Top Court May Set Clock On Id Fraud

Title:
Top Court May Set Clock on ID Fraud Lawsuits. (cover story)
Subject(s):
CREDIT bureaus -- United States; FINANCIAL institutions -- United States; EXPERIAN
Information Solutions Inc.
Source:
American Banker, 03/28/2001, Vol. 166 Issue 60, p1, 2p
A case the Supreme Court accepted this month will help to determine how vulnerable credit reporting agencies
and financial institutions are to identity-theft lawsuits.

The issue that the Supreme Court agreed on March 5 to hear in its upcoming session, which starts in October,
concerns neither the bureaus' disclosure policies nor the accuracy of their record keeping, but the length of time
that consumers have to sue for alleged Fair Credit Reporting Act violations. Under the law, which was passed in
1970, people can sue the bureaus for up to two years, but the matter of when the clock starts ticking is in
dispute.

None of the major bureaus are party to the Supreme Court case, which involves a consumer's complaint against
TRW Inc., which sold its credit reporting business to Experian Information Solutions Inc. in 1996. But the high
court's ruling will affect all the companies, plus the credit card issuers and banks that often get blamed by victims
of identity fraud.

For the industry, a decision in favor of the credit bureaus could shut the door on many consumer lawsuits. For
the plaintiff, a victory would mean a return to district court, where if she is successful a jury would determine the
amount of damages owed to her by TRW. Lawyers involved say that in similar suits, juries have awarded
damages of over $1 million.

In recent years credit bureaus have been held liable for damages suffered as a result of identity theft when
information they supplied abetted the imposters. Victims left with ravaged credit histories have filed suits
accusing the bureaus of violating the Fair Credit Reporting Act, arguing that the fraud took place because of the
bureaus' loose standards for disclosure of credit reports and inadequate procedures to ensure the reports'
accuracy.

The law stipulates a two-year statute of limitations from the time that "liability arises," but it is unclear whether
this period begins when fraud occurs or when the victim discovers that fraud has occurred.

In the TRW case, an appeals court upheld that the two-year period began after the victim discovered the theft.
But the credit bureaus -- which say that people should monitor their reports regularly to check for inaccuracies
-- argue that the period began as soon as erroneous information was published in the plaintiff's credit report as a
result of fraudulent activity.

TRW and Experian declined to comment on the case. It is unclear whether they would share liability if a ruling
against them is made, since the companies have not disclosed whether Experian assumed all liability when it
bought TRW's credit reporting business. Experian, Trans Union LLC, Equifax Inc., and the Associated Credit
Bureaus Inc. have jointly filed a friend-of-the-court brief for TRW.

Counsel for the plaintiff, California resident Adelaide Andrews, will argue before the high court that TRW's
interpretation of the statute of limitations -- which would invalidate her suit against the company -- is unfair, since
it often takes longer than two years to discover that a credit record has been tampered with.

 

Ms. Andrews says that during 1994 and 1995, TRW disclosed her credit report when an impostor used her
Social Security number -- plus a misspelled name, a different address, and an inaccurate date of birth --to open
several accounts. The impostor, who turned out to be the receptionist at her doctor's office, continued to apply
for credit under Ms. Andrews' name for almost two years, she said.

Ms. Andrews discovered the fraud in May 1995, when she experienced surprising difficulties trying to refinance
her mortgage, and she filed suit in October 1996 -- more than two years after the first credit report had been
released for an application made by the impostor.

By the time the suit was filed in U.S. District Court for the Central District of California, TRW was getting out of
credit reporting to focus on its aerospace and automotive businesses. Ms. Andrews sued TRW and Trans
Union LLC, which had also given out her report.

Before trial, Trans Union settled with Ms. Andrews for an amount that has not been disclosed. According to an
attorney for Ms. Andrews, Equifax is not a defendant because it never released her credit report and never
entered fraudulent transactions on it.

The California district court ruled in favor of TRW and agreed that the discovery rule does not apply generally
to the Fair Credit Reporting Act (except where Congress stipulated a particular scenario, which is not relevant
to the Andrews case). The court affirmed that the statute begins when fraud occurs, not when it is discovered,
and that Ms. Andrews had missed the two-year cutoff.

But Ms. Andrews appealed, and the Ninth Circuit Court of Appeals reversed the district court's decision,
reaffirmed the discovery rule in the law, and dictated that the statute of limitations does not expire until two years
after the incident is discovered.

The Supreme Court's decision to take up the case, which it will review within one year, is "a little bit like a bolt
out of the blue," said the attorney for Ms. Andrews, Andrew Henderson of the Los Angeles firm of Hall &
Henderson LLP. "It's always surprising because, you know, they only grant about 80 out of 8,000 petitions a
year."

David Medine, a former associate director for the Federal Trade Commission and who is now a partner at the
Washington law firm of Hogan & Hartson, said the issue of the statute of limitations is an unusual one for the
court to hear. "It is a little surprising, because this certainly has not been the major focus of concern under the
Fair Credit Reporting Act," he said. "It may be that the issue has much broader ramifications."

Gerald Sauer, a lawyer with the Los Angeles firm of Sauer & Wagner LLP and co-counsel for Ms. Andrews,
said that as long as a consumer is not being rejected for credit offers, he or she has no reason to seek out a
credit report, and consequently would have no idea if fraud had occurred.

If "time starts to run the minute TRW publishes something negative on the credit report," the statue of limitations
can expire before the victim is finally denied credit based on the false information that the victim never knew was
on the report in the first place, he said.

"Is it fair that maybe these events occur unbeknownst to you, and by the time you discover it, the statute is run?"
Mr. Sauer asked.

Don Girard, a spokesman for Experian, said the company was pleased that the Supreme Court has chosen to
clarify the legal issues, which he said stand apart from the menace of identity theft.

"None of us are immune from identity theft, but it's the bad guys who are doing it," he said. "The best defense is
to get a copy of your credit report every year, which is what we've been saying."

Mr. Girard also emphasized the availability of credit reports online (for $8.50) and an upcoming product called
Credit Manager, which will alert consumers to new entries made to their reports. Victims of identity theft are
already entitled to free credit reports from the three bureaus, he said.

Mr. Medine called the bureaus "very slow in coming to the table." As warehouses of so much sensitive
information, the bureaus hold a unique position in the area of identity theft, he said. Mr. Medine said that during
his tenure at the FTC, he approached the bureaus about flagging credit files in which fraud was suspected, in
order to put creditors on their guard. "That was three, four, maybe five years ago," he said. Such a service was
only recently introduced.

Ken McEldowney, executive director of Consumer Action, a nonprofit organization in San Francisco, said the
bureaus could solve the problem by giving reports away for free, but that that is unlikely to happen. "The
bureaus have put profits far ahead of consumers' privacy concerns and fears of identity theft," he said.

Statue of Limitations

At issue is whether a fraud victim has two years from the crime or its discovery in which to sue

'93

June TRW gives Adelaide Andrews' credit record to an imposter

'95

May Ms. Andrews discovers the fraud

'96

Oct. Ms. Andrews files suit against TRW in California district court

'98

May District court rules for TRW; Ms. Andrews appeals

'00

July Appeals court rules for Ms. Andrews

Dec. TRW appeals to Supreme Court

'01

March Supreme Court agrees to hear case

~~~~~~~~

By W.A. Lee vits Rob Garver

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Source: American Banker, 03/28/2001, Vol. 166 Issue 60, p1, 2p.
Item Number: 4263601