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Third Circuit Adopts Broad Take on FCRA Safe Harbor

By Robyn Hagan Cain | Last updated on

Fair Credit Reporting Act (FCRA) violations can add up. A person who willfully fails to comply with FCRA requirements could be on the hook for actual and punitive damages.

Willfullness, however, is tricky a standard. It became even more complicated after the Supreme Court created a FCRA safe harbor in Safeco Insurance Co. of America v. Burr, noting that a company cannot be said to have willfully violated FCRA if the company acted on a reasonable interpretation of FCRA's coverage.

Southwest sells current owner title reports -- otherwise known as property search or limited property reports -- to consumer lenders. The purpose of those reports is to confirm the identity of the current holder of title to the property, and to determine whether the property is encumbered.

All of the information that Southwest collects is available in public records.

Marie Ann Fuges had a $35,000 line of credit from PNC Bank, which she secured with the home she owned in Philadelphia. In 2008, she applied to PNC for payment protection insurance. PNC told Fuges that, in order to obtain the insurance, she needed to reapply for her line of credit. When she did so, PNC ordered a credit report generated by a credit reporting agency, as well as a property report on the home that she owned. Southwest prepared the latter. Unfortunately, that property report contained two errors.

Based on one of those errors, PNC initially told Fuges that it couldn't approve her application without additional documentation. Later, however, PNC provided Fuges with the credit insurance, leaving her existing line of credit in place.

That wasn't enough to assuage Fuges. She filed a putative class action against Southwest, alleging that Southwest willfully violated FCRA in preparing the property report that it had provided to PNC.

Southwest moved for summary judgment, arguing that its reports are not subject to FCRA, and that, even if they were, it was not liable because it did not willfully violate FCRA under the standard articulated in Safeco.

The district court granted Southwest's motion for summary judgment, finding that no reasonable jury could find that Southwest had acted willfully because Southwest's reading of FCRA as not being applicable to its business was not unreasonable.

On appeal, Fuges argued that Southwest should lose the potential protection of the "reasonable interpretation" defense, because it never actually interpreted FCRA prior to her lawsuit. The Third Circuit Court of Appeals disagreed with Fuges, finding that Safeco requires only that "the company's reading of the statute is objectively reasonable," and that the interpretation that would allow the conduct in question is "an interpretation that could reasonably have found support in the courts." Safeco does not require that the defendant actually have made such an interpretation at any particular point in time.

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