FTC Reaches Record $20 Million FCRA Settlement

The FTC recently reached a $20 million settlement with a company to resolve allegations that it unlawfully used the credit history of third parties to help unqualified customers obtain financing for its products and services.  As part of the settlement, the company will pay $15 million in civil money penalties, and $5 million in consumer restitution.  This is the largest FCRA settlement to date.

During the relevant time, the company offered its customers the option to finance its products and services.  If a customer did not qualify, the company would use the identity of an unrelated individual with the same or similar name to the unqualified customer, and pull the individual’s credit score to extend credit to the customer.  The company would also add co-signers to the account without their consent in order to extend credit.  When an unqualified customer defaulted, the company would report the third party, instead of the unqualified customer, and sell the debt to debt collectors.

On April 29, 2021, the FTC filed a complaint against the company alleging FCRA and FTC violations.  The company violated the Red Flags Rule, a FCRA implementing rule, which requires the company to develop and implement an Identity Theft Prevention Program.  The company also violated the FCRA when it obtained third party consumer reports for impermissible purposes.  The company’s sale of false debt to debt collectors also constituted unfair acts or practices in violation of the FTC Act.

As part of the settlement, the company will have to establish and maintain a Customer Service Task Force Program, which among other things, will determine which debts were illegitimate.  The company will also have to establish and implement an employee monitoring program to prevent its employees from obtaining consumer reports for impermissible purposes. 

The company neither admits nor denies the FTC’s allegations.