Supreme Court makes it harder to sue over credit reporting

USA Today
Supreme Court makes it harder to sue over credit reporting

WASHINGTON (AP) — The Supreme Court ruled in favor of two insurers Monday, limiting the instances in which insurers must tell customers that their credit ratings are affecting how much they pay.

The justices said Geico did not violate the Fair Credit Reporting Act and that Safeco might have but did not do so recklessly.

Consumer groups have said the notification requirement was crucial to cleansing credit reports of inaccurate information.

The ruling is likely to affect class-action lawsuits that seek damages for consumers who say they should have been notified but weren't.

For a company to be found liable, Justice David Souter wrote, its conduct must entail an unjustifiably high risk of harm that is either known to a company or is so obvious it should have been known.

The court ruled that the law's notification requirements apply to initial applicants. That means that new customers will be informed when their credit scores affect the rates they're being quoted.

But the justices overturned an appeals court ruling that would have required notification of the vast majority of customers. Notification would have been the rule unless consumers were paying the lowest rate given to those with the best credit ratings.

The companies lost on their contention that in order to be found liable for a willful violation, it must be shown that they knew they were breaking the law. The court said "reckless disregard" was sufficient. But the justices laid down a restrictive definition.

The court's ruling on the liability question was unanimous, while the decision on notification was 7-2.

On the liability question, the justices took "a middle-of-the-road position," said Gene Schaerr of the law firm of Winston & Strawn. "The court adopted what initially would have been a pro-plaintiff position, but in actually applying the definition, they have a very narrow interpretation of 'reckless.' "

The court's decision on liability will be beneficial, predicts Delaware Insurance Commissioner Matthew Denn, leading insurers to take more care in conducting business.

Credit-reporting agencies generate more than 1.5 billion consumer reports a year. Congress passed the credit-reporting law in 1970 to protect consumers from flaws in the system and to allow businesses to gauge risk more accurately.