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Washington–Business and consumer groups will clash this week in the U.S. Supreme Court over the interpretation of a federal law that is a key weapon in the battle against identity theft and inaccurate credit reports. The U.S. Chamber of Commerce and other business organizations have filed more than a dozen amicus briefs supporting two insurance companies that are asking the justices to overturn a ruling by the 9th U.S. Circuit Court of Appeals. Safeco v. Burr, No. 06-84; Geico v. Edo, No. 06-100. That decision, interpreting the federal Fair Credit Reporting Act, will expose businesses legitimately using consumer credit information to enormous damages; impose huge compliance costs; flood consumers with confusing notices; and chill legitimate business activity, according to the insurance companies and their supporters. “For a long time there wasn’t any litigation under the act and it just simply became an area that enterprising plaintiffs’ lawyers decided was potentially lucrative, but only if they get class action status and can argue that violations are willful,” said Richard Samp of the Washington Legal Foundation, an amicus supporter of the insurance companies. The 9th Circuit’s standard for what constitutes a willful violation of the law’s consumer notice requirements is wrong and encourages frivolous class action litigation, he and others contend. But consumer groups counter that the restrictive standard that business seeks from the high court would undermine the private attorney general role that Congress chose as the primary enforcement mechanism under the act. They also say that the restrictive standard would thwart recent efforts by the Federal Trade Commission (FTC), law enforcement agencies and others to increase compliance with the act. “Although this may seem like an arcane case of statutory interpretation, it does have significant implications for real people in the real world, particularly with this new crisis of identity theft,” said Scott Nelson of Public Citizen Litigation Group, the consumer plaintiffs’ co-counsel in the high court with Scott A. Shorr of Stoll Stoll Berne Lokting & Schlachter in Portland, Ore. “The notion that the sky is going to fall seems a little exaggerated, to say the least,” said Nelson of his opponents’ views. “But they obviously wanted to put a full-court press on the issue.” Balancing act The two sides do agree on one thing-the purpose of the Fair Credit Reporting Act (FCRA). Congress wanted to promote efficiency for business transactions and to protect consumers’ privacy in their confidential information and transactions. In return for access to consumers’ credit histories, businesses must notify consumers whenever the information resulted in an adverse action against them. The notice requirement alerts consumers to possible problems in the credit report. The act also creates several levels of liability. Plaintiffs seeking only actual damages for a violation must show the business acted negligently. Those seeking statutory damages of $100 to $1,000 per violation or punitive damages must prove the business “willfully failed to comply” with the credit act. The two high court cases, consolidated for argument on Jan. 16, arise out of two separate, proposed class actions and involve the insurance industry’s use of credit information in underwriting consumer insurance policies. The consumer plaintiffs charge that Safeco Corp. and Geico willfully failed to comply with the FCRA’s adverse-action notice requirements when they set premium rates higher than for those with better credit reports. The act defines an “adverse action” as “a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of insurance.” In the high court, Safeco and Geico contend that the 9th Circuit made two errors. The appellate court erroneously interpreted “willfully” to mean “reckless disregard for” the act’s requirements, they contend. “The text, history, structure, and purposes of FCRA, as well as the consistent interpretation . . . by eight other circuits for more than 20 years, all support the conclusion that ‘willfully’ in this context requires proof that the defendant intentionally violated a known legal duty,” insists Safeco counsel Michael K. Kellogg of Washington’s Kellogg, Huber, Hansen, Todd, Evans & Figel. Maureen Mahoney of the Washington office of Latham & Watkins, who will argue the case for the insurers, represents Geico. Also, the insurers argue, the circuit was wrong to conclude that “adverse action” applies to higher rates for new applicants for insurance as well as to higher rates for applicants who would have received the same rate even if the credit report had not been used. The circuit’s standard would “dramatically increase the number of consumers receiving adverse-action notices-and that increase would consist entirely of consumers who benefited from or were unaffected by their credit reports,” said Mahoney, who will be making her third appearance at the high court this term. “The byproducts of this heavy-handed approach would be confusion and apathy.” But Public Citizen’s Nelson argues that the 9th Circuit is not “out of step” on these issues. “The idea that ‘willfulness’ in a civil statute includes reckless disregard of legal obligations comes straight out of Supreme Court opinions on other statutes,” he said. The U.S. solicitor general and the FTC, Nelson noted, adopted the 9th Circuit’s analysis, departing only from its application to the facts in Safeco and Geico. On the adverse action issue, Shorr, who will argue for consumers, and Nelson, along with the government, note that Geico, for the past four years, has been giving the required notices without any evidence of unworkability. “Even before the explosion of identity theft, the statistics indicate the number of inaccuracies in these credit reports is astonishing,” said Nelson. He added that adverse-action notices are “the only way you’re going to have of knowing that you’re being hurt in the marketplace because transactions you didn’t authorize are showing up in your credit file.”

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