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Commercial Credit Bureaus - The Right To Privacy and State Action
Commercial Credit Bureaus - The Right To Privacy and State Action
Commercial Credit Bureaus - The Right To Privacy and State Action
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COMMERCIAL CREDIT BUREAUS: THE
RIGHT TO PRIVACY AND STATE ACTION
"Businessman David Weinberger, after being orally promised a
job with IBM in 1957, was refused employment after an investiga-
tion by Retail Credit Corp., the giant of the reporting industry,
wrongly stated that Weinberger had been the business partner of a
man indicted for mail fraud ....
"Last year a professor's wife in Huntsville, Texas lost her auto
insurance because her credit bureau listed her as an alcoholic. She
never drinks.
"A Fort Wayne, Indiana man sued Retail Credit in 1964 because
he lost a job promotion due to a report that falsely stated the man
had spent a year in prison for a car sales scheme.
"Bruce McGrath, a businessman in Ontario, Canada, was denied
a series of jobs-after having been told orally that he was
hired-because a report by the branch office of an American-based
credit firm said he had been fired from his previous job and had
'loose morals.' After Maclean's magazine began looking into
McGrath's case, a new credit report by the same firm reported that
McGrath had actually resigned from his previous job to seek a bet-
ter one. His morals? 'No criticism of subject's reputation or asso-
ciates.'
"Last year an Oklahoma man went into the Tulsa office of Retail
Credit Co. to find out why he had been denied insurance. He
brought with him Paul Polin, a management consultant who has
been leading the fight for regulation of credit bureaus since 1960.
They found 12 errors in the report, as well as obsolete information
that the law requires to be deleted. Next day the manager of the
branch office phoned the complainant at home and told him: "If you
stop associating with Paul Polin, we'll make sure you have an A-1
report.' "1
The experience of these private citizens with the credit reporting
industry is neither unique nor unexpected.2 Commercial credit bu-
1. Hearings on S. 2360 to Amend the Fair Credit Reporting Act, Before the
Subcomm. on Consumer Credit of the Senate Comm. on Banking, Housing and
Urban Affairs, 93d Cong., 1st Sess. 636-37 (1973) [hereinafter cited as Hearings
on S. 2360].
2. In his testimony before Senator Proxmire's Subcommittee on Consumer
Credit in February, 1974, Mr. Dick Riley, a former supervisor of long experience
422 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
under the FCRA, section 1681a(a) permits the gathering of information related to
an individual's character, general reputation, personal characteristics, and mode
of living. Credit reports frequently contain information not only regarding a per-
son's financial status (bank accounts, charge accounts, bill-paying habits), but also
include information concerning the quality of his marriage, his drinking habits,
"his IQ, high school attendance record and how the subject is regarded as to
'character, habits and morals.'" Note, ProtectingPrivacy in Credit Reporting, 24
STAN. L. Rlv. 550, 552 (1972) [hereinafter cited as Protecting Privacy], quoting
Hearings on Commercial Credit Bureaus, supra note 9, at 9.
20. Hearings on Amending the FCRA, supra note 2, at 12, 28, 38, 40.
21. Recently, one commentator has delineated three ways in which credit bur-
eaus affect an individual's right to privacy:
(1) through dissemination of private facts about the individual; (2) through
damage caused to our political and social structure through fear of such
dissemination; and (3) through fear of-what can best be termed "irrational
discrimination" on the basis of information normally considered private.
ProtectingPrivacy, supra note 19, at 553-54. For a further discussion of the per-
sonal damage which may result from the disclosure of highly private information
see notes 110-118 & accompanying text infra.
22. See text accompanying notes 12-15 supra, and note 64 infra.
23. See text accompanying notes 95-101 supra.
24. See text accompanying notes 30-58 infra.
25. Fair Credit Reporting Act, 15 U.S.C. §§ 1681-81t (1970) [hereinafter re-
ferred to as FCRA].
26. See text accompanying notes 59-81 infra.
27. See text accompanying notes 95-141 infra.
28. See text accompanying notes 142-260 infra.
THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
control over the office and production rates. The route supervisors
do some investigations themselves, but, for the most part, oversee
the investigators in each of the areas of service that RCC offers its
customers. Finally, the training supervisor is responsible for break-
ing in all new investigators and overseeing them during their train-
ing periods.2
RCC maintains a small room full of the various forms on which
completed credit reports are typed. There are over 200 such forms,
and RCC claims that it continuously revises each one of them ac-
cording to the immediate needs of the client. In addition to these
forms, there is an array of what are called noteforms. These are used
by the investigator while he is "on the street" conducting an investi-
gation and contain a summary of the information required for a
specifie type of report and provide spaces for the appropriate an-
33
swers.
Retail Credit Company is dependent upon a large background
information filing system. All prior investigations are kept on file in
the local office in which they were completed, while copies of files
from other offices are often kept in the field office serving an area
to which an investigatee has moved. One entire wall of the Washing-
ton office is lined with filing cabinets containing approximately
30,000 individual files.3 4 The clerks go to these files every morning
with new cases referred to the District office to determine if there
are any previous reports on the investigatee. According to the
branch manager of the Washington office, it is "company practice"
to have these clerks systematically and continuously go through the
files to insure that every file which has been maintained for thirteen
months or more is destroyed. 5 However, it is doubtful that such
32. The training supervisor also has a caseload of his own to maintain. See
Hearings on Amending the FCRA, supra note 2, at 10 (statement of Mark S.
Brodie).
33. Hearings on S. 2360, supra note 1, at 68 (statement of W. Lee Burge).
34. This figure is based upon an estimate by the authors. The Washington office
filing cabinets number approximately 40, with four drawers per cabinet. The fig-
ures have not been confirmed, but the authors' sources within RCC state that this
estimate is probably quite conservative.
35. Interview with Clint Shaeffer and James Keating, Regional Vice President
and office manager respectively, RCC, at National Democratic Club, Washington,
D.C., February, 1974. The Fair Credit Reporting Act requires that, except for
consumer bankruptcy, which may be reported for 14 years, adverse information
more than seven years old must be destroyed. 15 U.S.C. §§ 1681(c)(a)(1)-(6),
1681k(1) & (2) (1970). See also Note, The Fair CreditReporting Act, 56 MINN. L.
REv. 819 (1972).
THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
A. Investigative Procedures
This analysis follows the typical request by a large corporate un-
derwriter for information from RCC. After an insurance salesperson
explains to the prospective customer the need for insurance, the
various policies and their costs, he or she will ask the prospective
client to sign a standard form contract. Some of those contracts
contain a clause providing that the insured "consents" to an investi-
gation prior to having the insurance issued. 39 Acting on this consent,
42. Some dispute exists concerning the protective and declinable categories.
Messrs. Boaz, Brodie, and Holloway, all former RCC employees, testified that such
categories do exist. The form 930 supports that testimony because it has blanks
for percentages of cases that fall into each category. See Hearings on S. 2360,
supra note 1, at 31-33. This has also been noted by several other commentators.
See, e.g., Foer, The PersonalInformation Market, 2 LOYOLA LAW STUDENTS CON-
SUMER J. 37 (1974), reprinted in Hearings on S. 2360, supra note 1 at 695
[hereinafter cited as Foer]. Mr. Burge argues that while percentages of declinable
and protective reports may exist, RCC does not arbitrarily attempt to fill certain
goals. Hearings on S.2360, supra note 1, at 66-67.
43. Mr. Burge's testimony concerning declinable and protective percentages of
reports appears to be directly contradicted by an RCC publication entitled "Objec-
tives 1970," indicating that RCC does in fact use a quota system. This booklet
compares the local offices' latest figures in each category with the main office's
formulated goals. See Foer, supra note 42.
44. "Declinable" means that the risk is high.enough that the underwriter should
decline to insure or should set the premiums at a very high rate.
19751 COMMERCIAL CREDIT BUREAUS
45. RCC publishes a manual designed to outline the protective and declinable
areas and how to investigate and develop such cases. This manual, entitled "Handy
Guide," details the areas that are considered to be protective or declinable and
what to look for under each category.
46. Hearings on S. 2360, supra note 1, at 158.
47. Id. at 63-64. The credit bureaus refer to this process as the need to develop
432 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
49. In the experience of one of the authors of this comment, many investigatees
became very upset when they learned the nature of the investigation, who was
performing it, and why. See Hearingson Amending the FCRA, supranote 2, at 25.
50. See Foer, supra note 42.
434 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
C. RCC's Response
Throughout the past decade, the credit reporting industry has
been carefully scrutinized. As a result of the many charges that have
been made during that period, RCC has developed a standard re-
sponse. It comes in the form of a summary of the multiple state-
ments that W. Lee Burge, president of the company, has made at
many of the hearings on industry practices.
There is unanimous agreement that business information systems are
a necessary part of a mobile society in which consumers move freely
from place to place. Daily and quickly, business reporting firms are
able to verify and report the integrity and trustworthiness of an over-
whelming majority of consumers. As a result, consumers are readily
extended credit, insurance and offers of employment. We take pride
in performing this service for the customer and the businessman. 5
This is the rationale for the existence of RCC. RCC does realize,
however, that there are serious charges being made about its busi-
ness practices. In fact, it is doubtful that RCC would have expended
the time to appear before the various committees that have probed
industry operations unless it believed that adverse publicity would
lessen profit-producing capabilities. Naturally, the industry is
afraid, and legitimately so, that stringent federal regulations could
emerge from congressional investigatory committees. Burge seems
to believe that the greatest fear of the American consumer is that
RCC and other companies
amass large collections of material containing the most infinite kinds
55. Hearingson S. 2360, supra note 1, at 57 (statement of W. Lee Burge).
1975] COMMERCIAL CREDIT BUREAUS
56. Id. at 57. With regard to the individual's fear of dissemination of personal
facts affecting his privacy see ProtectingPrivacy, supra note 19.
57. Hearings on S. 2360, supra note 1, at 58 (statement of W. Lee Burge).
438 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
people are not upset by the present system. 8 The industry has over-
looked the fact that a majority of those on which adverse reports are
obtained are simply not cognizant of their rights under the FCRA.
That Act could probably have been a more effective piece of legisla-
tion had the American consumer been made more aware of both the
reasons for passage of the bill and the specific contents of the Act
itself.
that all actions for invasion of privacy are effectively barred. 5 The
first is the lack of a requirement that credit bureaus fully disclose
the contents of consumers' credit files to them." The second is the
65. The Act provides that
no consumer may bring any action or proceeding in the nature of. .. inva-
sion of privacy ... with respect to the reporting of information against any
consumer reporting agency. . . except as to false information furnished with
malice or willful intent to injure such consumer.
15 U.S.C. § 1681h(e) (1970).
That this section is clearly a non-remedy is well illustrated by the following pas-
sages from Countryman, supra note 8:
If the subject resorts to an action for invasion of privacy, he confronts the
traditional assertion that the right to privacy proscribes only publicizing
private matters. Even if he persuades a court that the concept has developed
to protect against all offensive intrusions into private affairs, the court may
respond that this right is qualified by the 'legitimate' interest of the user of
the files.
Since the consumer does not have the right to examine his own file or receive
a copy of the information, he is unable to question the completeness of the
disclosure . ...
The current procedure of having a "trained interviewer" read the file does
not sufficiently fulfill the consumer's legitimate and fundamental right to
know. In our view, by any reasonable standard of fairness, the consumer has
a right to know exactly what information is being collected and sold about
him. . . . In a country where privacy is a right and due process is considered
fundamental, the subject of a credit, insurance, or employment investigation
cannot reasonably be expected to protect himself unless he has the capability
to learn who is saying what about him.
Hearingson S. 2360, supra note 1, at 658-60.
1975] COMMERCIAL CREDIT BUREAUS
tions or traits. Since the posting was done without prior notice to the individual
involved and without any opportunity for this individual to be heard before the
fact, the Court held that this statute failed to meet the requirements of procedural
due process.
79. For a discussion of other serious inadequacies in the notice requirements of
the FCRA see Note, The Fair Credit ReportingAct, 56 MINN. L. REv. 819, 829-30
(1972).
80. See Protecting Privacy, supra note 19, at 562-63.
81. Id. at 557-60. For a detailed analysis of five provisions of the FCRA which
are directed primarily at protecting the consumer's privacy see id. at 557-61.
82. See, e.g., Peller v. Retail Credit Co., 359 F. Supp. 1235 (N.D. Ga. 1973);
444 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
tive consumer report on any consumer "for employment purposes for which the
consumer has not specifically applied" and nowhere is one required to disclose to
the consumer the fact that such a report was ever procured. Even under section
1681d(a)(1), which requires the person procuring the investigative consumer report
to disclose to the consumer the fact that such a report "may be made," the risk is
great that the report will have been prepared and disseminated to the person
requesting it long before the consumer is ever informed that the report was made
in the first place. This is so because one who requests a report is given three days
after the request is made to inform the consumer that a report "may be made."
The Chairman of the Federal Trade Commission, Louis A. Engman, has stated:
The user's disclosure . . . that an investigation "may be made" has proved
to be one of the most inadequate of all FCRA provisions.
Hearingson S. 2360, supra note 1, at 661.
110. Sidis v. V-R Publishing Corp., 113 F.2d 806 (2d Cir.), cert. denied, 311 U.S.
711 (1940). This case illustrates well the embarrassment and humiliation suffered
by one about whom the press had published intimate details involving his private
life.
111. According to Professor Allen F. Westin, all animals, including man, need a
kind of testimonial privacy or personal distance in order to maintain proper biologi-
cal and psychological functions. WEs~nN, supra note 83, at 8-10. Jounard suggests
that human beings very often become physically sick because of repression or
concealment of self due to a lack of respite from the social pressures around them.
Journard, Some PsychologicalAspects of Privacy, 31 LAw & CoNTEMP. PROB. 308,
309 (1966). See also Roe v. Wade, 410 U.S. 113, 153 (1973).
112. See Briscoe v. Reader's Digest Ass'n, 4 Cal. 3d 529, 483 P.2d 34, 93 Cal.
Rptr. 866 (1971). In Briscoe the Supreme Court of California held that Reader's
Digest had violated the plaintiff's right to privacy by publishing an article which
disclosed truthful but embarrassing facts about the plaintiff's private life.
The claim is not so much one of total secrecy as it is of the right to define
one's circle of intimacy. . . . Loss of control over which "face" one puts on
may result in literal loss of self identity. . . and is humiliating beneath the
gaze of those whose curiosity treats a human being as an object.
Id. at 37.
452 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
113. 364 U.S. 479 (1960). Mr. Justice Stewart, writing for the Court in Shelton,
stated that
to compel a teacher to disclose his every associational tie is to impair that
teacher's right of free association, a right closely allied to freedom of speech
and a right which, like free speech, lies at the foundation of a free society.
"By limiting the power of the states to interfere with ... freedom of associa-
tion, the Fourteenth Amendment protects all persons, no matter what their
calling."
Id. at 485-86, 487 (emphasis added), quoting Wieman v. Updegraff, 344 U.S. 183,
195 (1952).
114. 357 U.S. 449 (1958).
115. 364 U.S. at 487.
116. 357 U.S. at 460-63.
117. Hearingson FairCreditReporting Before the Subcomm. on FinancialInsti-
tutions of the Senate Comm. on Banking and Currency, 91st Cong., 1st Sess.
176-77 (1969) [hereinafter cited as Hearings on FairCredit Reporting].
118. See WEsTN, supra note 83, at 24-26, 44-49.
119. See Boyd v. United States, 116 U.S. 616, 630 (1886). In Boyd the Court held
that a federal statute authorizing a court in tax cases to require taxpayers to
19751 COMMERCIAL CREDIT BUREAUS
produce private records or concede the government's allegations violated the fourth
and fifth amendments. Mr. Justice Bradley, writing for the majority, stated that
a compulsory production of the private books and papers of the owner of
goods sought to be forfeited in such a suit is compelling him to be a witness
against himself, within the meaning of the Fifth Amendment to the Constitu-
tion; and is the equivalent of a search and seizure, and an unreasonable
search and seizure, within the meaning of the Fourth Amendment .... It
may be that it is the obnoxious thing in its mildest and least repulsive form;
but illegitimate and unconstitutional practices get their first footing in that
way, namely by silent approaches and slight deviations from legal modes of
procedure. This can only be obviated by adhering to the rule that constitu-
tional provisions for the security of person and property should be liberally
construed. A close and liberal construction deprives them of half their effi-
cacy, and leads to gradual depreciation of the right, as if it consisted more
in sound than in substance. It is the duty of courts to be watchful for the
constitutional rights of the citizen, and against any stealthy encroachments
thereon.
Id. at 634-35.
See also Roe v. Wade, 410 U.S. 113, 152 (1973), citing Stanley v. Georgia, 394 U.S.
557, 564 (1969); Terry v. Ohio, 392 U.S. 1, 8-9 (1968); Katz v. United States, 389
U.S. 347, 350 (1967); Griswold v. Connecticut, 381 U.S. 479, 484-85 (1965); Olin-
stead v. United States, 277 U.S. 438, 478 (1928) (Brandeis, J., dissenting); Union
Pacific R.R. v. Botsford, 141 U.S. 250, 251 (1891).
120. See generally Mimum, supra note 11; WESTiN, supra note 83.
121. 116 U.S. at 630.
122. See Beaney, The Right to Privacy and American Law, 31 LAw & CoNTMp.
PnoB. 253, 254 (1966).
123. 328 F. Supp. 718 (D.D.C. 1971), modified, 498 F.2d 1017 (D.C. Cir. 1974).
In Menard, the plaintiff sought to compel the Attorney General and the Director
of the Federal Bureau of Investigation to expunge his "arrest" record from FBI
criminal indentification files. The district court held that where there was probable
cause for the suspect's arrest, it would not order expungement of the arrest record.
However, the court strictly limited disclosure of the arrest record to FBI employees,
federal agencies to which plaintiff applied for employment, and government law
enforcement agencies. Any further disclosure of plaintiff's arrest record, even to
prospective employers who were not federal agencies, would be enjoined. On ap-
peal, the United States Court of Appeals for the District of Columbia Circuit held
454 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
D. PersonalInformation as a ConstitutionallyProtectedProperty
Right
An alternative approach to bringing the right to informational
privacy within the scope of the fourteenth amendment is to consider
personal information a constitutionally protected property right.'25
Courts have traditionally given the personal information in bank
records the status of a "property right" of the depositor and have
protected it accordingly.12 One commentator on credit investiga-
that the FBI could not maintain in its criminal files plaintiff's record when plain-
tiff's encounter with the police was merely a detention and not an arrest. Although
the appeals court did not enjoin the FBI from maintaining the plaintiff's record in
its neutral non-criminal files, it did order the expungement of plaintiff's record
from the FBI's criminal files.
124. 328 F. Supp. at 725-26.
125. If personal information were to be considered a property right pro-
tected as "fundamental" under the due process clause of the fourteenth
amendment, credit and insurance investigators would probably be compelled
to notify the investigatee that an investigation is about to be commenced,
allowing him to state his objections to particular types of inquiries ... and
give him a better chance to correct or at least to note his objections to
particular items contained in the final report.
Credit and the Right to Privacy, supra note 29, at 519.
126. See Zimmerman v. Wilson, 81 F.2d 847 (3d Cir. 1936). In Zimmerman, the
government sought to compel taxpayers' bankers and brokers to submit their
1975] COMMERCIAL CREDIT BUREAUS
tions and privacy ' has presented the interesting observation that
while cases arising under the due process clause of the fourteenth
amendment have not involved the taking of personal information,
it was also once true that courts held the fourth amendment to be
limited to searches and seizures of physical property. At one time,
efforts to extend its protection to non-physical property such as
evidence obtained by wiretapping and eavesdropping, met with fail-
ure.'2 8 In Silverman v. United States,2 ' however, the Supreme Court
extended the protection of the fourth amendment to oral statements
in light of the exteme invasions of privacy made possible by the
growing sophistication of electronic eavesdropping devices. Just as
the expansion of the fourth amendment concept of property was a
reaction to technological advances unforeseen by the drafters of the
Constitution, the steady growth in size and sophistication of compu-
terized credit and insurance investigating bureaus would seem to
1 31
justify a further expansion of property rights.
E. The PreferredApproach
In Roe v. Wade, the Supreme Court decided that the right to
privacy was broad enough to encompass the right to an abortion on
the following grounds:
unreasonably high number of credit reports from each investigator, and the relative
laxity of the regulations imposed by the FCRA. See notes 1-8, 63, 85, 86 & accom-
panying text supra.
135. 430 F.2d 486 (D.C. Cir. 1970).
136. Id. at 490. This observation by Chief Judge Bazelon has special relevance
to section 1681i(b) which ostensibly covers the situation in which items of disputed
accuracy find their way into a consumer's credit file. Section 1681i(b) provides that
in case of dispute over the completeness or accuracy of any item of information
contained in the consumer's file, he or she may file a statement of not more than
one hundred words setting forth the nature of the dispute. The credit reporting
agency then has the option of either including the consumer's statement or a
summary thereof in any subsequent consumer report containing the information
in question. 15 U.S.C. § 1681i(c) (1970). Under these provisions, the injured con-
sumer is accorded wholly inadequate protection against the recording and dissemi-
nation of inaccurate information. Under Sections 1681i(b) and (c) there is no oppor-
tunity for subsequent exoneration, even of the type provided in Menard v. Saxbe.
Furthermore, although section 1681i(a) does provide for the deletion of inaccurate
information from a credit file, it is of little use to the injured consumer since the
decision to delete is entirely within the credit bureau's discretion. One solution to
this problem may be to severely restrict the type of information that may be
gathered in the first place regarding a consumer's credit worthiness, as well as to
permit injured consumers to redress in court their constitutional right to informa-
tional privacy.
137. 328 F. Supp. at 726. The court expressly noted that computerization of
information banks considerably heightens the dangers.
458 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
The detriment that the State would impose upon the pregnant
woman by denying this choice altogether is apparent. Specific and
direct harm medically diagnosable. . . may be involved. . . . Psy-
chological harm may be imminent. Mental and physical health may
be taxed by child care. There is also the distress, for all con-
cerned. . . . In other cases, as in this one, the additional difficulties
and continuing stigma of unwed motherhood may be involved. 3"
Although a denial of employment, credit, or insurance may not, in
most cases, be as vital as a denial of an abortion, a strong argument
can be made that significant disruptions in the proper biological
and psychological functions of an individual may result from the
dissemination of highly personal information and subsequent denial
of the aforementioned benefits.'3 9
While a right to privacy has been recognized in the fourth amend-
ment,"' the more reasonable approach in the context of credit re-
porting and informational privacy is that presented by the Supreme
Court in Roe v. Wade. In view of the fundamental nature of privacy,
and the personal damage that may result if that right is violated by
the practices of credit bureaus, it is clear that the constitutional
right to privacy as established in Roe should be of sufficient scope
to protect the consumer from unwarranted forays into his personal
history by commercial credit bureaus.'
138. 410 U.S. at 153. Mr. Justice Douglas, in his concurring opinion in Roe,
elaborated upon those "certain rights . . . retained by the people" in the ninth
amendment, which include the
rights, amenities, privileges, and immunities that come within the sweep of
"the Blessings of Liberty" mentioned in the preamble to the Constitution.
Id. at 210.
He then went on to delineate those rights that come within the meaning of the term
"liberty" as it is used in the fourteenth amendment:
First is the autonomous control over the development and expression of
one's intellect, interests, tastes, and personality.
Third is the freedom to care for one's health and person, freedom from
bodily restraint or compulsion, freedom to walk, stroll, or loaf.
Id. at 211, 213.
139. See notes 110-18 & accompanying text supra.
140. See notes 105, 107, 126-28 & accompanying text supra.
141. This, of course, presumes that commercial credit bureaus, by virtue of state
action, are subject to the "Fourteenth Amendment's concept of personal liberty
and restrictions upon state action." Roe v. Wade, 410 U.S. 113, 153 (1973). See text
accompanying notes 142-260 infra.
1975] COMMERCIAL CREDIT BUREAUS
the States are prohibited from making or enforcing certain laws, and corrective
legislation necessary for redressing or offsetting the effect of such laws or acts, the
Court held that Congress could only pass corrective and not direct legislation
pursuant to the fourteenth amendment. Mr. Justice Harlan found this interpreta-
tion of the amendment "plainly repugnant to its fifth section." I1. at 54.
147. Id. at 59.
148. Id. at 58-60. In arriving at this inescapable conclusion, Mr. Justice Harlan
stated:
I am of the opinion that such discrimination practised by corporations and
individuals in the exercise of their public or quasi-public functions is a badge
of servitude the imposition of which Congress may prevent under its power
to enforce the Thirteenth Amendment ....
What I affirm is that no State, nor the officers of any State, nor any corpora-
tion or individual wielding power under State authority for the public benefit
or the public convenience, can, consistently either with the freedom estab-
lished by fundamental law, or with that equality of civil rights which now
belongs to every citizen, discriminate against . . . citizens, in those
rights ....
guest policies of Moose Lodge so as to make the latter "state action" within
the ambit of the equal protection clause of the Fourteenth Amendment.
Id. at 177.
160. 387 U.S. 369 (1967). In Reitman, the Court held that article I, section 26 of
the California Constitution, which prohibited the state from abridging the right of
any person to sell, lease, or rent his property in any way he chose, was unconstitu-
tional in that it involved the state in private racial discrimination contrary to the
fourteenth amendment. In analyzing the criteria for determining whether the state
has become sufficiently involved with private discriminations so as to warrant a
finding of state action, Reitman reaffirmed several earlier principles establishing
impermissible state action. For example, the exercise of power by the executive
committee of a political party to prescribe the qualifications of its members for
voting was viewed as an expression of state authority contrary to the fourteenth
amendment. Id. at 379.
Unconstitutional state action was also found where blacks, refused service at a
restaurant, were prosecuted as trespassers. See Robinson v. Florida, 378 U.S. 153
(1964); Peterson v. City of Greenville, 373 U.S. 244 (1963). In neither case was any
proof required that the restaurant owner had actually been influenced by the stat-
utes and regulations in question. Finally, mere statements by local officials to the
effect that the city would not permit blacks to seek desegregated service in restau-
rants were deemed to have sufficient coercive potential to establish state action in
violation of the fourteenth amendment. 378 U.S. at 156-57 (1964).
161. 365 U.S. 715 (1961). In Burton, the Court held that a private restaurant
operated under lease in a state parking garage could not refuse service on racial
grounds. On the basis of an exhaustive analysis of the relationship between the
lessee and the parking authority, the Court concluded that
[b]y its inaction, the Authority, and through it the State, has not only made
itself a party to the refusal of service, but has elected to place its power...
and prestige behind the admitted discrimination. The State has so far insin-
uated itself into a position of interdependence with Eagle [the restaurant
owner] that it must be recognized as a joint participant in the challenged
activity, which, on that account, cannot be considered to have been so
"purely private" as to fall without the scope of the Fourteenth Amendment.
Id. at 725.
162. In Credit Bureau Reports Inc. v. Retail Credit Corp., 476 F.2d 989 (5th Cir.
464 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
1973), the court held that Retail Credit was a monopoly in several major areas of
the credit reporting industry and found numerous violations of the antitrust laws
because Retail Credit had monopolized the insurance reporting market, attempted
to monopolize non-local credit reporting, and acquired local credit bureaus. 476
F.2d at 991.
163. 407 U.S. at 177.
164. Id. at 176, 177.
165. In Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970), Justice Brennan
captured the essence of the state action concept:
The state-action doctrine reflects the profound judgment that denials of
[constitutional rights] . . . are singularly grave when government has or
shares responsibility for them. Government is the social organ to which all
in our society look for the promotion of liberty, justice, fair and equal treat-
ment, and the setting of worthy norms and goals for social conduct. Therefore
something is uniquely amiss in a society where the government, the authori-
tative oracle of community values, involves itself in racial discrimination.
Accordingly, . . . the cases that have come before. . . this Court. . . repre-
sent vigilant fidelity to the constitutional principle that no State shall in any
significant way lend its authority to the sordid business of racial discrimina-
tion.
Id. at 190-91 (Brennan, J., concurring).
In a like fashion, "something is uniquely amiss in a society where the government,"
reaps benefits from an industry regulated by an extensive, complex scheme of
federal and state laws and administrative agencies, where that industry is engaged
in practices which violate a citizen's right to informational privacy.
166. 43 U.S.L.W. 4110 (Dec. 23, 1974).
167. Id. at 4111. For the text of 42 U.S.C. § 1983 (1970) see note 242 infra. See
also note 243 infra.
168. 43 U.S.L.W. at 4114.
1975] COMMERCIAL CREDIT BUREAUS
Id at 1256.
The court held that "government involvement" brought the actions of the private
landlord within the "ambit of 'state action.'" Id. at 1258.
Inasmuch as the case at bar. . . involved state approval for the purpose
of receiving rent subsidies, and the defendants . . . are also attempting to
use state eviction procedures, this court concludes that there is "state action"
The Bill of Rights and the Fourteenth and Fifteenth Amendments would
thus have direct application to and also throughout any corporation whose
position gave it power. The preconditions of application are two: the undenia-
1975] COMMERCIAL CREDIT BUREAUS
for the Second Circuit remanded the case and held that a finding
of state action would be appropriate if the defendant foundations
were substantially dependent on their tax exempt status. In arriving
at this conclusion, the court relied on three grounds: 1) the federal
and state regulatory scheme under which the charitable foundations
operated was both detailed and intrusive; 2) it carried connotations
of governmental approval; and 3) the foundations were performing
a public function. The court further observed that
even if one of these factors is absent, a finding of "state action" may
still be appropriate.""
Addressing the nature of the constitutional treatment which should
be given to the appellant's challenges based on the federal and state
exemptions, 85 Judge Smith, writing for the majority, stated:
Since the two exemptions are clearly linked in practice . and in
purpose and since the evil against which the Fifth and the Fourteenth
Amendments were set was governmental fostering of racial discrimi-
nation and not merely state or merely federal action, similar treat-
ment for constitutionalpurposes seems proper.8
C. The Relationship Between Commerical Credit Bureaus and
Federal Agencies
In an effort to learn more about the relationship between credit
bureaus and the federal government, one of the authors sent letters
of inquiry to the heads of various federal agencies"'7 requesting that
they describe the nature of the relationship that exists between their
agency and the commercial credit bureaus regulated by the
FCRA.18 The results may be summarized as follows.
184. 496 F.2d at 634.
185. The federal scheme regulating tax exempt organizations under the income
tax laws is one of the broadest in the Internal Revenue Code and Regulations
promulgated pursuant thereto. See INT. Rsv. CODE OF 1954, § 501-03, 507-09,
511-14; Treas. Reg. §§ 1.501(a)-i to .522-4, 143.3 & .6 (current regulations).
186. 496 F.2d at 635 (emphasis added).
187. The federal agencies contacted included the Export-Import Bank of Wash-
ington, the Farm Credit Administration, the Federal Deposit Insurance Corpora.
tion, the Federal Home Loan Bank Board, the Department of Health, Education
and Welfare (Public Health Service), the Department of State (Agency for Interna-
tional Development), and the Veterans Administration. These agencies were se-
lected because a nexus between them and commercial credit bureaus was indicated
in an article by Robert M. McNamara, Jr., The Fair Credit Reporting Act: A
Legislative Overview, 22 J. PuB. LAW 67, 86 (1973).
188. The letters of inquiry sent to each agency and the responses thereto are on
file in the office of the American University Law Review.
19751 COMMERCIAL CREDIT BUREAUS
189. Letter from the Federal Home Loan Bank Board to Richard H. Goldstein,
March 27, 1974.
190. Whether credit bureaus are at all competent to provide this sort of informa-
tion has been severely questioned. See note 11 supra.
191. Letter from the Veterans Administration to Richard H. Goldstein, April 17,
1974.
192. Letter from the Department of Health, Education and Welfare to Richard
H. Goldstein, March 12, 1974 (emphasis added).
472 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
193. Letter from the Department of Housing and Urban Development to Richard
H. Goldstein, March 27, 1974.
194. Letter from the Federal Deposit Insurance Corporation to Richard H. Gold-
stein, March 8, 1974.
195. 15 U.S.C. § 1681s (1970) provides:
The Federal Trade Commission shall have such procedural, investigative,
and enforcement powers, including the power to issue procedural rules in
enforcing compliance with the requirements imposed under the subchapter
These investigative and rule making powers become especially relevant in deter-
mining whether governmental action exists pursuant to the fifth amendment in
light of the principles established by the Supreme Court in Public Utilities
Comm'n v. Pollak, 343 U.S. 451 (1952). See text accompanying notes 234-39 infra.
196. See McNamara, supra note 84, at 86-87; Hearings on Commercial Credit
1975] COMMERCIAL CREDIT BUREAUS
that the Transit Company operated its services under the regulatory supervision
of a federal agency to which Congress had delegated investigatory powers. Id. This
closely parallels the investigatory authority conferred on the FTC by Congress in
the FCRA.
In Jackson v. Statler Foundation, 496 F.2d 623 (2d Cir.), cert. denied, 411 U.S.
932 (1974), the court held that if the the charitable foundations which had been
accused of racial discrimination were substantially dependent on their tax-exempt
status, then in view of the detailed regulatory scheme under which they operated,
a finding of state action may be appropriate. One factor on which the court relied
in making this finding was the requirement imposed on private charitable founda-
tions that they file an annual information return with the Internal Revenue Service.
496 F.2d at 630. In addition, the IRS "assured Congress that it is closely scrutiniz-
ing the activities of private foundations." Id. at 630. In a similar fashion, section
1681s(a) of the FCRA empowers the FTC "to require the filing of reports," and "the
production of documents" by commercial credit bureaus. That the FTC is closely
scrutinizing the activities of "private" credit bureaus is clearly established by the
12-page complaint issued by the FTC on February 21, 1974, against Retail Credit
Company. Retail Credit Co., No. 8954 (F.T.C., Feb. 21, 1974).
A pervasive scheme of state involvement in the operations of commercial credit
bureaus is apparent in statutes regulating this industry in California, Connecticut,
and New York. See CAL. Civ. CODE ANN. §§ 1785.1-.8 (West Supp. 1974); CONN.
GEN. STAT. §§ 36-431-35 (Supp. 1974-75); N.Y. GEN. Bus. LAW §§ 370-76
(McKinney Supp. 1974). The purpose of the New York statute is
to enable persons to protect themselves against the dissemination of inaccu-
rate information bearing on their credit worthiness and against unwarranted
invasions of their privacy.
N.Y. GEN. Bus. LAW § 370 (McKinney Supp. 1974).
In order to effectuate this purpose, the New York legislature has fashioned a broad
regulatory scheme which includes both civil and criminal penalties. N.Y. GEN. Bus.
LAW § 376 (McKinney Supp. 1974). In addition, it has delegated to the "banking
board" broad supervisory power to ensure compliance with the act. N.Y. GEN. Bus.
LAW § 375 (McKinney Supp. 1974).
The banking board may prescribe such regulations as it shall deem neces-
sary or proper to carry out the purpose of this article and may establish an
advisory committee . . . in connection therewith.
Id.
Similarly, the Connecticut state legislature, in passing the Consumer Credit
Reports Act, delegated to the bank commissioner the authority to "make such
regulations as may be necessary to carry out the the provisions" of this act. CONN.
GEN. STAT. § 36-434 (Supp. 1974-75). For the powers delegated to the Bank Com-
mission see id. §§ 36-10-22 (1969), as amended, Id. §§ 36-11, -12a, -15a (Supp.
1974-75).
The regulatory schemes expressed in the aforementioned state statutes are en-
forced not only by state regulatory agencies but also by the state's power to suspend
or revoke the corporate charter. The pervasiveness of these schemes, as well as the
broad powers delegated to state agencies to ensure compliance with the statutes,
are strong indicators that the state regards the credit reporting industry to be of
significant public importance.
1975] COMMERCIAL CREDIT BUREAUS
221. Evans v. Newton, 382 U.S. 296, 299 (1966) (where park had a tradition of
municipal control and maintenance, and services rendered by the park were
municipal in nature, the park was subject to the equal protection requirements of
the fourteenth amendment).
222. Id.
223. Marsh v. Alabama, 326 U.S. 501, 509 (1946).
224. Terry v. Adams, 345 U.S. 461 (1953) (deprivation of petitioner's right to
vote by a private, white political association in combination with the Democratic
Party violated the fifteenth amendment).
225. 365 U.S. 715 (1961).
226. Id. at 722.
227. Id. at 725.
228. In terms of governmental regulation of the credit reporting industry by
482 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 24:421
agencies created by Congress [see 15 U.S.C. § 1681s(b) (1970)], this factor should
be relevant not only to establish governmental action for purposes of the fifth
amendment, as well as under a broad reading of the fourteenth amendment, but
also to determine whether credit bureaus have achieved the status of "federal
agents" necessary for liability under Bivens. See notes 175-76 & accompanying
text supra.
229. 343 U.S. 451 (1952).
230. The agency in question was the Public Utilities Commission of the District
of Columbia. In discussing the governmental nature of this agency, Mr. Justice
Burton, writing for the Court, observed:
"[W]hen authority derives in part from Government's thumb on the
scales, the exercise of that power by private persons becomes closely akin, in
some respects, to its exercise by Government itself."
Id. at 462 n.8, quoting American Communications Ass'n v. Douds, 339 U.S. 392,
401 (1950).
231. 343 U.S. at 462.
232. According to the National Commission on Consumer Finance,
in the long run, the credit reporting industry has the ingredients of a public
utility. . . . Although the development of credit reporting agencies as public
utilities is not imminent, the Commission recommends that studies be un-
dertaken now to consider the eventual Federal charteringand regulationof
credit reportingagencies, both to assure the accuracy and confidentiality of
their credit information and to achieve open and economical access to their
data.
19751 COMMERCIAL CREDIT BUREAUS
eral Courts, and that without any limit whatsoever as to the amount
in controversy. The deprivation may be of the slightest conceivable
character, the damages in the estimation of any sensible man may
not be five dollars or five cents; they may be what lawyers call merely
nominal damages; and yet by this section jurisdiction of that civil
action is given to the Federal Courts instead of being prosecuted as
4
now in the courts of the States.27
After its examination of the legislative history underlying the Act,
the Supreme Court stated that
it is abundantly clear that one reason the legislation was passed was
to afford a federal right in federal courts because, by reason of preju-
dice, passion, neglect, intolerance or otherwise, state laws might not
be enforced and the claims of citizens to the enjoyment of rights,
privileges, and immunities guaranteed by the Fourteenth Amend-
ment might be denied by the state agencies. 248
The Monroe Court went on to consider the meaning of the phrase
"under color of" state law as used in the Act.2 41 The Court
reaf-
firmed the meaning given to this phrase by Mr. Justice (later Chief
Justice) Stone in United States v. Classic:
"Misuse of power, possessed by virtue of state law and made possi-
ble only because the wrongdoer is clothed with the authority of state
law, is action taken 'under color of state law." 5 '
To illustrate the application of section 1983 to commercial credit
bureaus, reference may be made to the New York Credit Data Re-
porting Act,?" under which commercial credit bureaus conducting
business in New York are regulated. The purpose of this Act is
to enable persons to protect themselves against the dissemination of
inaccurate information bearing on their credit worthiness and against
22
unwarranted invasions of their privacy.1
As already indicated, this purpose expresses a central theme of the
individual's constitutional right to informational privacy. Assuming
CONCLUSION
That commercial credit bureaus indulge in conduct which in-
trudes into an individual's privacy has been clearly demonstrated. 59
The existence of unreasonably high production goals, quotas for
adverse information, and the use of indirect methods of investiga-
tion involving subterfuge all contribute to this result. Common law
remedies have been unsuccessful in protecting the individual's right
to privacy because a qualified privilege has been accorded to credit
bureaus. Legislative attempts to control the conduct of the credit
reporting industry and to guarantee the individual's right to privacy
have also met with little success. This is not surprising in view of
the fact that the Fair Credit Reporting Act contains no real limita-
tion on the kinds of information which credit bureaus may gather,
store, and disseminate. The Act's inadequacy is further com-
pounded by the burden it places on the consumer to establish a
violation of the right to privacy, as well as its failure to provide the
consumer with a right to obtain full disclosure of all information
contained in his or her file.
The situation which exists in the credit reporting industry is indi-
cative of the
increasing complexity of our society and technological advances
which facilitate massive accumulation and ready regurgitation of far-
flung data. . . . These developments emphasize a pressing need to
preserve and to redefine aspects of the right to privacy to insure the
basic freedoms guaranteed by this democracy. 8 '
In order to provide individuals with an alternative means to protect
their right to privacy and to suggest possible foundations upon
which more adequate legislation may be drafted, this comment has
sought to illustrate the constitutional basis of the right to informa-
tional privacy in the context of credit reporting and to propose alter-
259. See notes 30-58 accompanying text, supra, regarding the practices and
procedures of Retail Credit Corporation. See also Peller v. Retail Credit Corp., 359
F. Supp. 235 (N.D. Ga. 1973); Wilson v. Retail Credit Corp., 325 F. Supp. 460 (S.D.
Miss. 1971), aff'd, 457 F.2d 1406 (4th Cir. 1972); Peacock v. Retail Credit Corp.,
302 F. Supp. 418 (N.D. Ga. 1969), aff'd, 429 F.2d 31 (5th Cir. 1970).
260. Menard v. Mitchell, 328 F. Supp. 718, 725 (D.D.C. 1971), modified, 498
F.2d 1017 (D.C.Cir. 1974).
1975] COMMERCIAL CREDIT BUREAUS 489