A decision issued on October 5, 2009, by the U.S. Court of Appeals for the Third Circuit should help shut the door on litigation under the Fair Credit Reporting Act challenging prescreened solicitations. In Gelman v. State Farm Mutual Automobile Insurance Company , the Third Circuit rejected the plaintiff's argument that the prescreened insurance solicitation he received was not a "firm offer" under the FCRA because it did not have value.

The FCRA generally prohibits credit reporting agencies from providing consumer credit reports unless the person requesting the report has a "permissible purpose," as defined under the FCRA.   Providers of credit or insurance that obtain "prescreened" mailing lists of consumers who meet certain eligibility criteria have such a "permissible purpose" to obtain the lists―so long as they make "a firm offer of credit or insurance" to each person on the list.

Touched off by the Seventh Circuit's decision in Cole v. U.S. Capital, a wave of class action lawsuits since 2004 have alleged that the FCRA requires firm offers to have value. In Cole, the Seventh Circuit held that it could not determine, on a motion to dismiss, whether an offer of credit toward a car purchase had sufficient value to satisfy the FCRA because the mailer did not include the material terms of the offer.

In affirming the district court dismissal of the complaint in Gelman , the Third Circuit focused on the "unambiguous" text of the FCRA’s "firm offer" definition and observed that "it does not mention 'value,' or anything akin to it."   The Third Circuit also observed that subsequent Seventh Circuit decisions had limited Cole's requirement that a firm offer have value to situations involving a combined offer of merchandise and credit.

Noting that the offer before it was "completely unlike" the combined offer of merchandise and credit at issue in Cole, the Third Circuit concluded that Cole provided no support for applying a value requirement to offers of only credit or insurance. In rejecting a value test, the Third Circuit joined the First, Seventh, and Eighth Circuits, which have held that firm offers of credit under the FCRA do not require value.

Also noteworthy is the Third Circuit's reliance on the U.S. Supreme Court’s decision in Ashcroft v. Iqbal to determine if the district court's dismissal of the plaintiff's FCRA claims was proper.   In that decision, the Supreme Court held that a claim must be "plausible on its face" to survive a motion to dismiss, and that a claim "has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Gelman is the first Third Circuit decision to apply Ashcroft to a FCRA claim.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products; its experience with the full range of federal and state consumer credit laws throughout the country, including the FCRA; and its skill in litigation avoidance (including pioneering work in pre-dispute arbitration programs) and litigation defense, including the defense of individual and class actions alleging FCRA violations . For more information, please contact group Chair Alan S. Kaplinsky (215.864.8544 or kaplinsky@ballardspahr.com ), Vice Chair Jeremy T. Rosenblum (215.864.8505 or rosenblum@ballardspahr.com ), John L. Culhane, Jr. (215.864.8535 or culhane@ballardspahr.com ), Barbara S. Mishkin (215.864.8528 or mishkinb@ballardspahr.com ), or Mark J. Furletti (215.864.8138 or furlettim@ballardspahr.com ).


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