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Interpreting the Fair Credit Reporting Act: The Ninth Circuit Weighs in Again on Reynolds v. Hartford Financial Services Group

February 06, 2006

The Ninth Circuit Court of Appeals’ broad interpretation of the Fair Credit Reporting Act ("FCRA" or "Act") in Reynolds v. Hartford Financial Services Group, 2005 U.S. App. Lexis 21389 (9th Cir., Oct. 3, 2005) sparked considerable debate in the insurance industry over: (a) what constitutes an "adverse action" under FCRA; and (b) when insurers can be subject to heightened liability for "willful" violations of the Act. In an unusual although not unprecedented move, the same panel of judges from the Ninth Circuit recently issued a revised opinion in Reynolds that reaffirms its interpretation on the first issue but retreats slightly from its interpretation on the second. In its October opinion, the Ninth Circuit held that insurers must provide consumers with an adverse action notice any time they offer a consumer less than the optimal rate on a policy based, at least in part, on information (or lack thereof) in the consumer’s credit file. The Court reaffirmed this holding in its revised opinion, specifically stating that adverse action notices are required regardless of whether the sub-optimal rate is offered to a consumer on an initial or renewal policy, and regardless of whether the consumer’s credit score is above or below average. Id., p. 27-30.

The Court also reaffirmed the basic legal standard it will require Ninth Circuit plaintiffs to show in order to prove a "willful" violation of FCRA. Under the Act, willful violators are subject to heightened liability including, among other things, punitive damages and reasonable attorney’s fees. 15 U.S.C. § 1681n. In its most recent opinion, the Court reaffirmed that willfulness requires a knowing and intentional violation of FCRA. Reynolds, p. 44. It also explained that "‘willfully’ entails a ‘conscious disregard’ of the law, which means ‘either knowing that policy [or action] to be in contravention of the rights possessed by consumers pursuant to the FCRA or in reckless disregard of whether the policy [or action] contravened those rights." Id., p. 46. The most significant difference between the Ninth Circuit’s October and January opinions relates to the consequences of relying on aggressive but untenable interpretations of FCRA with respect to matters of first impression. In its October opinion, that is, the Ninth Circuit stated that reliance on "implausible interpretations" of the Act based on "creative lawyering" with respect to matters of first impression amounts to a willful violation of the law, per se. In its revised opinion, the Court retreated, indicating that wilfullness must be analyzed on a case-by-case basis:

[C]onsultation with attorneys may provide evidence of lack of willfullness, but it is not dispositive. Whether or not there is willful disregard in a particular case may depend in part on the obviousness or unreasonableness of the erroneous interpretation. In some cases, it may also depend in part on the specific evidence as to how the company’s decision was reached, including the testimony of the company’s executives and counsel. Id., p. 50-51 (citations omitted).

As with the Ninth Circuit’s October opinion, the precedential value of its latest opinion in Reynolds is limited to the Ninth Circuit. However, the legal standards outlined in Reynolds to determine an insurer’s liability under FCRA generally accords with the interpretation of the Federal Trade Commission. Accordingly, insurers should be aware of Reynolds and prepare for plaintiffs to argue that the Ninth Circuit’s reasoning should be adopted in other jurisdictions.

If you have any questions on FCRA or its application to programs administered by your company, please contact any member of the Godfrey & Kahn Insurance Team.

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