Under the Fair Credit Reporting Act (FCRA) there are only two circumstances under which a consumer’s credit profile may be accessed without his permission. They are:

1. The making of a firm offer of insurance
2. The making of a firm offer of credit

For our purposes, we shall address the firm offer of credit. While the amount of a firm offer is not specifically mandated, a firm offer is defined in the FCRA as:

“any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer.” 15 U.S.C. § 1681a(l). The statute provides that the offer may be conditioned on three specific requirements. First, the creditor may apply additional pre-selected criteria bearing on the consumer’s creditworthiness. See § 1681a(l)(1). Second, the firm offer may be conditioned on verification “that the consumer continues to meet the specific criteria used to select the consumer for the offer.” § 1681a(l)(2). Finally, the offer may be conditioned on the consumer’s furnishing any collateral that was both established before the selection of the consumer for the offer and disclosed to the consumer in the offer. See § 1681a(l)(3).

This definition was more narrowly defined as a result of a precedent setting decision in the case of Cole v. US Capital, Inc., et al, Seventh Circuit, Northern district of Illinois. In December 2001, Illinois resident Oneta Cole received an unsolicited advertisement through the mail from Jerry Gleason Chevrolet, an Auto Nation dealership in Forest Park, Illinois. The mailer offered her an auto loan of up to $19,500 if she would buy a car from the dealership. The fine print disclaimer at the bottom stated that she was guaranteed to receive a minimum credit line of $300 to be used only for the purchase of a vehicle.

Cole alleged that the offer was a “sham” and that it was , in fact, a pretext to obtain her credit report for the purposes of attempting to sell her a car which is not a permissible purpose under the FCRA and that the defendant was therefore in violation of the FCRA. She further alleged that the ad did not provide the required disclosures in a clear and conspicuous manner. While the judge originally granted the defendants motion to dismiss, an amicus brief filed by the FTC by invitation of the Court of appeals, advised that the decision should be overturned since, if the offer was a sham, it did violate the FCRA and Cole should be given the opportunity to prove that it was a sham, which she had been pre-empted from doing by the dismissal.

In the end, the case was heard and the court held that the offer was in fact, a sham, that the offer of so nominal an amount of credit effectively defeats the protective purpose of the statutes. The following is quoted from the decision:

We believe that the reading of “firm offer of credit” suggested by the defendants, and accepted by the district court, eviscerates the explicit statutory purpose of protecting consumer data and privacy. See 15 U.S.C. § 1681(a)(4). Indeed, such a definition would permit anyone to gain access to a sea of sensitive consumer information simply by offering some nominal amount of guaranteed credit. The statutory scheme of the FCRA makes clear that a “firm offer” must have sufficient value for the consumer to justify the absence of the statutory protection of his privacy. A definition of “firm offer of credit” that does not incorporate the concept of value to the consumer upsets the balance Congress carefully struck between a consumer’s interest in privacy and the benefit of a firm offer of credit for all those chosen through the pre-screening process. From the consumer’s perspective, an offer of credit without value is the equivalent of an advertisement or solicitation. It is clear that Congress did not intend to allow access to consumer credit information “for catalogs and sales pitches.”

What arose from Cole was a new and expanded definition of a firm offer of credit which must be considered to have value to the recipient of the offer, as a whole. Cole also held that the disclosures were not clear and conspicuous but that issue is no longer germane since the Fair and Accurate Credit Transaction Act (FACTA) effective August 1, 2005, clearly set the standards for disclosure right down the type size and placement.

Subsequent to this huge victory, the firm which brought the suit - Edelman, Combs, Latturner, & Goodwin, Chicago, IL, (ECL&G) then embarked on a campaign of similar class action lawsuits against any entity which sent a solicitation in the state of IL which was based on a credit scored pre-screened list. They solicited consumers to bring forth any mail solicitation they received from a car dealership, credit card company, mortgage company and/or finance company. They were by far, the most prolific law firm in the nation in this regard filing upwards of 200 lawsuits alleging violations of the FCRA. Interestingly, the vast majority of those suits were settled so that these lawsuits became known in the industry as “FCRA shakedown suits”. Since the statutes only provided for a cap of $1000 per violation, only a class action would make such a suit lucrative for the lawyers. Considering that some mail campaigns went to over 50,000 recipients or more, the potential cost on the losing end of a class action suit could be enormous. Naturally, most defendants were anxious to settle. The amount of the settlement was usually directly related to the depth of their pockets as determined by ECL&G.

The next case which had a major effect on our marketplace was Kudlicki v. Farragut Finance Co. Inc. In Farragut, it was undisputed that the mailer provided no specific details relating to the amount of credit or the repayment term, and described interest rates only as being "as low as 5.5% APR."

The Plaintiff argued that the defendant's offer could not be a "firm offer" because the mailer stated that rates and terms are subject to change at any time. This statement is part of a line in the mailer, in bold-face type, that states:

"**All loans subject to approval. Only funded loans will qualify for any cash back promotion. Rates and terms subject to change at any time."

The court concluded that the statement in the mailer that rates and terms are subject to change at any time precludes defendant's offer from being a "firm offer of credit." Therefore, what the judge called the “four corners” of a firm offer of credit must be present. They are:

1. Amount to Finance
2. Interest Rate
3. Term
4. Method of calculating payments

Due to the nature of offers of credit and their dependence on factors not determinable from credit records (i.e. income, debt to income ratios, etc.) a range of the first three is acceptable. However, all four elements must be present.

The lesson learned from this case was that specific language matters in ensuring not only that the verbiage used to make a firm offer of credit actually does so, but that no other extant language conflicts with it. For example, you can offer an auto loan for $25,000 at a rate of 11.99% APR for term of 72 months with payments calculated by simple interest, but if in a disclaimer you state that interest rates and terms are subject to change, then the offer is no longer “firm” by any definition.