March 6, 2024

Podcast - The FTC Enforces the Fair Credit Reporting Act

Clearly Conspicuous Podcast Series

In this episode of his "Clearly Conspicuous" podcast series, "The FTC Enforces the Fair Credit Reporting Act," consumer protection attorney Anthony DiResta discusses the Federal Trade Commission's (FTC) recent actions against background check companies TruthFinder and Instant Checkmate. The FTC alleges the companies misrepresented criminal record information and violated the Fair Credit Reporting Act (FCRA) by failing to verify report accuracy. Under the proposed $5.8 million settlement order, TruthFinder and Instant Checkmate must implement monitoring, disclose material connections and permanently comply with all FCRA provisions if deemed a consumer reporting agency. Mr. DiResta emphasizes the FTC's robust enforcement of the FCRA and importance of properly evaluating regulatory obligations.

Listen to more episodes of Clearly Conspicuous here.

Good day and welcome to another podcast of Clearly Conspicuous. As we've noted in previous sessions, our goal in these podcasts is to make you succeed in this current regulatory and governmental environment that's very aggressive and progressive, to make you aware of what's going on with both federal and state consumer protection agencies, and to give you practical tips for success. It's a privilege to be with you today.

The FTC Takes Action Against TruthFinder and Instant Checkmate

Today we discuss the Federal Trade Commission actions involving allegations of the Fair Credit Reporting Act. The FTC will require background report providers TruthFinder and Instant Checkmate to pay $5.8 million to settle charges that they deceived consumers about consumers having criminal records, and that the companies violated the Fair Credit Reporting Act by operating as consumer reporting agencies while, among other things, failing to ensure the maximum possible accuracy of their consumer reports. "Companies that compile personal information and sell background reports are on notice. Don't make false claims about the contents of your reports," says Sam Levine, the director of the Bureau of Consumer Protection. He notes, "and if you market your reports to be used to screen tenants or employees, you are a consumer reporting agency and you must follow the requirements of the Fair Credit Reporting Act."

The FTC's Claims of Fair Credit Reporting Act Violations

California-based Instant Checkmate and TruthFinder market people search services, allowing users to search unlimited background reports on individuals, and they charge monthly subscription fees to view the full reports. In 2014, Instant Checkmate agreed to settle FTC charges that the company previously violated the FCRA by failing to take reasonable steps to make sure that its background reports were accurate and that its users had a permissible reason to have them. In the complaint, the FTC says that Instant Checkmate and TruthFinder make millions from their monthly subscriptions using push notifications in marketing emails. They claim that the subject of a background report has a criminal or arrest record when the record was merely a traffic ticket. All the while, the companies touted the accuracy of their reports in online ads and other promotional materials, claiming that the reports contain "the most accurate information available to the public." The FTC says, however, that all the information used in their background reports is obtained from third parties that expressly disclaim that the information is accurate, and the TruthFinder and Instant Checkmate took no steps to verify the accuracy of the information. The companies also allegedly deceived customers by providing "remove" and "flag" as inaccurate buttons that did not work as advertised. According to the complaint, the remove button removed the disputed information only from the report as displayed to that customer. However, the same item of information remained visible to other customers who searched for the same person. In addition, the FTC also says that when the consumer flagged an item in the background report as inaccurate, the companies never took any steps to investigate the items flagged by the consumers as inaccurate, to modify the reports or to flag other customers that the information had been disputed. Despite disclaimers on their websites, according to the complaint, TruthFinder and Instant Checkmate have operated as consumer reporting agencies, or CRAs, because they have assembled and evaluated information on consumers into background reports, and marketed and sold those reports to employment and tenant screening purposes. And as CRAs, they were required to comply with the Fair Credit Reporting Act. For example, the complaint charges that the companies use search engine advertising keywords that relate to employment and tenant screening, such as "best background check for landlords" and "pre-employment screening." The FTC noted that Instant Checkmate was already under an FTC order for engaging in similar conduct, which implicated it as a CRA, and therefore they were fully aware that it was required to comply with the Fair Credit Reporting Act. The FTC says that in addition to failing to ensure the accuracy of their reports, the companies violated the FCRA by providing background reports to people who did not have a permissible purpose to obtain them, and failing to implement reasonable procedures to limit who could obtain these background reports. The FTC also says the companies failed to investigate and respond to consumer complaints about inaccuracies in their reports, as required by the FCRA.

Requirements Under the Proposed Order

Under the proposed order, which must be approved by a federal district judge before it can go into effect, TruthFinder and Instant Checkmate and their affiliated companies will be required to pay a $5.8 million penalty. Other provisions of the order include the following require the companies:

  • to establish and implement a comprehensive monitoring program
  • to regularly review, assess and determine the extent to which each of the companies are operating, in whole or in part, as a CRA
  • to ensure that they are complying with the requirements of the FCRA
  • to permanently prohibit them from failing to comply with the Fair Credit Reporting Act when they are operating as a consumer reporting agency
  • to permanently prohibit them from misrepresenting the accuracy of their reports or making similar misrepresentations as outlined in the complaint
  • to require them to mandate that endorsers disclose any material connections
  • to monitor any endorsers who have a material connection to the company to ensure that they are disclosing such connections.

The Commission voted 3-to-0 to refer the complaint, and stipulated order to the Department of Justice for filing as it required by statute. Yet the DOJ referred the matter to the FTC for filing. The FTC filed the complaint and proposed stipulated order with the U.S. District Court for the Southern District of California.

Concluding Thoughts

So here's the key takeaway. The FTC takes the provisions of the Fair Credit Reporting Act very seriously. Their enforcement of that law has been very robust, and it's important to evaluate whether a company is acting as a consumer reporting agency. So please stay tuned for further programs as we identify and address the key issues and developments, and provide strategies for success. I wish you continued success and a meaningful day. Thank you.

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