Legal Opinions - U.S. District Court, Maryland: January 28, 2008

Daily Record, The (Baltimore), Jan 28, 2008

Commercial Law

Fair Credit Reporting Act

BOTTOM LINE: Credit card company's mailer offering auto financing constituted firm offer of credit under FCRA.

CASE: Farrow v. Capital One Auto Finance, Inc., Civil No. CCB-06- 2324 (decided Nov. 9, 2007; posted Jan. 11, 2008) (Judge BLAKE).

FACTS: John Farrow received a mailer from Capital One Auto Finance (Capitol One) offering him an auto financing loan. The mailer stated that he was "Pre-Approved" for "Up to $30,000" with "No Money Down."

On the back of the mailer, a paragraph labeled "PRESCREEN AND OPT- OUT NOTICE" contained the following statement: "This 'prescreened' offer of credit is based on information in your credit report indicating that you meet certain criteria. This offer is not guaranteed if you do not meet our criteria, including providing acceptable property as collateral."

Also on the back of the mailer, under the heading "IMPORTANT INFORMATION," were the following terms and conditions: the minimum amount financed was at least $10,000; the applicant must have a monthly income of at least $1,500; the applicant cannot be in open bankruptcy; the offer was good for 30 days; the applicant may need to trade in a current vehicle to close an existing auto finance loan, and the offer was good only for models within the past seven years and excluded certain makes.

Farrow sued Capital One, claiming that the company willfully violated Fair Credit Reporting Act (FCRA) when it obtained his credit report without a permissible purpose. Capital One moved for judgment on the pleadings.

The district court granted Capitol One's motion.

LAW: The standard for evaluating a motion for judgment on the pleadings is the same as or a Rule 12(b)(6) motion to dismiss. Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007).

"Once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Id. at 1969. Moreover, the "plaintiff's obligation to provide the 'grounds' of his 'entitl[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1964-65.

The Fair Credit Reporting Act, 15 U.S.C. [section]1681, provides: "The term 'firm offer of credit or insurance' means any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer." Id. at [section]1681a(l).

The offer may be further conditioned on several factors, including the consumer meeting specific criteria bearing on creditworthiness, verification that the consumer continues to meet the specific criteria used to select her for the offer, and the furnishing of any required collateral. Id. at [section]1681a(l)1)- (3).

Regarding the additional conditions that may be placed on a "pre- qualified" candidate, the 5th Circuit has noted that the FCRA "permits a creditor to make a 'conditional' firm offer of credit; that is, an offer that is conditioned on the consumer meeting the creditor's previously-established criteria. ... [A] firm offer of credit under the Act really means a firm offer if you meet certain criteria." Kennedy v. Chase Manhattan Bank USA, N.A., 369 F.3d 833, 841 (5th Cir. 2004)).

The FCRA also mandates that certain disclosures be made within the credit solicitations. 15 U.S.C. [section]1681m(d)(1)(A)-(E). The statement must also include the address and telephone number where the consumer may request that his information no longer be disclosed for prescreening purposes. Id. at [section]1681m(d)(2).

The 4th Circuit has not addressed the issue of what types of credit solicitations constitute firm offers of credit. Several courts in this and other circuits, however, have examined the issue, and their approaches are instructive; the majority of courts have concluded that firm offers of credit exist where the credit offer is honored if the consumer meets specific criteria, and where the conditions attached to acceptance of the offer are permissible under the FCRA. See, e.g., Soroka v. J.P. Morgan Chase & Co., 500 F. Supp. 2d 217 (S.D.N.Y. 2007); see also Crossman v. Chase Bank USA NA, No. 07-116-CWH, 2007 WL 2702699 (D.S.C. Sept. 12, 2007).

In Phinn v. Capital One Auto Finance, 502 F. Supp. 2d 625 (E.D. Mich. 2007), the defendant's motion to dismiss was granted on the ground that FCRA does not require that an offer of credit contain all material terms. In examining a mailer that offered "up to $25,000 in auto financing ... to [purchase a] car, truck or SUV," id. at 627, the court noted the presence of additional, statutorily permissible restrictions on the offer.

Specifically rejecting the plaintiff's argument that the absence of interest rates and terms of repayment rendered the document illegal under FCRA, the court concluded that "the mailer extended Plaintiff an offer of credit between $10,000 and $25,000, provided that Plaintiff meet additional criteria. Under the plain language of the FCRA, this is all that is required to constitute a 'firm offer of credit'." Id. at 629.