Fernandez v. Retail Credit Company

• Decision Date: 13 September 1972
• Docket Number: Civ. A. No. 71-2958.
• Citation: 349 F. Supp. 652
• Parties: Julien E. FERNANDEZ, Plaintiff, v. RETAIL CREDIT COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Louisiana

349 F. Supp. 652

Julien E. FERNANDEZ, Plaintiff, v. RETAIL CREDIT COMPANY, Defendant.

Civ. A. No. 71-2958.

United States District Court, E. D. Louisiana.

September 13, 1972.

Harold J. Rhodes, Berwick, La., for plaintiff.

J. Barnwell Phelps, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for defendant.

ALVIN B. RUBIN, District Judge:

This case raised the issue whether a report on a key man insurance policy issued in connection with a corporation's application for insurance on its president is within the scope of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. Fernandez' claim against Retail Credit invokes the Act. The defendant seeks dismissal of the complaint for want of jurisdiction, and summary judgment with respect to claims under the Act. Since the motion for summary judgment is well founded, and there is otherwise no jurisdiction, both the motions must be granted with respect to the principal relief sought.

American Towing Corporation, of which Fernandez was President, sought a $500,000 loan from Citizens National Bank. The bank required insurance on Fernandez' life as a condition of the loan. An application for insurance was filed with Life Insurance Company of North America (INA) naming American Towing Corporation as the owner and beneficiary of the policy. The premium was paid by that corporation, which pledged it to the Bank as collateral for its loan. Fernandez asserts that he was collaterally motivated to obtain the insurance in order "to protect his estate" from liability on debts of the corporation and that his family would benefit if the insurance proceeds exceeded the debt. However the only beneficiary named in the policy is the corporation. No alternate or successor or co-beneficiary is designated. Thus, the entire face value of the policy would be paid to American Towing Company upon Fernandez' death regardless of the amount of the loan still outstanding.¹

The Fair Credit Reporting Act, 15 U. S.C. § 1681, was aimed at problems in connection with consumer reporting agencies. Among its purposes were "to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy" and "to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for . . . information in a manner which is fair and equitable to the consumer . . . ." 15 U.S.C. § 1681. It limits the circumstances under which a "consumer report" may be furnished by a consumer reporting agency. Id. at § 1681b. It creates civil liability only for negligence "in failing to comply with any requirement imposed under this subchapter with respect to any consumer . . . ." Id. at § 1681o. The requirements of the subchapter relate only to consumer reports and consumer reporting agencies.

The Act defines the term "consumer report" as "any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (1) credit or insurance to be used primarily for personal, family, or household purposes, or (2) employment purposes, or (3) other purposes authorized under section 1681b of this title." (Emphasis supplied.)

It thus appears clear that a report to be used to establish eligibility for insurance to be used primarily, not for personal, family or household purposes, but for business purposes is not a consumer report.

The Senate Committee Report states that, in addition to the purposes already recited, the act is designed "to give consumers a chance to correct inaccurate information in their credit file; to preserve the confidentiality of such information; and to prevent undue invasions of the individual's right to privacy." Congressional Record-Senate, October 9, 1970, S 1763, p. 21263.

The debate on the House floor makes it clear that reports in connection with business insurance were intentionally excluded. Thus, Mrs. Sullivan, in advocating passage of the Act, said:

Insofar as reports of a business nature are concerned, this point was raised continually in our hearings on H.R. 16340 in the Subcommittee on Consumer Affairs, and I think we always made clear that we were not interested in extending this law to credit reports for business credit or business insurance. The conference bill spells this out, furthermore in section 603(d), which defines a "consumer report" as a report, and so on, "which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (1) credit or insurance to be used primarily for personal, family, or household purposes" and so forth. Congressional Record-House, Oct. 13, 1970, H 10052, H 10053.

This is consistent with the statement of purposes for which a "consumer reporting agency" may furnish a "consumer report." 15 U.S.C. § 1681b. Section 1681a(d) extends the definition of "consumer report" to "(3) other purposes authorized under section 1681b of this title." Omitting the parts of that section not relevant here, it permits a report to be furnished:

"(3) To a person which it has reason to believe—

* * * * * *

(C) intends to use the information in connection with the underwriting of insurance involving the consumer; or

(E) otherwise has a legitimate business need for the information in connection with a business transaction involving the consumer." Id.

Interpreting subpart (C) to include all life insurance, regardless of owner or beneficiary, would render meaningless the intentional limitation of "insurance to be used primarily for personal, family, or household purposes." § 1681a(d) (1). It cannot be supposed...