The U.S. Supreme Court has been asked to decide whether a homeowner association (HOA) assessment constitutes a “credit transaction” under the Fair Credit Reporting Act (FCRA), which would open up an inquiry to the fundamental scope of one of the FCRA’s most important permissible purposes.
On March 17, the Ninth Circuit Court of Appeals upheld a district court’s grant of summary judgment in a law firm’s favor holding that it had a permissible purpose under FCRA to obtain a homeowner’s consumer report because it was attempting to collect her delinquent HOA assessments. On August 1, the homeowner filed a petition for a writ of certioraria to the U.S. Supreme Court, requesting that the Court hear the case to resolve a circuit split.
In Wolf v. Carpenter, Hazlewood, Delgado & Bolen, LLP, the HOA hired the defendant law firm to collect allegedly delinquent assessments from the plaintiff homeowner. Before filing suit, the defendant obtained the plaintiff’s consumer report. Subsequently, the plaintiff filed a class action alleging that the defendant did not have a permissible purpose under the FCRA to obtain her consumer report because HOA assessments are not “credit transactions.” The FCRA permits companies to obtain a consumer’s report in only six enumerated circumstances, including when the person obtaining the report “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.” 15 U.S.C. § 1681b(f)(1). This permissible purpose is one of the most widely used bases by businesses to access consumer reports.
The district court granted the defendant’s motion for summary judgment finding the defendant had a permissible purpose under the FCRA because HOA assessments are credit transactions because they involve deferred payments. “The undisputed facts show that the HOA annual assessment was structured to provide for deferred payments. The HOA assessment is set on a yearly basis, and homeowners pay that assessment in installments throughout the year.” The court analogized the scenario to the one presented in Brothers v. First Leasing, 724 F.2d 789 (9th Cir. 1984), where the Ninth Circuit found that a consumer lease was a credit transaction.
The plaintiff appealed and the Ninth Circuit affirmed the district court’s decision. Notably, however, the court of appeals did not hold that HOA assessments were “credit transactions,” but that the defendant was entitled to rely on Brothers to conclude they were. “[The plaintiff] had a grace period during which she could receive half a month’s services that she had not yet paid for. Because that grace period could be considered an extension of credit under our reasoning in Brothers,” the defendant’s reading of the statute was not objectively unreasonable.
The plaintiff filed its cert petition to resolve a circuit split regarding what sort of contracts and transactions are “credit transactions” under the FCRA. To answer this question, the Ninth Circuit asks whether there are any payments deferred. If the answer is yes, it is a “credit transaction” and it is permissible to obtain a consumer report. However, the Second, D.C., and Seventh Circuits ask “whether, even if payments are deferred, is the transaction structured such that payment is substantially contemporaneous with performance.” If there is a “contemporaneous exchange,” it is not a credit transaction. Using this test, these circuits have rejected the Brothers holding and found things like residential leases do not constitute credit transactions because they involve “a contemporaneous exchange of consideration.” The plaintiff argues the Supreme Court should reject the Ninth’s Circuit’s Brothers test because the “majority’s contemporaneous exchange test is aligned with the FCRA’s purpose of protecting consumer privacy.”