Trans Union's Sale of Personal Credit Information Violates Fair Credit Reporting Act, FTC Rules

The Federal Trade Commission has ordered the Trans Union Corporation to stop selling consumer reports in the form of target marketing lists to marketers who lack an authorized purpose for receiving them under the Fair Credit Reporting Act ("FCRA"). In a unanimous opinion authored by Commissioner Mozelle W. Thompson, the FTC determined that "Trans Union's target marketing lists are . . . consumer reports under the FCRA" and concluded that Trans Union is violating the FCRA by selling this information to target marketers who lack one of the "permissible purposes" enumerated under the Act. The Commission's decision applies to a number of Trans Union's target marketing list products including its Master File / Selects products, its modeled products and its TransLink / reverse append products.

Trans Union is based in Chicago, Illinois, and is one of the three national credit bureaus, or consumer reporting agencies, in the United States. It currently handles data on approximately 160 million consumers. As a consumer reporting agency, Trans Union receives detailed credit information about millions of American consumers from numerous credit grantors including banks, mortgage companies, credit unions, auto dealers and others. Trans Union compiles this information into consumer reports and sells the reports to credit grantors nationwide.

In addition to its credit reporting business, however, Trans Union also sells a variety of target marketing lists through its subsidiary, Performance Data. Using the consumer information it collects, Trans Union creates lists of the names and addresses of specific categories of consumers and sells them to target marketers who in turn solicit the consumers to purchase goods and services.

The FTC enforces the FCRA, the statute that controls the activities of consumer reporting agencies. The FCRA protects the privacy of credit information by limiting the circumstances under which a consumer reporting agency can disclose a consumer report. For instance, the FCRA allows consumer reporting agencies to furnish consumer reports where a consumer has authorized the disclosure or for purposes such as the extension of credit or employment or insurance applications.

This case began in 1992, when the Commission filed an administrative complaint alleging that Trans Union violated Sections 604 and 607(a) of the FCRA by "compil[ing], for sale to clients, lists of consumers, based in whole or in part on information contained in its consumer reporting database . . . ." Administrative Law Judge Lewis F. Parker upheld the allegations in a 1993 summary decision that the Commission affirmed in 1994. The United States Court of Appeals for the District of Columbia Circuit thereafter remanded the case to the Commission for further findings and, after a full trial, Administrative Law Judge James P. Timony issued an Initial Decision and Order on July 31, 1998. Judge Timony held that counsel for the FTC provided sufficient evidence to show that Trans Union's lists are "consumer reports" under the FCRA and that Trans Union disclosed them to entities which lacked a statutorily-defined permissible purpose for obtaining them. Such disclosure violated Sections 604 and 607(a) of the FCRA. Trans Union appealed both rulings to the Commission.

In reaching its decision that Trans Union's sale of target marketing lists violated the FCRA, the Commission applied a two-pronged analysis. It determined:

Trans Union's target marketing lists qualify as consumer reports if they communicate information that: (1) bears on a consumer's 'credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living and (2); is 'used or expected to be used or collected in whole or in part' to serve as a factor in determining credit eligibility.

Because the Court of Appeals had already determined that "tradeline" information contained in Trans Union's lists met the first prong of the definition, the Commission focused on the second prong and "reviewed record evidence detailing the various factors lenders use in evaluating credit eligibility . . . in particular . . . the factors that are important in calculating credit scores - - a tool that many lenders use in evaluating credit eligibility." The Commission also "examined the factors that are important to lenders offering credit in prescreening promotions."

Based upon the full record presented by the parties at trial, the Commission held that much of the information disclosed by Trans Union in its lists - - including the fact that a consumer has a credit relationship with a creditor - - "is the type of information that is 'used' and/or 'expected to be used' in whole or in part for the purpose of serving as a factor in establishing a consumer's eligibility for credit." The Commission also found that although demographic information such as name, address, mother's maiden name and social security number did not meet the definition of a consumer report, age information bears on a consumer's credit capacity and is used in credit eligibility decisions and therefore does constitute a consumer report.

Since the Court of Appeals had previously determined that target marketing was not one of the permissible purposes set forth in the FCRA, the Commission concluded that Trans Union cannot lawfully sell those lists that meet the definition of a consumer report to its target marketing customers.

Trans Union argued that Section 604 of the FCRA was unconstitutional and enforcing it violated the First Amendment. The Commission held, however, that the FCRA's restriction on Trans Union's sale of consumer reports does not violate the company's constitutional right to freedom of expression and that the FCRA is not unconstitutionally vague under the Fifth Amendment.

Addressing Trans Union's constitutional arguments, the Commission first rejected the contention that Trans Union's lists deserved full First Amendment protection. Instead, the Commission applied the commercial speech analysis established by the Supreme Court in the Central Hudson, 447 U.S. 557 (1980), case. The Commission held that: (1) the government had a substantial interest in protecting the privacy of consumers' personal credit information; (2) the FCRA's restriction on Trans Union's ability to sell its target marketing lists directly and materially advanced the government's interest; and (3) the FCRA's restriction is narrowly tailored.

Based on these findings and the substantial record in the case, the Commission voted 4-0 to issue the cease and desist order. Commissioner Thomas B. Leary did not participate in the decision.

Under the Commission's rules, ex parte communications regarding this matter are barred until the Commission has disposed of any petition for reconsideration, or until the time for filing such petitions (14 days after service) has elapsed.

Copies of the Commission's opinion and other documents in this case are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll free at 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.