On February 7, 2012, the U.S. Federal Trade Commission (FTC) announced that it had warned marketers of six mobile applications that they may be violating the U.S. Fair Credit Reporting Act. The FTC stated that the mobile applications provide background screening reports on individuals. Although the FTC reached no conclusion regarding whether there was any violation by the marketers, the FTC requested that the marketers review the application of and their compliance with the Fair Credit Reporting Act.
The U.S. Fair Credit Reporting Act regulates the activities of consumer reporting agencies. A “consumer reporting agency” is one that regularly assembles or evaluates information about a person’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living and reports that information to third parties for the purpose of establishing the consumer’s eligibility for (1) credit or insurance to be used primarily for personal, family, or household purposes or (2) employment purposes.
The FTC warned the marketers that they must comply with the Fair Credit Reporting Act if they have reason to believe the information provided through the apps is being used for employment, housing, credit or similar purposes. For example, the Fair Credit Reporting Act imposes obligations on credit reporting agencies with respect to ensuring the accuracy of information, providing mechanisms for consumer redress, and, in some circumstances, requiring consumer reporting agencies to notify users of consumer reports of their obligations under the Fair Credit Reporting Act. The FTC stated that a warning by the marketer that the app was not to be used for the purposes regulated by the Fair Credit Reporting Act did not protect the marketers if the marketers had reason to believe the apps were being used in decisions by third parties with respect to employment, housing, credit or similar purposes.
Developers and marketers of similar applications in Canada should be aware that Canadian provinces have similar laws regulating consumer reporting. For example, in Ontario, the Consumer Reporting Act regulates persons or organizations that provide reports to third parties for use in relation to, among other things, (1) credit granting or debt collection, (2) entering into or a renewal of a tenancy agreement, (3) employment decisions, and (4) underwriting of insurance.
Among other things, consumer reporting agencies in Ontario (1) must be registered, (2) must follow prescribed practices with respect to the information that may be contained in a report, (3) must provide consumers with access to their consumer report, and (4) must have a process for the consumer to contest inaccurate information.
Failure to comply with the Consumer Reporting Act (Ontario) may result in a fine of not more than Cdn. $25,000 or to imprisonment for a term of not more than one year, or to both. Accordingly, developers and marketers of background checking or screening apps in Canada may wish to obtain legal advice to ensure that they remain compliant with respect to Canadian provincial laws governing consumer reporting.