole or in part for the purpose of serving as
a factor in establishing the consumer's eligibility" for
the purposes listed in Section 603 and Section 604. The purposes
for which information may be obtained under Section 603 and Section
604 include credit, insurance, and employment-related purposes,
and business transactions initiated by the consumer. In addition,
Section 604 permits a business to obtain a consumer report at
any time when the consumer provides written permission.
When in the files of a credit bureau, information about the identity
and number of the credit cards that a consumer has is, at the
very least, information collected in whole or in part for the
purposes set forth in Section 604. Moreover, we believe that the
number and type of credit cards held by a consumer may be a factor
in deciding whether or not to grant credit. According-ly, the
information your client seeks constitutes "consumer report"
information that can only be obtained if your client has a "permissible
purpose" under Section 604.
The next issue is whether your client has a "permissible
purpose" under the FCRA to obtain a list of consumer credit
cards in connection with its program. Based on a review of the
FCRA and its legislative history, we conclude that the only circumstance
in which your client may obtain consumer report information is
with the written permission of the consumer.(1)
We do not believe that there is any other permissible purpose
under the law given the facts that you describe. The two situations
where a "permissible purpose" might be available in
a transaction such as the one you outline in your letter are:
(1) the underwriting of insurance (since your client's program
arguably includes, among other things, a traditional insurance
component) (Section 604(a)(3)(C)); and (2) the "legitimate
business need" in connection with a business transaction
initiated by a consumer (Section 604(a)(3)(F)(i)). However, we
believe that these "permissible purposes" are not available
in the specific fact situation that you have outlined.
As to the "underwriting" of insurance purpose, it is
clear from your letter that the information your client seeks
will not be used in underwriting decisions. Rather, your client
needs this information for marketing purposes -- i.e.,
to make it easier to sell its credit card protection program by
eliminating the need for consumers to fill out forms listing their
cards. Since this activity does not involve underwriting decisions,
your client cannot avail itself of the "insurance" permissible
purpose set forth in Section 604(a)(3)(C).
We also believe that your client does not have a "legitimate
business need" for the infor-mation in connection with a
business transaction initiated by a consumer. It is clear from
the language of Section 603(d)(1) of the FCRA that, except as
otherwise set forth in Section 604, consumer reports relate to
eligibility for employment, insurance, credit, or another
permitted pur-pose. Since Section 604 does not specifically permit
the use of consumer reports in the context of business transactions
initiated by consumers for any other purpose, we conclude that
the only permissible purpose for which a credit report may be
obtained in connection with a new business transaction is to determine
the consumer's "eligibility" -- i.e., whether
the business wishes to undertake a transaction with the consumer.
In this regard, we note that the legislative history indicates
that Congress intended the "permissible purposes" provisions
of the FCRA to cover primarily "eligibility" issues
(see, e.g., 116 Cong. Rec. 36,572 (statement of Rep.
In your letter, you indicate that the information your client
seeks will not be used to deter-mine the eligibility of consumers
for a business transaction. Rather, the information is sought
to make the transaction with the consumer go smoothly in order
to enhance the marketability of the program. Since the information
your client would obtain is tangential to the transaction with
the consumer and is sought for marketing purposes, we do not believe
that the information may be obtained without the permission of
each affected consumer.
The final issue raised in your letter concerns the applicability
of Section 604(c)(1)(A) to the fact situation you describe. Section
604(c)(1)(A) permits a consumer reporting agency to provide consumer
reports based on the permission of the consumer "in connection
with credit or insurance transactions that are not initiated by
the consumer." Section 604(c) is one of a number of related
provisions of the FCRA -- the others are Sections 603(l), 604(e),
and 615(d) -- that regulate the use of consumer report information
in the marketing process known as "prescreen-ing." In
prescreening, a marketer sends offers of credit or insurance to
individuals who have been selected to receive the offer as a result
of screening usually done by a consumer reporting agency to identify
individuals who meet specific criteria set by the marketer.
Section 604(c)(1)(A) does not apply to your client's situation.
Like the rest of Section 604(c), this provision is limited in
application to prescreening. We believe that this is clear when
Section 604(c) and the various other provisions of the FCRA that
apply to prescreening are read together. In addition, the legislative
history of the FCRA supports our statutory analysis. For example,
the Senate Committee on Banking report that accompanied S. 650
-- the immediate Senate predecessor bill to the final amendments
-- explicitly states that the operative phrase in Section 604(c)
("credit or insurance transaction that is not initiated by
the consumer") is the phrase used throughout the bill to
"describe prescreening transactions" (S. Rep. No. 104-186,
104th Cong., 1st Sess., at 33 (1995)). Since your client does
not intend to use the information it obtains to prescreen consumers
for offers of credit or insurance, Section 604(c)(1)(A) does not
provide a basis for obtaining consumer report information.
In sum, it is the staff's opinion that your client does not have
a permissible purpose to obtain the information that it seeks
from a CRA unless written permission is obtained pursuant to Section
604(a)(2) of the FCRA.
The views set forth in this informal opinion letter are those
of the staff, and are not binding on the Commission.
Division of Credit Practices
1. Where you client solicits by mail,
this may easily be accomplished by requesting that consumers provide
authorization when they respond to the offer. In the case of telephone
solicitations, authorization will have to be obtained by sending
each consumer an authorization form.