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Settlement Reached Over Sale of Distressed Borrower Data

Pre-screened lists resold to firms generating leads for modifications

March 15, 2013

By Mortgage Daily staff

One of the three major credit bureaus has agreed to a settlement over charges it sold data on borrowers who were past due on their home loans. Some of the data was used to generate leads for loan modifications.

Section 604 of the Fair Credit Reporting Act, 15 U.S.C. § 1681b, prohibits consumer reporting agencies from furnishing consumer reports to anybody other than those they have reason to believe have a specified "permissible purpose."

In the case of pre-screened lists, the only permissible purpose is to make a "firm offer of credit or insurance." The bureaus are required to make a reasonable effort to verify the identity of each new prospective user of consumer report information and how the reports will be used before providing the reports.

But Equifax Information Services LLC sold pre-screened lists from 2008 until 2010 that included information on millions of consumers to Direct Lending Source Inc. and affiliates Bailey & Associates Advertising Inc. and Virtual Lending Source LLC, according to the Federal Trade Commission.

The lists reportedly included credit scores as well as information about whether the borrowers were 30, 60 or 90 days delinquent on their mortgages.

"In many instances, Direct Lending did not have a permissible purpose to obtain consumer reports under the FCRA but rather, Direct Lending used and sold these lists for the purpose of marketing products and services to consumers in financial distress," the FTC said.

Direct Lending allegedly sold the list to marketers that were generating leads for loan modifications, debt relief, and foreclosure relief services.

The FTC claims that Equifax did not maintain reasonable procedures to limit the furnishing of the pre-screened lists sold to Direct Lending.

Equifax failed to fully and quickly investigate when, on certain occasions, it learned that Direct Lending was violating Equifax's internal policies relating to pre-screening, the FTC aid in a complaint. In addition, Equifax allegedly knew, or should have known, that on multiple occasions Direct Lending resold the pre-screened lists without identifying the end user to Equifax.

Equifax is also accused of violating the Federal Trade Commission Act.

A $392,803 settlement with Equifax was approved by the FTC, according to an announcement Friday. The amount represents all of Equifax's gross revenues from the list sales.

The order prohibits Equifax from making similar sales again without taking the steps needed to determine whether the list buyers meet the FCRA requirements. The company is also prohibited from selling prescreened lists in connection with offers for debt relief products or services and mortgage assistance relief products and services when advance fees are charged.

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