FTC Settlements Require Equifax to Forfeit Money Made by Allegedly Improperly Selling Information about Millions of Consumers Who Were Late on Their Mortgages

One of the largest U.S. consumer reporting agencies, Equifax Information Services LLC, has agreed to settle Federal Trade Commission charges that it improperly sold lists of consumers who were late on their mortgage payments.  In two separate actions, both Equifax and the companies that allegedly bought and resold the information from it will pay a total of nearly $1.6 million to resolve charges that they violated the FTC Act and the Fair Credit Reporting Act (FCRA).

The two settlements are part of the FTC’s ongoing efforts to protect consumers in financial distress and to protect consumer privacy.  Equifax will pay $393,000 to resolve allegations that its inadequate procedures led to the sale of lists of consumer information to firms that should not have received them.  According to the FTC, Equifax sold more than 17,000 prescreened lists of consumers to companies including Direct Lending Source, Inc., which subsequently resold some lists to third parties, who used their data to pitch loan modification and debt relief services to people in financial distress.

As part of a separate settlement, Direct Lending Source will pay a $1.2 million civil penalty,and will be barred from using or selling prescreened lists without a permissible purpose, or in connection with solicitations for debt relief or mortgage assistance relief products or services.

The FTC’s Complaints

The FTC alleged that between January 2008 and early 2010, Equifax sold Direct Lending and its affiliates lists of people who met selected criteria – known as prescreened lists.  According to the agency’s complaint, the lists contained information about millions of consumers, including sensitive information such as credit scores and whether they were 30, 60, or 90 days late on their mortgage payments.

According to the FTC, neither Direct Lending nor its affiliates, Bailey & Associates Advertising, Inc. and Virtual Lending Source, LLC, had a legally permissible purpose to obtain the prescreened lists.  Under the FCRA, the only permissible purpose for obtaining a prescreened list is to make “firm offers of credit or insurance” – which are offers that will be honored if consumers meet pre-selected criteria.  Using a prescreened list for general marketing purposes is not allowed.  The FTC charged that Direct Lending sold the information to third parties that then used it to market products to consumers in financial distress, including companies that have been the subject of law enforcement investigations.               

The FTC alleged that, in addition to providing the lists to entities without a permissible purpose and having inadequate procedures to prevent this from happening, Equifax failed to properly investigate when it learned Direct Lending was violating Equifax’s internal policies on prescreening.  The FTC also alleged that Equifax knew or should have known that in many cases Direct Lending resold the lists without telling Equifax who would end up using the information.  Despite these failures, the FTC alleged Equifax continued selling prescreened lists to Direct Lending.  The FTC alleged that Equifax’s failure to employ appropriate measures to control access to sensitive consumer information was unfair, in violation of Section 5 of the FTC Act.

Direct Lending and its affiliates and principals allegedly violated the FTC Act and the FCRA by:  1) obtaining prescreened lists without having a permissible purpose; 2) reselling the reports without disclosing to the consumer reporting agency that provided them who the end users would be; 3) failing to maintain reasonable procedures to ensure that prospective users had a permissible purpose to get them; 4) to the extent that firm offers of credit were made, failing to maintain a record of the criteria used to select consumers for these offers; and 5) failing to employ appropriate measures to control access to sensitive consumer financial information.

The Proposed Equifax Settlement

In addition to requiring the payment of $393,000, the proposed settlement with Equifax prohibits the company from:

• furnishing prescreened lists to anyone that it does not have reason to believe has a permissible purpose to receive them;
• failing to maintain reasonable procedures to limit the furnishing of prescreened lists to anyone except those who have a permissible purpose to receive them; and
• selling prescreened lists in connection with offers for debt relief products or services and mortgage assistance relief products and services, when advance fees are charged, with limited exceptions.

The Direct Lending Settlement

The court order settling the FTC’s charges against the Direct Lending defendants imposes a $1.2 million civil penalty and prohibits them from:

• using or obtaining consumer reports without a permissible purpose;
• using or selling consumer reports in connection with solicitations for debt relief or mortgage assistance relief products or services offered by entities that charge advance fees; 
• failing to disclose to the consumer reporting agency that originally furnishes the report the identity of the end user of the report, and each permissible purpose for which the report is being provided to an end user; and
• failing to establish and comply with reasonable procedures designed to ensure that a report is resold only for a purpose for which it has been furnished.

The Commission vote to approve the consent agreement package containing the proposed settlement order with Equifax was 5-0.  The FTC will publish a description of the consent agreement package in the Federal Register shortly.  The agreement will be subject to public comment for 30 days, until November 9, 2012, after which the Commission will decide whether to make the proposed consent order final. 

Interested parties can submit written comments on the proposed Equifax settlement order electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. 

Comments can be submitted electronically by clicking here.   Comments in paper form should be mailed or delivered to:  Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580.  The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

The Commission vote to approve the settlement order against the Direct Lending defendants and refer the case to the Department of Justice for filing was 5-0.  The complaint was filed by Department of Justice on October 9, 2012, in the U.S. District Court for the Southern District of California.  The settlement will become final when signed by the judge, and is not subject to public comment.

The Direct Lending defendants include Direct Lending Source, Inc.; Bailey & Associates Advertising, Inc.; Virtual Lending Source, LLC; Robert M. Bailey, Jr., individually and as an officer of the corporate defendants; and Linda Giordano, individually and as an officer of the corporate defendants.

Information for Consumers

For information about debt relief, tax relief, and mortgage assistance relief services, see Money Matters:  Debt Relief Services, Mortgage Assistance Relief Scams:  Another Potential Stress for Homeowners in Distress, and Tax Relief Companies - More Pain Than Gain?

NOTE:  The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the respondent has actually violated the law.  A consent agreement is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated.  When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.  Each violation of such an order may result in a civil penalty of up to $16,000.

NOTE:  The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the defendant has actually violated the law.  This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation.  Consent judgments have the force of law when signed by the District Court judge.

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