A credit agency is a person, firm, or corporation engaged in the business of collecting information as to the financial standing, ability and credit of persons engaged in business, and reporting the same to subscribers or customers applying and paying for it[i]. A Credit agency collects and sells information about the creditworthiness of individuals and corporations and provides it for a fee to interested parties.
The purpose of a credit agency is to procure information concerning the trustworthiness of persons and corporations as will enable their subscribers properly to conduct business with strangers or distant customers[ii].
Credit agencies are known by different names such as credit reporting agency, commercial reporting agency, credit bureau, consumer reporting agency, consumer agency, or mercantile agency.
A Credit agency does not make any decision about whether a specific person should be extended credit or not. However, it collect information that it consider relevant to a person’s credit habits and history, and uses this information to assign a credit score to indicate how creditworthy a person is.
A credit agency is regulated by federal and state laws to safeguard against abusive and damaging practices. The Fair Credit Reporting Act (FCR Act) regulates the credit reporting industry by limiting:
- the type of information credit reporting agencies may compile,
- the manner in which it may be reported, and
- the procedures for ensuring the accuracy of the information[iii].
A credit agency has a duty of reasonable care in the preparation of consumer reports. Since preparation of a consumer credit report may be viewed as a continuing process, the obligation to ensure accuracy arises with every addition of information[iv].
The statutory duty to maintain accurate information does not require the credit reporting agency to include all relevant credit information. Furthermore, for a consumer to prevail on a claim under the statute based on the allegation that the report is incomplete, the lack of completeness must be of a fundamental nature.
Pursuant to 15 USCS § 1681 i(a)(1)(A), if a consumer disputes the completeness or accuracy of any item on his/her credit report, the credit reporting agency must verify the accuracy of the disputed item or remove it, subject to certain limitations.
Similarly, if an item is found to be inaccurate or unverifiable, the agency must delete the information from the credit report. If the entry is verified, and the consumer continues to dispute it, the consumer is entitled to have his side of the dispute included in the record.
A credit agency may be liable for the consequences of its act[v]. In Pacific Packing Co. v. Bradstreet Co., 25 Idaho 696 (Idaho 1914), the court held that one who conducts the business of selling information concerning the affairs of others is responsible for the consequences of his/her acts, and liable in damages for the publication of libelous matters.
However, reports of credit agencies, furnished in good faith to one having a legitimate interest in the information, are privileged[vi]. Nevertheless, the report must have been furnished in good faith, to one having an interest in the information communicated.
In Retail Credit Co. v. Garraway, 240 Miss. 230 (Miss. 1961), the court held that reports of credit agencies are qualifiedly privileged, with the limitation that they must have been furnished in good faith to one having an interest in the information communicated. Thus the communication of a mercantile agency loses its privileged character when it is sent with malice.
A statement made to a credit agency is admissible as an admission against the interest of the party making it[vii]. However, reports of a credit agency are not admissible in evidence as against a third party who did not in any way participate in making or publishing the reports[viii].
On the other hand where a third person supplies the information upon which the report is made, or in some way ratifies or participates in publishing the report, the report may be admissible against him, particularly where the compiler of the report appears as a witness, the preliminary statement on which it is based is in evidence and the party sought to be bound has made representations with respect to the report.
In Blake v. Meadows, 225 Mo. 1 (Mo. 1909), the court held that where creditors claim they extended credit to a merchant upon the reports of commercial agencies, those reports, to be admissible, must state the merchant’s ownership of the property with reasonable certainty. Reports based on mere conjecture, hearsay, rumor, supposition and such brood of uncertainties, are not sufficient to base credit upon[ix].
[i] Merchants Red Book Co. v. State, 132 Tex. 470 (Tex. 1939).
[ii] Retail Credit Co. v. Garraway, 240 Miss. 230 (Miss. 1961).
[iii] 15 USCS § 1681.
[iv] FTC v. Gill, 71 F. Supp. 2d 1030 (C.D. Cal. 1999).
[v] Pacific Packing Co. v. Bradstreet Co., 25 Idaho 696 (Idaho 1914).
[vi] Retail Credit Co. v. Garraway, 240 Miss. 230 (Miss. 1961).
[vii] Phillip Van Heusen, Inc. v. Korn, 204 Kan. 172 (Kan. 1969).
[ix] Blake v. Meadows, 225 Mo. 1 (Mo. 1909).