Trans Un Corp v. FTC

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 6, 2001 Decided April 13, 2001

No. 00-1141

Trans Union Corporation,

Petitioner

v.

Federal Trade Commission,

Respondent

On Petition for Review of an Order of the

Federal Trade Commission

Roger L. Longtin argued the cause for petitioner. With him

on the brief was Stephen L. Agin.

Lawrence DeMille-Wagman, Attorney, Federal Trade

Commission, argued the cause for respondent. With him on

the brief were Debra A. Valentine, General Counsel, and

John F. Daly, Assistant General Counsel.

Before: Edwards, Chief Judge, Ginsburg and Tatel,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: Petitioner, a consumer reporting

agency, sells lists of names and addresses to target market-

ers--companies and organizations that contact consumers

with offers of products and services. The Federal Trade

Commission determined that these lists were "consumer re-

ports" under the Fair Credit Reporting Act and thus could no

longer be sold for target marketing purposes. Challenging

this determination, petitioner argues that the Commission's

decision is unsupported by substantial evidence and that the

Act itself is unconstitutional. Because we find both argu-

ments without merit, we deny the petition for review.

I

Petitioner Trans Union sells two types of products. First,

as a credit reporting agency, it compiles credit reports about

individual consumers from credit information it collects from

banks, credit card companies, and other lenders. It then

sells these credit reports to lenders, employers, and insurance

companies. Trans Union receives credit information from

lenders in the form of "tradelines." A tradeline typically

includes a customer's name, address, date of birth, telephone

number, Social Security number, account type, opening date

of account, credit limit, account status, and payment history.

Trans Union receives 1.4 to 1.6 billion records per month.

The company's credit database contains information on 190

million adults.

Trans Union's second set of products--those at issue in this

case--are known as target marketing products. These con-

sist of lists of names and addresses of individuals who meet

specific criteria such as possession of an auto loan, a depart-

ment store credit card, or two or more mortgages. Market-

ers purchase these lists, then contact the individuals by mail

or telephone to offer them goods and services. To create its

target marketing lists, Trans Union maintains a database

known as MasterFile, a subset of its consumer credit data-

base. MasterFile consists of information about every con-

sumer in the company's credit database who has (A) at least

two tradelines with activity during the previous six months, or

(B) one tradeline with activity during the previous six months

plus an address confirmed by an outside source. The compa-

ny compiles target marketing lists by extracting from Master-

File the names and addresses of individuals with characteris-

tics chosen by list purchasers. For example, a department

store might buy a list of all individuals in a particular area

code who have both a mortgage and a credit card with a

$10,000 limit. Although target marketing lists contain only

names and addresses, purchasers know that every person on

a list has the characteristics they requested because Trans

Union uses those characteristics as criteria for culling individ-

ual files from its database. Purchasers also know that every

individual on a target marketing list satisfies the criteria for

inclusion in MasterFile.

The Fair Credit Reporting Act of 1970 ("FCRA"), 15

U.S.C. ss 1681, 1681a-1681u, regulates consumer reporting

agencies like Trans Union, imposing various obligations to

protect the privacy and accuracy of credit information. The

Federal Trade Commission, acting pursuant to its authority

to enforce the FCRA, see 15 U.S.C. s 1681s(a), determined

that Trans Union's target marketing lists were "consumer

reports" subject to the Act's limitations. The FCRA defines

"consumer report" as:

[A]ny written, oral, or other communication of any infor-

mation by a consumer reporting agency bearing on a

consumer's credit worthiness, credit standing, credit ca-

pacity, character, general reputation, personal character-

istics, 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 eligibil-

ity for--

(A) credit or insurance to be used primarily for per-

sonal, family, or household purposes;

(B) employment purposes; or

(C) any other purpose authorized under section 1681b

of this title.

15 U.S.C. s 1681a(d)(1). Finding that the information Trans

Union sold was "collected in whole or in part by [Trans

Union] with the expectation that it would be used by credit

grantors for the purpose of serving as a factor in establishing

the consumer's eligibility for one of the transactions set forth

in the FCRA," and concluding that target marketing is not an

authorized use of consumer reports under section 1681b, In re

Trans Union Corp., 118 F.T.C. 821, 891 (1994), the Commis-

sion ordered Trans Union to stop selling target marketing

lists, id. at 895.

Trans Union petitioned for review. In Trans Union Corp.

v. FTC, 81 F.3d 228 (D.C. Cir. 1996) ("Trans Union I"), we

agreed with the Commission that selling consumer reports for

target marketing violates the Act. Id. at 233-34. We never-

theless set aside the Commission's determination that Trans

Union's target marketing lists amounted to consumer reports.

Id. at 231-33. The Commission, we held, failed to justify its

finding that Trans Union's lists, by conveying the mere fact

that consumers had a tradeline, were communicating informa-

tion collected for the purpose of determining credit eligibility.

We found that the Commission had failed to provide evidence

to support the proposition that "the mere existence of a

tradeline, as distinguished from payment history organized

thereunder," was used for credit-granting decisions or was

intended or expected to be used for such decisions. Id. at

233. (The parties' arguments in Trans Union I and in the

proceedings on remand focused on the relevance of the

information in the company's lists to consumer eligibility for

credit; accordingly, the information's relevance to the other

uses the statute lists--such as determining eligibility for

insurance and employment--are not at issue in this case. See

In re Trans Union Corp., Opinion of the Commission, No.

9255, slip op. at 16 n.20 (Feb. 10, 2000) ("FTC Opinion").)

On remand, following extensive discovery, more than a

month of trial proceedings, and an initial decision by an

Administrative Law Judge, the Commission found that Trans

Union's target marketing lists contain information that credit

grantors use as factors in granting credit. Accordingly, the

Commission concluded, the lists are "consumer reports" that

Trans Union may not sell for target marketing purposes.

FTC Opinion at 33. The Commission also rejected Trans

Union's argument that such a restriction would violate its

First Amendment rights. Applying intermediate scrutiny,

the Commission found that the government has a substantial

interest in protecting private credit information, that the

FCRA directly advances that interest, and that the Act's

restrictions on speech are narrowly tailored. Id. at 37-52.

The Commission thus ordered Trans Union to "[c]ease and

desist from distributing or selling consumer reports, including

those in the form of target marketing lists, to any person

unless [the company] has reason to believe that such person

intends to use the consumer report for purposes authorized

under Section [1681b] of the Fair Credit Reporting Act." In

re Trans Union Corp., Final Order, No. 9255 (Feb. 10, 2000).

Trans Union again petitions for review.

II

As we pointed out in Trans Union I, the first element of

the FCRA's definition of consumer report--"bearing on a

consumer's credit worthiness, credit standing, credit capacity,

character, general reputation, personal characteristics, or

mode of living," 15 U.S.C. s 1681a(d)(1)--"does not seem very

demanding," for almost any information about consumers

arguably bears on their personal characteristics or mode of

living. See 81 F.3d at 231. Indeed, Trans Union does not

challenge the Commission's conclusion that the information

contained in its lists meets this prong of the definition of

consumer report.

Whether the company's target marketing lists qualify as

consumer reports thus turns on whether information they

contain "is used or expected to be used or collected in whole

or in part for the purpose of serving as a factor in establish-

ing the consumer's eligibility for [credit]." 15 U.S.C.

s 1681a(d)(1). According to the Commission, "a factor in

establishing the consumer's eligibility for [credit]," id., in-

cludes any type of information credit grantors use in their

criteria for "prescreening" or in "credit scoring models." See

FTC Opinion at 16-17. "Prescreening" involves selecting

individuals for guaranteed offers of credit or insurance. See

id. at 18; see also Trans Union I, 81 F.3d at 234 (defining

"prescreening" as "the sale of a list of people preselected for

credit worthiness by some specified criteria, where the buyer

of the list agrees in advance to make a firm offer of credit to

each listed person"). "Credit scoring models" are statistical

models for predicting credit performance that are developed

by observing the historical credit performance of a number of

consumers and identifying the consumer characteristics that

correlate with good and bad credit performance. See FTC

Opinion at 17. Applying its prescreening/credit scoring mod-

el standard, the Commission found that Trans Union's lists

contain the type of information " 'used' and/or 'expected to be

used' ... as a factor in establishing a consumer's eligibility

for credit." Id. at 15; see also id. n.19.

Trans Union urges us to reject the Commission's interpre-

tation of the Act in order to avoid what the company calls

"serious constitutional questions." Pet'r Opening Br. at 9.

In support, it cites DeBartolo Corp. v. Florida Gulf Coast

Building & Construction Trades Council, where the Supreme

Court refused to defer to the NLRB's interpretation of a

provision of the NLRA because the Court believed it raised

serious First Amendment problems. 485 U.S. 568, 574-77

(1988). But as we demonstrate in Section III, infra, Trans

Union's constitutional arguments are without merit, so we

have no basis for rejecting the Commission's statutory inter-

pretation on that ground.

Nor has Trans Union offered a basis for questioning the

Commission's statutory interpretation on other grounds. The

company does not mention the Commission's interpretation of

the statute in the "Issues Presented For Review" section of

its brief. Cf. Fed. R. App. P. 28(a)(5) (requiring that appel-

lants' and petitioners' briefs state the issues presented for

review). Although scattered language in the brief hints at a

statutory interpretation challenge, that language appears in a

section entitled "The Record Does Not Support The Conclu-

sion Reached By The Commission." Trans Union has thus

failed to put the Commission on notice that it faced a non-

constitutional challenge to its interpretation of the statute.

We have the same reaction to the brief's occasional sugges-

tions that the Commission's decision was arbitrary and capri-

cious. Not only do these suggestions appear in a section

entitled "The Commission's Interpretation Of FCRA Raises

Serious Constitutional Questions," see, e.g., Pet'r Opening Br.

at 19 (referring to "illogical contradictions"), but the list of

issues presented for review neither mentions the arbitrary

and capricious standard nor otherwise questions the reason-

ableness of the Commission's decision.

We thus turn to the one non-constitutional argument that

Trans Union clearly mounts: that the Commission's decision

is unsupported by substantial evidence. A footnote to the

title of this portion of its brief states:

The Order is replete with statements unsupported by the

evidence.... The word limitation of [Federal Rule of

Appellate Procedure] 32(a)(7) makes it impossible to ad-

dress each such misstatement here. It is the responsibility

of the Commission's counsel, however, to ensure that the

Court is not misled by the statements in the Order not

supported by the evidence.

Id. at 21 n.7. To bring a substantial evidence challenge,

however, Trans Union must do more than assert generally

that the decision is unsupported by substantial evidence. It

must identify the specific findings it challenges and demon-

strate that each finding is either unsupported by evidence or,

because the Commission unreasonably discounted contrary

evidence, unsupported by "the record in its entirety." See

Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951).

The 14,000 words permitted by Rule 32(a)(7) are more than

enough to accomplish this task.

Instead of challenging the Commission's findings regarding

specific target marketing products, Trans Union points to

evidence relating to the general question of whether the

information in its target marketing lists is used to determine

credit worthiness. This is not the question before us. As we

indicate above, the Commission interprets "factor in estab-

lishing the consumer's eligibility for credit," 15 U.S.C.

s 1681a(d)(1), to include any information considered by lend-

ers in prescreening, which, as two witnesses testified, can

involve consideration of criteria other than credit worthiness,

e.g., whether a given consumer is likely to respond to an offer

of credit. Because Trans Union has not challenged the

Commission's interpretation of the statute, its argument that

the information the company sells is not actually used to

determine credit worthiness is beside the point. Moreover,

Trans Union cites no testimony refuting the Commission's

finding that the information in its target marketing lists is

used in prescreening.

Not only has Trans Union thus failed to mount a proper

substantial evidence challenge to the Commission's finding

that lenders take list information into account in credit mod-

els and prescreening, but we have no doubt that the decision

does find support in the record. Consider, for example,

Trans Union's "Master File/Selects" product line, which al-

lows marketers to request lists based on any of five catego-

ries of information: (1) credit limits (e.g., consumers with

credit cards with credit limits over $10,000), (2) open dates of

loans (e.g., consumers who took out loans in the last six

months), (3) number of tradelines, (4) type of tradeline (e.g.,

auto loan or mortgage), and (5) existence of a tradeline. The

Commission cites testimony and other record evidence that

support its finding that lenders consider each of these five

categories of information in prescreening or credit scoring

models. Beginning with credit limits, the Commission cites

the testimony of a statistician who builds credit scoring

models. FTC Opinion at 19. That witness explained that

scoring models rely in part on consumer utilization of credit,

calculated by dividing a consumer's current outstanding bal-

ance by the consumer's credit limit. To support its finding

regarding open dates of loans, the Commission relied on the

testimony of a vice president of a company that builds credit

scoring models. Id. According to that witness, some scoring

models use the open date of the oldest tradeline in a consum-

er's credit file as a predictive characteristic. The witness also

testified that some credit scoring models use the date of the

most recently opened tradeline to determine credit risk. To

support its finding that information about the number of

tradelines in a consumer's credit file is a consumer report, the

Commission cites the testimony of a vice president in charge

of direct mail processing for a bank's credit card department

who explained that, in its credit making decisions, her bank

considers the number of tradelines consumers possess. Id. at

20 n.30. The Commission also points to record evidence

demonstrating that Trans Union itself uses the number of

tradelines as a predictive characteristic in its credit scoring

models. Id. at 20. As to the type of tradeline, the Commis-

sion cites the testimony of representatives of companies that

design credit models who explained that some credit scoring

models, including two used by Trans Union, take into account

possession of a bank card. FTC Opinion at 21-22. One

witness testified that Trans Union scoring models also consid-

er possession of a finance company loan to be a predictive

characteristic. Another witness, this one representing a

credit card company, testified that his company's scoring

models assign points for possession of a mortgage, retail

tradeline, or bank card. Id. at 21.

The record also contains sufficient evidence to support the

Commission's resolution of the issue remanded by Trans

Union I: whether mere existence of a tradeline is "a factor in

credit-granting decisions." 81 F.3d at 233. An employee of a

bank that issues credit cards testified that to be eligible for

credit, an individual must have at least one tradeline. FTC

Opinion at 25. The vice president of credit scoring at

another credit card issuer testified that the very first ques-

tion her company asks in prescreening is whether the con-

sumer has a tradeline that has been open for at least a year.

Challenging the implications of this testimony, Trans Union

argues that banks ask whether consumers have tradelines not

because the existence of a tradeline is itself a factor in

determining credit eligibility, but because banks want to

determine whether there is enough information in consumer

files to make credit eligibility determinations. This may be

true. But as we explain above, our task is limited to deter-

mining whether substantial record evidence supports the

Commission's finding that banks consider the existence of a

tradeline as a factor in prescreening or credit models. Be-

cause the record contains such evidence, we have no basis for

questioning the Commission's decision.

Trans Union has identified one potentially troubling incon-

sistency in the Commission's decision. As the company

points out, record evidence demonstrates that lenders consid-

er names and addresses when prescreening consumers for

guaranteed offers of credit, yet the Commission does not

prohibit the sale of names and addresses for target marketing

purposes. Regarding addresses, the Commission's opinion

says, "[a]lthough some lenders will not extend credit to

consumers with a P.O. Box address, we do not find that the

P.O. Box feature bears on 'credit worthiness, credit standing,

credit capacity, character, general reputation, personal char-

acteristics or mode of living.' " Id. at 31 n.50. It is not clear,

however, why receiving mail at a post office should not be

considered an aspect of an individual's "mode of living." We

need not resolve this issue, however, because Trans Union

presents neither an arbitrary and capricious nor a statutory

interpretation challenge to the Commission's failure to pro-

hibit the sale of names and addresses. See supra at 6-7.

Nor must we resolve any inconsistency between the Com-

mission's decision in this case and a 1993 consent agreement

between the Commission and a Trans Union competitor,

TRW (now Experian). In contrast to the Commission's deci-

sion here, that agreement allowed TRW to sell information

about consumers' ages to target marketers. Again, although

this might suggest that the Commission has acted arbitrarily

and capriciously in treating similarly situated entities differ-

ently, Trans Union has not made such a challenge. The

Commission thus seems correct that "[t]he TRW Consent is

not before us in this matter and it is without precedential

effect on this opinion." FTC Opinion at 16 n.22.

III

Trans Union's constitutional challenge consists of two argu-

ments. It claims first that the FCRA is vague, thus running

afoul of the due process guarantee of the Fifth Amendment.

Trans Union also argues that the statute violates the free

speech guarantee of the First Amendment because it restricts

its ability to disseminate information.

Beginning with the Fifth Amendment challenge, we are

guided by Village of Hoffman Estates v. Flipside, Hoffman

Estates, Inc., 455 U.S. 489, 498 (1982). "[L]aws," the Court

said, must not only "give the person of ordinary intelligence a

reasonable opportunity to know what is prohibited," but in

order to prevent "arbitrary and discriminatory enforcement,"

they must also "provide explicit standards for those who

apply them." Id. (quoting Grayned v. City of Rockford, 408

U.S. 104, 108-09 (1972)). Emphasizing that these principles

should not "be mechanically applied," the Court held that

"economic regulation is subject to a less strict vagueness test

because its subject matter is often more narrow, and because

businesses, which face economic demands to plan behavior

carefully, can be expected to consult relevant legislation in

advance of action." Id. The "regulated enterprise," the

Court added, "may have the ability to clarify the meaning of

the regulation by its own inquiry, or by resort to an adminis-

trative process." Id. Finally, "the consequences of impreci-

sion are qualitatively less severe" when laws have "scienter

requirement[s]" and "civil rather than criminal penalties."

Id. at 499.

Applying this standard, we see no merit in Trans Union's

vagueness argument. To begin with, because the FCRA's

regulation of consumer reporting agencies is economic, it is

subject to "a less strict vagueness test." Id. at 498. More-

over, Trans Union has "the ability to clarify the meaning of

the [FCRA]," id., through the Commission's advisory opinion

procedures. See 16 C.F.R. ss 1.1-1.4 (establishing general

procedures for obtaining advisory opinions); id. s 2.41(d)

(establishing procedures for obtaining guidance regarding

compliance with FTC orders). Selectively quoting from the

Commission's regulations, the company disputes the useful-

ness of advisory opinions, suggesting that they can be

changed at any time and that "the Commission expressly

reserves the right upon rescission of an earlier opinion to

commence an enforcement proceeding." Pet'r Reply Br. at

10. The relevant regulation states as follows (the sentences

Trans Union omits are in italics):

Any advice given by the Commission is without prejudice

to the right of the Commission to reconsider the ques-

tions involved and, where the public interest requires, to

rescind or revoke the action. Notice of such rescission

or revocation will be given to the requesting party so

that he may discontinue the course of action taken

pursuant to the Commission's advice. The Commission

will not proceed against the requesting party with re-

spect to any action taken in good faith reliance upon the

Commission's advice under this section, where all the

relevant facts were fully, completely, and accurately

presented to the Commission and where such action was

promptly discontinued upon notification of rescission or

revocation of the Commission's approval.

16 C.F.R. s 1.3(b) (emphasis added). Although the next

subsection of the regulation states that "[a]dvice rendered by

the staff is without prejudice to the right of the Commission

later to rescind the advice and, where appropriate, to com-

mence an enforcement proceeding," id. s 1.3(c), the portion of

the regulation omitted by Trans Union makes quite clear that

the company can safely rely on advisory opinions without fear

of penalty should the Commission later change its mind.

The FCRA does not fit quite so comfortably under the

other Hoffman Estates criteria. Although the Act does con-

tain a clear scienter requirement for the imposition of civil

fines, see, e.g., 15 U.S.C. s 1681s(a)(2)(A) ("knowing"), it also

provides that anyone who negligently violates the Act may be

liable to injured consumers for actual damages. Id.

s 1681o(a). The statute also authorizes criminal penalties.

Id. s 1681r (providing for possible imprisonment for "[a]ny

officer or employee of a consumer reporting agency who

knowingly and willfully provides information concerning an

individual from the agency's files to a person not authorized

to receive that information"). Even given these distinctions,

however, because of the extremely clear process for "clari-

fy[ing] the meaning of the regulation," Hoffman Estates, 455

U.S. at 498, Trans Union simply does not face a due process

risk of prosecution for conduct it could not have known to be

illegal.

Trans Union's First Amendment challenge fares no better.

Banning the sale of target marketing lists, the company says,

amounts to a restriction on its speech subject to strict scruti-

ny. Again, Trans Union misunderstands our standard of

review. In Dun & Bradstreet, Inc. v. Greenmoss Builders,

Inc., 472 U.S. 749 (1985), the Supreme Court held that a

consumer reporting agency's credit report warranted reduced

constitutional protection because it concerned "no public is-

sue." Id. at 762. "The protection to be accorded a particular

credit report," the Court explained, "depends on whether the

report's 'content, form, and context' indicate that it concerns

a public matter." Id. n.8. Like the credit report in Dun &

Bradstreet, which the Supreme Court found "was speech

solely in the interest of the speaker and its specific business

audience," id. at 762, the information about individual con-

sumers and their credit performance communicated by Trans

Union target marketing lists is solely of interest to the

company and its business customers and relates to no matter

of public concern. Trans Union target marketing lists thus

warrant "reduced constitutional protection." Id. n.8.

We turn then to the specifics of Trans Union's First

Amendment argument. The company first claims that nei-

ther the FCRA nor the Commission's Order advances a

substantial government interest. The "Congressional find-

ings and statement of purpose" at the beginning of the FCRA

state: "There is a need to insure that consumer reporting

agencies exercise their grave responsibilities with ... respect

for the consumer's right to privacy." 15 U.S.C. s 1681 (a)(4).

Contrary to the company's assertions, we have no doubt that

this interest--protecting the privacy of consumer credit infor-

mation--is substantial.

Trans Union next argues that Congress should have chosen

a "less burdensome alternative," i.e., allowing consumer re-

porting agencies to sell credit information as long as they

notify consumers and give them the ability to "opt out."

Pet'r Opening Br. at 43-44. Because the FCRA is not

subject to strict First Amendment scrutiny, however, Con-

gress had no obligation to choose the least restrictive means

of accomplishing its goal.

Finally, Trans Union argues that the FCRA is underinclu-

sive because it applies only to consumer reporting agencies

and not to other companies that sell consumer information.

But given consumer reporting agencies' unique "access to a

broad range of continually-updated, detailed information

about millions of consumers' personal credit histories," FTC

Opinion at 1, we think it not at all inappropriate for Congress

to have singled out consumer reporting agencies for regula-

tion. As we explained in Blount v. SEC, "a regulation is not

fatally underinclusive simply because an alternative regula-

tion, which would restrict more speech or the speech of more

people, could be more effective." 61 F.3d 938, 946 (D.C. Cir.

1995). The primary purpose of underinclusiveness analysis is

to "ensure that the profferred state interest actually underlies

the law, [so] a rule is struck for underinclusiveness only if it

cannot fairly be said to advance any genuinely substantial

governmental interest because it provides only ineffective or

remote support for the asserted goals, or limited incremental

support." Id. (internal citations omitted). To survive a First

Amendment underinclusiveness challenge, therefore, "neither

a perfect nor even the best available fit between means and

ends is required." Id. The FCRA easily satisfies this stan-

dard.

Trans Union contends that the statute is underinclusive for

another reason, i.e., because it allows the sale of consumer

reports for the purpose of guaranteed offers of credit or

insurance. Trans Union I disposes of this argument:

[B]eing singled out for a firm offer of credit is exactly the

sort of thing the Act seeks to promote, and a purpose for

which it is quite reasonable to infer the consumer's

implicit waiver or consent. Moreover, prescreening and

the guaranteed offers of credit it spawns can only take

place through the use of consumer reports, whereas the

use of credit data for non-credit-related mailings is at

most helpful to those ends.

81 F.3d at 234.

IV

Having considered and rejected Trans Union's other argu-

ments, we deny the petition for review.

So Ordered.