Dealer Didn't Have 'Permissible Purpose' To Pull Credit Report After Sale Transaction
Christopher Smith bought a Chevy Suburban from Bob Smith Chevrolet, Inc. As part of the transaction, Smith had a trade-in vehicle and was entitled to a discount as a General Electric employee (General Electric is a GM supplier). When the sale was consummated, Smith did not have the paperwork he needed to verify his entitlement to the discount, but the dealer representative agreed that he could provide the proof later. Shortly after the sale, a dispute arose because the dealer realized that the purchase agreement reflected a double discount. The dealer contacted Smith, informing him of the calculation error. Until Smith agreed to pay the outstanding amount owed as result of the error, the dealer told him it would not transfer the title to the new vehicle or pay off the outstanding balance on his trade-in vehicle.
Shortly after the dispute arose, the dealer accessed Smith's credit report. Smith eventually sued in Kentucky state court, demanding specific performance on the transfer of title to the Suburban and payoff of the outstanding obligation on the trade-in. About a year later, a state court jury found in Smith's favor. A day before that ruling, Smith filed this suit in the U.S. District Court for the Western District of Kentucky, alleging that the dealer violated the Fair Credit Reporting Act and invaded his privacy when it accessed his credit report after the dispute arose.
After concluding that the state court action did not preclude the claims in the federal suit, the court addressed the merits of the FCRA claim. Both sides filed motions for summary judgment, the sole issue being whether the dealer had a permissible purpose for accessing Smith's credit report. The court ultimately concluded that it did not and granted judgment for Smith. The court declined to grant summary judgment on whether the dealer's violation was "willful" under the FCRA.
The court focused on the "legitimate business need" part of the "permissible purpose" provisions. The court noted that the dealer's stated reason for accessing the credit report was not to determine Smith's credit worthiness because the sale transaction had been completed. Rather, the dealer was attempting to determine if it could collect the additional money allegedly owed by Smith. The court suggested that the dealer's interpretation of the phrase "in connection with" was "limitless."
The court considered Federal Trade Commission interpretations relevant to the issue in a couple of the agency's informal staff opinions. One statement made in one of the FTC's informal opinions was "[Section] 604(a)(3)(F)(i) ‘does not give any business the right to obtain a report on a customer long after the transaction commenced.'"
Ultimately, the court found that, as a practical matter, the dealer's access of Smith's credit report was not part of the sale transaction that Smith initiated. Thus, the court concluded that the dealer did not have a "legitimate business need" for Smith's credit report. Since the dealer did not have Smith's consent either, the court found there was a violation of the FCRA. Smith v. Bob Smith Chevrolet, Inc. , 2003 WL 21801742 (W.D. Ky. August 1, 2003)
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