George Stergiopoulos & Ivelisse Castro v. First Midwest Bancorp, Inc., 427 F.3d 1043, 1st Cir. (2005)
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Scribd Government DocsGeorge Stergiopoulos & Ivelisse Castro v. First Midwest Bancorp, Inc., 427 F.3d 1043, 1st Cir. (2005)
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Scribd Government Docs427 F.
3d 1043
GEORGE STERGIOPOULOS & IVELISSE CASTRO,
Plaintiffs-Appellants,
v.
FIRST MIDWEST BANCORP, INC., Defendant-Appellee.
No. 04-2710.
United States Court of Appeals, Seventh Circuit.
Argued April 6, 2005.
Decided October 25, 2005.
Lance A. Raphael, Consumer Advocacy Center, Chicago, IL, Seth R.
Lesser (argued), New York, NY, for Plaintiffs-Appellants.
Craig A. Varga (argued), Varga, Berger, Ledsky, Hayes & Casey,
Chicago, IL, for Defendant-Appellee.
Before BAUER, RIPPLE, and WOOD, Circuit Judges.
WOOD, Circuit Judge.
A few years ago, Ivelisse Castro and George Stergiopoulos each decided to buy
a new car. Castro wanted a Toyota 4Runner, while Stergiopoulos fancied a
Chevrolet Camaro. When each of them sought financing, their respective car
dealers shopped the potential loans (or, as they were called, Retail Installment
Contracts (RICs)) to third-party lenders. One of the third-party lenders to
consider both loans was the defendant, First Midwest Bancorp, Inc. In deciding
whether to purchase the plaintiffs' RICs, First Midwest requested the plaintiffs'
credit reports. First Midwest apparently did not care for what it saw there,
because it refused to take on either Castro's or Stergiopoulos's RIC.
This is a common scenario. Dealers routinely attempt to assign tentative
financing arrangements to lenders, and those lenders often rely on a consumer's
credit report to determine whether the deal is worth taking. The question before
us is whether, despite its routine nature, this practice is legal. Stergiopoulos and
Castro contend that it is not. In their complaint, styled as a class action though
no class was ever certified, they assert that First Midwest has been violating the
Fair Credit Reporting Act (FCRA or Act), 15 U.S.C. 1681 et seq., by
requesting consumers' credit reports without the consumers' knowledge or
explicit consent. First Midwest filed a motion for summary judgment before the
district court, arguing that the FCRA authorized its actions. The district court so
found and granted judgment for First Midwest. We affirm.
3
* First Midwest has an arrangement with various car dealers whereby the
dealers offer First Midwest the chance to purchase tentative loan agreements or
RICs that the dealers have arranged with potential car buyers. If First Midwest
decides not to purchase a particular RIC, the dealer may provide the financing
itself or it can attempt to renegotiate the RIC with the buyer, hoping that First
Midwest will find the new terms more appealing. The initial contract between
buyer and dealer generally spells out this process, leaving out the details that
are the focus of this appeal. Most importantly, the documents signed by the
buyers do not state specifically that the dealers could shop their contracts to any
number of potential third-party lenders. In particular, the contracts that
Stergiopoulos and Castro signed made no mention of First Midwest.
Stergiopoulos's "Purchase Contract" with Rizza Buick, the Camaro dealer, had
this to say about the financing arrangement:
DEALER ARRANGED FINANCING. In the event of a time sale, RIZZA
SHALL NOT BE OBLIGATED TO SELL UNTIL AND UNLESS a finance
source approves this order and agrees to purchase a retail installment contract
between Customer and Rizza based on this order. As part of obtaining
financing, Customer agrees to provide Rizza with a true, correct and complete
credit application and to cooperate fully in obtaining financing including the
providing of any supporting documentation. This agreement may be canceled
by Rizza if Rizza determines that it cannot obtain third party approval and may
be canceled by either party if no financing is obtained for Customer on the
agreed terms within 15 business days of the date of this agreement.
His signed financing application with GMAC said only "I authorize an
investigation of my credit and employment history and the release of
information about my credit experience with GMAC."
Castro signed an installment contract at Union Nissan, Inc., for her vehicle; that
agreement stated that payments should be made to Great Lakes Credit Union as
assignee. She also signed an application for credit with Nissan Motor
Acceptance Corp. (NMAC), which included the following statement:
You are authorized to check my credit and employment history and to answer
questions about your credit experience with me. In connection with your your
[sic] application for credit, a consumer report may be requested. On your
request we will advise you if the report was actually ordered and if so, the
name and address of the agency that furnished the report. Subsequent consumer
reports may be ordered.
Neither Castro's nor Stergiopoulos's credit application mentioned that, in
addition to NMAC and GMAC, respectively, third-party lenders unknown to
the plaintiffs might also order copies of their reports. Nonetheless, it was clear
that the transaction contemplated sale of the paper to another entity. It is also
undisputed that the dealers selected First Midwest in these two cases, and the
customers had nothing to do with that choice.
II
10
The FCRA expressly states that its purpose is to ensure "that consumer
reporting agencies adopt reasonable procedures for meeting the needs of
commerce for consumer credit, personnel, insurance, and other information in a
manner which is fair and equitable to the consumer, with regard to the
confidentiality, accuracy, relevancy, and proper utilization of such
information." 15 U.S.C. 1681(b). In an attempt to achieve this balance
between consumer privacy and the needs of a modern, credit-driven economy,
the Act "limit[s] the furnishing of consumer reports" to certain statutorily
enumerated purposes. 15 U.S.C. 1681e(a). If an entity requests a report for a
purpose not listed in the Act, an injured consumer can recover the "actual
damages" caused by negligent noncompliance, see 15 U.S.C. 1681o(a)(1), or
both actual and punitive damages caused by willful noncompliance, see 15
U.S.C. 1681n.
11
The plaintiffs contend that nothing in the Act authorized First Midwest to
request their reports and that First Midwest's requests weakened their credit
ratings. First Midwest disputes that its actions harmed the plaintiffs and argues
that, in any event, the Act allowed the requests. First Midwest relied on
1681b(a)(3)(A) and (E):
12
(a) Subject to subsection (c) of this section, any consumer reporting agency
may furnish a consumer report under the following circumstances and no other:
13
...
14
(3) To a person which it has reason to believe
15
(A) intends to use the information in connection with a credit transaction
involving the consumer on whom the information is to be furnished and
involving the extension of credit to, or review of collection of an account of, the
consumer; or
16
...
17
(E) intends to use the information, as a potential investor or servicer, or current
issuer, in connection with a valuation of, or an assessment of the credit or
prepayment risks associated with, an existing credit obligation.
18
We start with subparagraph (3)(A). The plaintiffs contend that First Midwest
was not authorized to receive the plaintiffs' credit reports under this provision
because no "credit transaction involving the consumer" existed between the
plaintiffs and First Midwest. In their view, there were two wholly separate
transactions: one between each plaintiff and his or her dealer, and another
between the dealer and First Midwest. Castro and Stergiopoulos argue that the
second transaction was divorced from the first to such a degree that they were
no longer "involved" in it.
19
In support of this position, the plaintiffs rely on Andrews v. TRW, Inc., 225 F.3d
1063, 1067 (9th Cir.2000), rev'd on other grounds, 534 U.S. 19, 122 S.Ct. 441,
151 L.Ed.2d 339 (2001). Andrews concerned identity theft, where an individual
had stolen the plaintiff's Social Security number in order to obtain credit. The
plaintiff sued a credit reporting agency, contending that the agency had acted
negligently by allowing the imposter to obtain access to her credit report. The
credit agency argued that subparagraph (3)(A) authorized its actions because
the imposter's credit report request "involved" the plaintiff. The Ninth Circuit
rejected this position, finding the agency's interpretation of subparagraph (3)(A)
too broad. 225 F.3d at 1067 ("We are reluctant to conclude that Congress meant
to harness any consumer to any transaction where any crook chose to use his or
her number.").
20
The situation here is quite different. The plaintiff in Andrews was a bystander,
unwittingly "involved" because of an imposter's deception. Here, in contrast,
Stergiopoulos and Castro initiated the credit transactions at the car dealerships
by requesting financing. While they did not know that First Midwest in
particular was going to request their credit reports, they were aware that the
transactions contemplated sale of the RIC to a third party, and the statute does
not require that consumers expressly approve each request for a report. The use
of the word "involved" implies that the entity obtaining the credit report may
not have a predicate credit transaction with the consumer directly; instead, on
its face, the provision merely requires that the entity must be engaged in a credit
transaction in which the consumer is participating. Here, the car dealer served
as a broker. If First Midwest had accepted the plaintiffs' RICs, the dealer would
no longer have been part of the relationship. First Midwest would have sent
bills directly to the plaintiffs; the plaintiffs would have paid First Midwest
directly. By requesting the plaintiffs' credit reports for the sole purpose of
determining whether to furnish the plaintiffs with credit, First Midwest satisfied
the FCRA's requirement that it "intend[ed] to use the information in connection
with a credit transaction involving" Castro and Stergiopoulos.
21
The plaintiffs warn that this reading extends the Act too far and that it makes it
too easy for anyone to request a credit report without the consumer's
knowledge. While it may be a better practice for car dealers explicitly to inform
their customers that unknown third-party lenders might request the customers'
credit reports, we are not convinced that a failure to do so violates the FCRA as
it is now written. An entity may rely on subparagraph (3)(A) only if the
consumer initiates the transaction. A third party cannot troll for reports, nor can
it request a report on a whim. Rather, there must be a direct link between a
consumer's search for credit and the bank's credit report request. If the
connection between a consumer's search and a bank's request is clear, it is
unlikely that the request will infringe the consumer's privacy interests, for it
will "involve" the plaintiff directly. See Cole v. U.S. Capital, 389 F.3d 719, 725
(7th Cir.2004) ("Many of the enumerated permissible purposes set forth in
1681b are transactions initiated by the consumer; these purposes therefore do
not create significant privacy concerns."). Here, First Midwest pulled the
plaintiffs' credit reports only because the plaintiffs sought financing for their
new cars. The line of causation was direct and thus the request fell within the
purview of subparagraph (3)(A).
22
Fortunately for the defendants, the FCRA requires only one permissible
purpose; we note for the sake of completeness that First Midwest would have
been out of luck if it had been required to rely on subparagraph (3)(E). That
provision applies only if an entity requests a consumer's credit report "in
connection with . . . an existing credit obligation." Here, there was an existing
contractual obligation, not an existing credit obligation, between the plaintiffs
and their car dealers. Recall that Rizza Buick had the right to cancel its
agreement with Stergiopoulos if the search for financing on the agreed terms
was unsuccessful. A credit obligation would arise only if and when the dealer
or a third party agreed to finance the purchase of the car. Since neither event
had occurred by the time First Midwest requested the plaintiffs' credit reports,
no credit obligation yet existed. Without such an obligation, subparagraph (3)
(E) does not come into play.
III
23
