The wrong prescreened prospect list can cost millions—in fines

Consumer reporting agency Equifax Information Services and Direct Lending Source and its affiliates will pay approximately $1.6 million in total for infringing on the Federal Trade Commission (FTC) Act and the Fair Credit Reporting Act (FCRA) in two distinct settlements.

“We reached an agreement with the Federal Trade Commission regarding issues they brought to our attention regarding Direct Lending, a former customer of Equifax. This was a settlement with the FTC and Equifax did not–and does not–admit to any wrongdoing or violation of any law as part of this agreement,” said Timothy Klein, Equifax’s VP of public relations, in an emailed statement. “We discontinued all business interactions with Direct Lending and its affiliates during the summer of 2011. At that time we also notified our customers that we had ceased doing business with Direct Lending and its affiliates.”

Equifax has agreed to the FTC’s settlement and will pay approximately $393,000 for its alleged “inadequate procedures,” of selling more than 17,000 prescreened lists of consumers with late mortgage payments to companies without a “permissible purpose,” including Direct Lending, says Katherine Armstrong, FTC attorney for the division of privacy and identity protection. Armstrong defines prescreened lists under the FCRA as “a type of consumer report [that’s] created when a creditor or an insurer establishes criteria and asks the consumer reporting agency for a list of people that meet that criteria.”

“The FCRA requires that consumer reporting agencies to have reasonable procedures to make sure that any kind of consumer report is provided only to those with a permissible purpose. The complaint alleges that Equifax did not maintain reasonable procedures to make sure the prescreened lists it sold to Direct Lending would only be used for a permissible purpose,” Armstrong says. “It did not promptly or fully investigate when it learned that Direct Lending may have been violating its own internal policies with relating to prescreening, and it knew we alleged or should have known that, in multiple instances, Direct Lending was reselling prescreened lists without identifying the end user to Equifax.”

“We are being dinged because, in the FTC’s opinion, we did not provide adequate oversight in all situations to monitor how the customers we were selling the lists to were using them,” Klein said.

Separately, Direct Lending and its associates Bailey & Associates Advertising and Virtual Lending Source were charged with allegedly obtaining the prescreened list from Equifax without a “permissible purpose” and reselling the lists to third parties without telling the consumer reporting agency who the final users were or ensuring that they had a “permissible purpose,” Armstrong says. The Direct Lending defendants will pay a civil penalty of $1.2 million. Bailey & Associates is excluded from the civil penalty portion of the settlement due to it being a bankrupt entity.

Armstrong says Direct Lending pays a higher penalty because it is a civil penalty, while Equifax’s payment is disgorgement.

Armstrong advises marketers to ensure they have a permissible purpose when working with prescreened lists.

“If a marketer is using prescreened lists they need to make sure that they have a permissible purpose, which means that they must provide a firm offer of credit and the firm offer of credit is what distinguishes a prescreened list, which is permitted by the FCRA. Otherwise, consumer reports cannot be used for general marketing purposes,” Armstrong says. “The bottom line is if it’s a prescreened list, they need to make sure that they’re making a firm offer of credit or insurance.”

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