OPINION OF THE COURT
SAFECO INS. CO. OF AMERICA V. BURR
551 U. S. ____ (2007)
SUPREME COURT OF THE UNITED STATES
NOS. 06-84 AND 06-100
SAFECO INSURANCE COMPANY OF AMERICA, et al.,
PETITIONERS
06–84
v.
CHARLES BURR et al.
GEICO GENERAL INSURANCE COMPANY,
et al., PETITIONERS
06–100
v.
AJENE EDO
on writs of certiorari to the united states
court of appeals for the ninth circuit
[June 4, 2007]
Justice Souter delivered
the opinion of the Court.*
The Fair Credit Reporting Act
(FCRA or Act) requires notice to any consumer subjected to “adverse
action … based in whole or in part on any information contained in
a consumer [credit] report.” 15 U. S. C. §1681m(a). Anyone who
“willfully fails” to provide notice is civilly liable to the
consumer. §1681n(a). The questions in these consolidated cases are
whether willful failure covers a violation committed in reckless
disregard of the notice obligation, and, if so, whether petitioners
Safeco and GEICO committed reckless violations. We hold that
reckless action is covered, that GEICO did not violate the statute,
and that while Safeco might have, it did not act recklessly.
I
A
Congress enacted FCRA in 1970 to
ensure fair and accurate credit reporting, promote efficiency in
the banking system, and protect consumer privacy. See 84 Stat.
1128, 15 U. S. C. §1681;
TRW Inc. v.
Andrews,
534
U. S. 19, 23 (2001). The Act requires, among other things, that
“any person [who] takes any adverse action with respect to any
consumer that is based in whole or in part on any information
contained in a consumer report” must notify the affected
consumer.[
Footnote 1] 15 U.
S. C. §1681m(a). The notice must point out the adverse action,
explain how to reach the agency that reported on the consumer’s
credit, and tell the consumer that he can get a free copy of the
report and dispute its accuracy with the agency.
Ibid. As
it applies to an insurance company, “adverse action” is “a denial
or cancellation of, an increase in any charge for, or a reduction
or other adverse or unfavorable change in the terms of coverage or
amount of, any insurance, existing or applied for.”
§1681a(k)(1)(B)(i).
FCRA provides a private right of
action against businesses that use consumer reports but fail to
comply. If a violation is negligent, the affected consumer is
entitled to actual damages. §1681
o(a) (2000 ed., Supp.
IV). If willful, however, the consumer may have actual damages, or
statutory damages ranging from $100 to $1,000, and even punitive
damages. §1681n(a) (2000 ed.).
B
Petitioner GEICO[
Footnote 2] writes auto insurance through
four subsidiaries: GEICO General, which sells “preferred” policies
at low rates to low-risk customers; Government Employees, which
also sells “preferred” policies, but only to government employees;
GEICO Indemnity, which sells standard policies to moderate-risk
customers; and GEICO Casualty, which sells nonstandard policies at
higher rates to high-risk customers. Potential customers call a
toll-free number answered by an agent of the four affiliates, who
takes information and, with permission, gets the applicant’s credit
score.[
Footnote 3] This
information goes into GEICO’s computer system, which selects any
appropriate company and the particular rate at which a policy may
be issued.
For some time after FCRA went
into effect, GEICO sent adverse action notices to all applicants
who were not offered “preferred” policies from GEICO General or
Government Employees. GEICO changed its practice, however, after a
method to “neutralize” an applicant’s credit score was devised: the
applicant’s company and tier placement is compared with the company
and tier placement he would have been assigned with a “neutral”
credit score, that is, one calculated without reliance on credit
history.[
Footnote 4] Under this
new scheme, it is only if using a neutral credit score would have
put the applicant in a lower priced tier or company that GEICO
sends an adverse action notice; the applicant is not otherwise told
if he would have gotten better terms with a better credit
score.
Respondent Ajene Edo applied for auto
insurance with GEICO. After obtaining Edo’s credit score, GEICO
offered him a standard policy with GEICO Indemnity (at rates higher
than the most favorable), which he accepted. Because Edo’s company
and tier placement would have been the same with a neutral score,
GEICO did not give Edo an adverse action notice. Edo later filed
this proposed class action against GEICO, alleging willful failure
to give notice in violation of §1681m(a); he claimed no actual
harm, but sought statutory and punitive damages under §1681n(a).
The District Court granted summary judgment for GEICO, finding
there was no adverse action when “the premium charged to [Edo] …
would have been the same even if GEICO Indemnity did not consider
information in [his] consumer credit history.”
Edo v.
GEICO Casualty Co., CV 02–678–BR, 2004 U. S. Dist. LEXIS
28522, *12 (D. Ore., Feb. 23, 2004), App. to Pet. for Cert. in No.
06–100, p. 46a.
Like GEICO, petitioner Safeco[
Footnote 5] relies on credit reports to set
initial insurance premiums,[
Footnote 6] as it did for respondents Charles Burr and
Shannon Massey, who were offered higher rates than the best rates
possible. Safeco sent them no adverse action notices, and they
later joined a proposed class action against the company, alleging
willful violation of §1681m(a) and seeking statutory and punitive
damages under §1681n(a). The District Court ordered summary
judgment for Safeco, on the understanding that offering a single,
initial rate for insurance cannot be “adverse action.”
The Court of Appeals for the Ninth Circuit
reversed both judgments. In GEICO’s case, it held that whenever a
consumer “would have received a lower rate for his insurance had
the information in his consumer report been more favorable, an
adverse action has been taken against him.”
Reynolds v.
Hartford Financial Servs. Group, Inc., 435 F. 3d
1081, 1093 (2006). Since a better credit score would have placed
Edo with GEICO General, not GEICO Indemnity, the appeals court held
that GEICO’s failure to give notice was an adverse action.
The Ninth Circuit also held that an insurer
“willfully” fails to comply with FCRA if it acts with “reckless
disregard” of a consumer’s rights under the Act.
Id., at
1099. It explained that a company would not be acting recklessly if
it “diligently and in good faith attempted to fulfill its statutory
obligations” and came to a “tenable, albeit erroneous,
interpretation of the statute.”
Ibid. The court went on to
say that “a deliberate failure to determine the extent of its
obligations” would not ordinarily escape liability under §1681n,
any more than “reliance on creative lawyering that provides
indefensible answers.”
Ibid. Because the court believed
that the enquiry into GEICO’s reckless disregard might turn on
undisclosed circumstances surrounding GEICO’s revision of its
notification policy, the Court of Appeals remanded the company’s
case for further proceedings.[
Footnote 7]
In the action against Safeco, the Court of
Appeals rejected the District Court’s position, relying on its
reasoning in GEICO’s case (where it had held that the notice
requirement applies to a single statement of an initial charge for
a new policy).
Spano v.
Safeco Corp., 140 Fed.
Appx. 746 (2005). The Court of Appeals also rejected Safeco’s
argument that its conduct was not willful, again citing the GEICO
case, and remanded for further proceedings.
We consolidated the two matters and granted
certiorari to resolve a conflict in the Circuits as to whether
§1681n(a) reaches reckless disregard of FCRA’s
obligations,[
Footnote 8] and to
clarify the notice requirement in §1681m(a). 548 U. S. ___ (2006).
We now reverse in both cases.
II
GEICO and Safeco argue that
liability under §1681n(a) for “willfully fail[ing] to comply” with
FCRA goes only to acts known to violate the Act, not to reckless
disregard of statutory duty, but we think they are wrong. We have
said before that “willfully” is a “word of many meanings whose
construction is often dependent on the context in which it
appears,”
Bryan v.
United States,
524 U. S. 184, 191 (1998) (internal
quotation marks omitted); and where willfulness is a statutory
condition of civil liability, we have generally taken it to cover
not only knowing violations of a standard, but reckless ones as
well, see
McLaughlin v.
Richland Shoe Co.,
486 U. S. 128,
132–133 (1988) (“willful,” as used in a limitation provision for
actions under the Fair Labor Standards Act, covers claims of
reckless violation);
Trans World Airlines, Inc. v.
Thurston,
469 U. S. 111, 125–126
(1985) (same, as to a liquidated damages provision of the Age
Discrimination in Employment Act of 1967); cf
. United
States v.
Illinois Central R. Co.,
303 U. S. 239, 242–243
(1938) (“willfully,” as used in a civil penalty provision, includes
“ ‘conduct marked by careless disregard whether or not one has
the right so to act’ ” (quoting
United States v.
Murdock,
290 U. S. 389, 395
(1933))). This construction reflects common law usage, which
treated actions in “reckless disregard” of the law as “willful”
violations. See W. Keeton, D. Dobbs, R. Keeton, & D. Owen,
Prosser and Keeton on Law of Torts §34, p. 212 (5th ed. 1984)
(hereinafter Prosser and Keeton) (“Although efforts have been made
to distinguish” the terms “willful,” “wanton,” and “reckless,”
“such distinctions have consistently been ignored, and the three
terms have been treated as meaning the same thing, or at least as
coming out at the same legal exit”). The standard civil usage thus
counsels reading the phrase “willfully fails to comply” in
§1681n(a) as reaching reckless FCRA violations,[
Footnote 9] and this is so both on the
interpretive assumption that Congress knows how we construe
statutes and expects us to run true to form, see
Commissioner v.
Keystone Consol. Industries,
Inc.,
508 U. S.
152, 159 (1993), and under the general rule that a common law
term in a statute comes with a common law meaning, absent anything
pointing another way,
Beck v.
Prupis,
529 U. S. 494, 500–501
(2000).
GEICO and Safeco argue that
Congress did point to something different in FCRA, by a drafting
history of §1681n(a) said to show that liability was supposed to
attach only to knowing violations. The original version of the
Senate bill that turned out as FCRA had two standards of liability
to victims: grossly negligent violation (supporting actual damages)
and willful violation (supporting actual, statutory, and punitive
damages). S. 823, 91st Cong., 1st Sess., §1 (1969). GEICO and
Safeco argue that since a “gross negligence” standard is
effectively the same as a “reckless disregard” standard, the
original bill’s “willfulness” standard must have meant a level of
culpability higher than “reckless disregard,” or there would have
been no requirement to show a different state of mind as a
condition of the potentially much greater liability; thus,
“willfully fails to comply” must have referred to a knowing
violation. Although the gross negligence standard was reduced later
in the legislative process to simple negligence (as it now appears
in §1681
o), the provision for willful liability remains
unchanged and so must require knowing action, just as it did
originally in the draft of §1681n.
Perhaps. But Congress may have scaled the
standard for actual damages down to simple negligence because it
thought gross negligence, being like reckless action, was covered
by willfulness. Because this alternative reading is possible, any
inference from the drafting sequence is shaky, and certainly no
match for the following clue in the text as finally adopted, which
points to the traditional understanding of willfulness in the civil
sphere.
The phrase in question appears in the preamble
sentence of §1681n(a): “Any person who willfully fails to comply
with any requirement imposed under this subchapter with respect to
any consumer is liable to that consumer … .” Then come
the details, in paragraphs (1)(A) and (1)(B), spelling out two
distinct measures of damages chargeable against the willful
violator. As a general matter, the consumer may get either actual
damages or “damages of not less than $100 and not more than
$1,000.” §1681n(a)(1)(A). But where the offender is liable “for
obtaining a consumer report under false pretenses or knowingly
without a permissible purpose,” the statute sets liability higher:
“actual damages … or $1,000, whichever is greater.”
§1681n(a)(1)(B).
If the companies were right that “willfully”
limits liability under §1681n(a) to knowing violations, the
modifier “knowingly” in §1681n(a)(1)(B) would be superfluous and
incongruous; it would have made no sense for Congress to condition
the higher damages under §1681n(a) on knowingly obtaining a report
without a permissible purpose if the general threshold of any
liability under the section were knowing misconduct. If, on the
other hand, “willfully” covers both knowing and reckless disregard
of the law, knowing violations are sensibly understood as a more
serious subcategory of willful ones, and both the preamble and the
subsection have distinct jobs to do. See
United States v.
Menasche,
348 U. S. 528, 538–539
(1955) (“ ‘[G]ive effect, if possible, to every clause and
word of a statute’ ” (quoting
Montclair v.
Ramsdell,
107 U. S. 147, 152
(1883))).
The companies make other textual and
structural arguments for their view, but none is persuasive. Safeco
thinks our reading would lead to the absurd result that one could,
with reckless disregard, knowingly obtain a consumer report without
a permissible purpose. But this is not so; action falling within
the knowing subcategory does not simultaneously fall within the
reckless alternative. Then both GEICO and Safeco argue that the
reference to acting “knowingly and willfully” in FCRA’s criminal
enforcement provisions, §1681q and §1681r, indicates that
“willfully” cannot include recklessness. But we are now on the
criminal side of the law, where the paired modifiers are often
found, see,
e.g., 18 U. S. C. §1001 (2000 ed. and
Supp. IV) (false statements to federal investigators); 20 U.
S. C. §1097(a) (embezzlement of student loan funds); 18 U.
S. C. §1542 (2000 ed. and Supp. IV) (false statements in a
passport application). As we said before, in the criminal law
“willfully” typically narrows the otherwise sufficient intent,
making the government prove something extra, in contrast to its
civil-law usage, giving a plaintiff a choice of mental states to
show in making a case for liability, see n. 9,
supra. The
vocabulary of the criminal side of FCRA is consequently beside the
point in construing the civil side.
III
A
Before getting to the claims that
the companies acted recklessly, we have the antecedent question
whether either company violated the adverse action notice
requirement at all. In both cases, respondent-plaintiffs’ claims
are premised on initial rates charged for new insurance policies,
which are not “adverse” actions unless quoting or charging a
first-time premium is “an increase in any charge for … any
insurance, existing or applied for.” 15 U. S. C.
§1681a(k)(1)(B)(i).
In Safeco’s case, the District
Court held that the initial rate for a new insurance policy cannot
be an “increase” because there is no prior dealing. The phrase
“increase in any charge for … insurance” is readily understood to
mean a change in treatment for an insured, which assumes a previous
charge for comparison. See Webster’s New International Dictionary
1260 (2d ed. 1957) (defining “increase” as “[a]ddition or
enlargement in size, extent, quantity, number, intensity, value,
substance, etc.; augmentation; growth; multiplication”). Since the
District Court understood “increase” to speak of change just as
much as of comparative size or quantity, it reasoned that the
statute’s “increase” never touches the initial rate offer, where
there is no change.
The Government takes the part of the Court of
Appeals in construing “increase” to reach a first-time rate. It
says that regular usage of the term is not as narrow as the
District Court thought: the point from which to measure difference
can just as easily be understood without referring to prior
individual dealing. The Government gives the example of a gas
station owner who charges more than the posted price for gas to
customers he doesn’t like; it makes sense to say that the owner
increases the price and that the driver pays an increased price,
even if he never pulled in there for gas before. See Brief for
United States as
Amicus Curiae 26.[
Footnote 10] The Government implies, then, that
reading “increase” requires a choice, and the chosen reading should
be the broad one in order to conform to what Congress had in
mind.
We think the Government’s reading has the
better fit with the ambitious objective set out in the Act’s
statement of purpose, which uses expansive terms to describe the
adverse effects of unfair and inaccurate credit reporting and the
responsibilities of consumer reporting agencies. See §1681(a)
(inaccurate reports “directly impair the efficiency of the banking
system”; unfair reporting methods undermine public confidence
“essential to the continued functioning of the banking system”;
need to “insure” that reporting agencies “exercise their grave
responsibilities” fairly, impartially, and with respect for
privacy). The descriptions of systemic problem and systemic need as
Congress saw them do nothing to suggest that remedies for consumers
placed at a disadvantage by unsound credit ratings should be denied
to first-time victims, and the legislative histories of FCRA’s
original enactment and of the 1996 amendment reveal no reason to
confine attention to customers and businesses with prior dealings.
Quite the contrary.[
Footnote
11] Finally, there is nothing about insurance contracts to
suggest that Congress might have meant to differentiate applicants
from existing customers when it set the notice requirement; the
newly insured who gets charged more owing to an erroneous report is
in the same boat with the renewal applicant.[
Footnote 12] We therefore hold that the
“increase” required for “adverse action,” 15 U. S. C.
§1681a(k)(1)(B)(i), speaks to a disadvantageous rate even with no
prior dealing; the term reaches initial rates for new
applicants.
B
Although offering the initial
rate for new insurance can be an “adverse action,”
respondent-plaintiffs have another hurdle to clear, for §1681m(a)
calls for notice only when the adverse action is “based in whole or
in part on” a credit report. GEICO argues that in order to have
adverse action “based on” a credit report, consideration of the
report must be a necessary condition for the increased rate. The
Government and respondent-plaintiffs do not explicitly take a
position on this point.
To the extent there is any
disagreement on the issue, we accept GEICO’s reading. In common
talk, the phrase “based on” indicates a but-for causal relationship
and thus a necessary logical condition. Under this most natural
reading of §1681m(a), then, an increased rate is not “based in
whole or in part on” the credit report unless the report was a
necessary condition of the increase.
As before, there are textual arguments
pointing another way. The statute speaks in terms of basing the
action “in part” as well as wholly on the credit report, and this
phrasing could mean that adverse action is “based on” a credit
report whenever the report was considered in the rate-setting
process, even without being a necessary condition for the rate
increase. But there are good reasons to think Congress preferred
GEICO’s necessary-condition reading.
If the statute has any claim to lucidity, not
all “adverse actions” require notice, only those “based … on”
information in a credit report. Since the statute does not
explicitly call for notice when a business acts adversely merely
after consulting a report, conditioning the requirement on action
“based … on” a report suggests that the duty to report arises from
some practical consequence of reading the report, not merely some
subsequent adverse occurrence that would have happened anyway. If
the credit report has no identifiable effect on the rate, the
consumer has no immediately practical reason to worry about it
(unless he has the power to change every other fact that stands
between himself and the best possible deal); both the company and
the consumer are just where they would have been if the company had
never seen the report.[
Footnote
13] And if examining reports that make no difference was
supposed to trigger a reporting requirement, it would be hard to
find any practical point in imposing the “based … on” restriction.
So it makes more sense to suspect that Congress meant to require
notice and prompt a challenge by the consumer only when the
consumer would gain something if the challenge succeeded.[
Footnote 14]
C
To sum up, the difference
required for an increase can be understood without reference to
prior dealing (allowing a first-time applicant to sue), and
considering the credit report must be a necessary condition for the
difference. The remaining step in determining a duty to notify in
cases like these is identifying the benchmark for determining
whether a first-time rate is a disadvantageous increase. And in
dealing with this issue, the pragmatic reading of “based … on” as a
condition necessary to make a practical difference carries a
helpful suggestion.
The Government and
respondent-plaintiffs argue that the baseline should be the rate
that the applicant would have received with the best possible
credit score, while GEICO contends it is what the applicant would
have had if the company had not taken his credit score into account
(the “neutral score” rate GEICO used in Edo’s case). We think GEICO
has the better position, primarily because its “increase” baseline
is more comfortable with the understanding of causation just
discussed, which requires notice under §1681m(a) only when the
effect of the credit report on the initial rate offered is
necessary to put the consumer in a worse position than other
relevant facts would have decreed anyway. If Congress was this
concerned with practical consequences when it adopted a “based …
on” causation standard, it presumably thought in equally practical
terms when it spoke of an “increase” that must be defined by a
baseline to measure from. Congress was therefore more likely
concerned with the practical question whether the consumer’s rate
actually suffered when the company took his credit report into
account than the theoretical question whether the consumer would
have gotten a better rate with perfect credit.[
Footnote 15]
The Government objects that this reading
leaves a loophole, since it keeps first-time applicants who
actually deserve better-than-neutral credit scores from getting
notice, even when errors in credit reports saddle them with unfair
rates. This is true; the neutral-score baseline will leave some
consumers without a notice that might lead to discovering errors.
But we do not know how often these cases will occur, whereas we see
a more demonstrable and serious disadvantage inhering in the
Government’s position.
Since the best rates (the Government’s
preferred baseline) presumably go only to a minority of consumers,
adopting the Government’s view would require insurers to send slews
of adverse action notices; every young applicant who had yet to
establish a gilt-edged credit report, for example, would get a
notice that his charge had been “increased” based on his credit
report. We think that the consequence of sending out notices on
this scale would undercut the obvious policy behind the notice
requirement, for notices as common as these would take on the
character of formalities, and formalities tend to be ignored. It
would get around that new insurance usually comes with an adverse
action notice, owing to some legal quirk, and instead of piquing an
applicant’s interest about the accuracy of his credit record, the
commonplace notices would mean just about nothing and go the way of
junk mail. Assuming that Congress meant a notice of adverse action
to get some attention, we think the cost of closing the loophole
would be too high.
While on the subject of hypernotification, we
should add a word on another point of practical significance.
Although the rate initially offered for new insurance is an
“increase” calling for notice if it exceeds the neutral rate, did
Congress intend the same baseline to apply if the quoted rate
remains the same over a course of dealing, being repeated at each
renewal date?
We cannot believe so. Once a consumer has
learned that his credit report led the insurer to charge more, he
has no need to be told over again with each renewal if his rate has
not changed. For that matter, any other construction would probably
stretch the word “increase” more than it could bear. Once the gas
station owner had charged the customer the above-market price, it
would be strange to speak of the same price as an increase every
time the customer pulled in. Once buyer and seller have begun a
course of dealing, customary usage does demand a change for
“increase” to make sense.[
Footnote 16] Thus, after initial dealing between the
consumer and the insurer, the baseline for “increase” is the
previous rate or charge, not the “neutral” baseline that applies at
the start.
IV
A
In GEICO’s case, the initial rate
offered to Edo was the one he would have received if his credit
score had not been taken into account, and GEICO owed him no
adverse action notice under §1681m(a).[
Footnote 17]
B
Safeco did not give Burr and
Massey any notice because it thought §1681m(a) did not apply to
initial applications, a mistake that left the company in violation
of the statute if Burr and Massey received higher rates “based in
whole or in part” on their credit reports; if they did, Safeco
would be liable to them on a showing of reckless conduct (or
worse). The first issue we can forget, however, for although the
record does not reliably indicate what rates they would have
obtained if their credit reports had not been considered, it is
clear enough that if Safeco did violate the statute, the company
was not reckless in falling down in its duty.
While “the term recklessness is
not self-defining,” the common law has generally understood it in
the sphere of civil liability as conduct violating an objective
standard: action entailing “an unjustifiably high risk of harm that
is either known or so obvious that it should be known.”[
Footnote 18]
Farmer v.
Brennan,
511 U. S. 825, 836 (1994); see Prosser
and Keeton §34, at 213–214. The Restatement, for example, defines
reckless disregard of a person’s physical safety this way:
“The actor’s conduct is in reckless disregard of
the safety of another if he does an act or intentionally fails to
do an act which it is his duty to the other to do, knowing or
having reason to know of facts which would lead a reasonable man to
realize, not only that his conduct creates an unreasonable risk of
physical harm to another, but also that such risk is substantially
greater than that which is necessary to make his conduct
negligent.” Restatement (Second) of Torts §500, p. 587
(1963–1964).
It is this high risk of harm, objectively assessed,
that is the essence of recklessness at common law. See Prosser and
Keeton §34, at 213 (recklessness requires “a known or obvious risk
that was so great as to make it highly probable that harm would
follow”).
There being no indication that Congress had
something different in mind, we have no reason to deviate from the
common law understanding in applying the statute. See
Prupis, 529 U. S., at 500–501. Thus, a company subject to
FCRA does not act in reckless disregard of it unless the action is
not only a violation under a reasonable reading of the statute’s
terms, but shows that the company ran a risk of violating the law
substantially greater than the risk associated with a reading that
was merely careless.
Here, there is no need to pinpoint the
negligence/recklessness line, for Safeco’s reading of the statute,
albeit erroneous, was not objectively unreasonable. As we said,
§1681a(k)(1)(B)(i) is silent on the point from which to measure
“increase.” On the rationale that “increase” presupposes prior
dealing, Safeco took the definition as excluding initial rate
offers for new insurance, and so sent no adverse action notices to
Burr and Massey. While we disagree with Safeco’s analysis, we
recognize that its reading has a foundation in the statutory text,
see
supra, at 11, and a sufficiently convincing
justification to have persuaded the District Court to adopt it and
rule in Safeco’s favor.
This is not a case in which the business
subject to the Act had the benefit of guidance from the courts of
appeals or the Federal Trade Commission (FTC) that might have
warned it away from the view it took. Before these cases, no court
of appeals had spoken on the issue, and no authoritative guidance
has yet come from the FTC[
Footnote 19] (which in any case has only enforcement
responsibility, not substantive rulemaking authority, for the
provisions in question, see 15 U. S. C. §§1681s(a)(1), (e)).
Cf.
Saucier v.
Katz,
533 U. S. 194, 202
(2001) (assessing, for qualified immunity purposes, whether an
action was reasonable in light of legal rules that were “clearly
established” at the time). Given this dearth of guidance and the
less-than-pellucid statutory text, Safeco’s reading was not
objectively unreasonable, and so falls well short of raising the
“unjustifiably high risk” of violating the statute necessary for
reckless liability.[
Footnote
20]
* * *
The Court of Appeals correctly
held that reckless disregard of a requirement of FCRA would qualify
as a willful violation within the meaning of §1681n(a). But there
was no need for that court to remand the cases for factual
development. GEICO’s decision to issue no adverse action notice to
Edo was not a violation of §1681m(a), and Safeco’s misreading of
the statute was not reckless. The judgments of the Court of Appeals
are therefore reversed in both cases, which are remanded for
further proceedings consistent with this opinion.
It is so ordered.
* Justice Scalia joins all but footnotes 11
and 15 of this opinion.
Footnote 1
So far as it matters here, the Act defines
“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, [or] credit capacity
… 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 … credit or insurance to be used
primarily for personal, family, or household purposes.” 15 U.
S. C. §1681a(d)(1) (footnote omitted). The scope of this
definition is not at issue.
Footnote 2
The specific petitioners are subsidiary
companies of the GEICO Corporation; for the sake of convenience, we
call them “GEICO” collectively.
Footnote 3
The Act defines a “credit score” as “a numerical
value or a categorization derived from a statistical tool or
modeling system used by a person who makes or arranges a loan to
predict the likelihood of certain credit behaviors, including
default.” 15 U. S. C. §1681g(f)(2)(A) (2000 ed., Supp. IV).
Under its contract with its credit information providers, GEICO
learned credit scores and facts in the credit reports that
significantly influenced the scores, but did not have access to the
credit reports themselves.
Footnote 4
A number of States permit the use of such
“neutral” credit scores to ensure that consumers with thin or
unidentifiable credit histories are not treated disadvantageously.
See,
e.g., N. Y. Ins. Law Ann. §§2802(e), (e)(1)
(West 2006) (generally prohibiting an insurer from “consider[ing]
an absence of credit information,” but allowing it to do so if it
“treats the consumer as if the applicant or insured had neutral
credit information, as defined by the insurer”).
Footnote 5
Again, the actual petitioners are subsidiary
companies, of Safeco Corporation in this case; for convenience, we
call them “Safeco” collectively.
Footnote 6
The parties do not dispute that the credit
scores and credit reports relied on by GEICO and Safeco are
“consumer reports” under 15 U. S. C. §1681a(d)(1).
Footnote 7
Prior to issuing its final opinion in this
case, the Court of Appeals had issued, then withdrawn, two opinions
in which it held that GEICO had “willfully” violated FCRA as a
matter of law.
Reynolds v.
Hartford Financial Servs.
Group, Inc., 416 F. 3d 1097 (CA9 2005);
Reynolds
v.
Hartford Financial Servs. Group, Inc., 426 F. 3d
1020 (CA9 2005).
Footnote 8
Compare,
e.g.,
Cushman v.
Trans Union Corp., 115 F. 3d 220, 227 (CA3 1997)
(adopting the “reckless disregard” standard), with
Wantz
v.
Experian Information Solutions, 386 F. 3d 829, 834
(CA7 2004) (construing “willfully” to require that a user
“knowingly and intentionally violate the Act”);
Phillips
v.
Grendahl, 312 F. 3d 357, 368 (CA8 2002)
(same).
Footnote 9
It is different in the criminal law. When the
term “willful” or “willfully” has been used in a criminal statute,
we have regularly read the modifier as limiting liability to
knowing violations. See
Ratzlaf v.
United States,
510 U. S. 135,
137 (1994);
Bryan v.
United States,
524 U. S. 184, 191–192 (1998);
Cheek v.
United States,
498 U. S. 192, 200–201
(1991). This reading of the term, however, is tailored to the
criminal law, where it is characteristically used to require a
criminal intent beyond the purpose otherwise required for guilt,
Ratzlaf,
supra, at 136–137; or an additional
“ ‘bad purpose,’ ”
Bryan,
supra, at
191; or specific intent to violate a known legal duty created by
highly technical statutes,
Cheek,
supra, at
200–201. Thus we have consistently held that a defendant cannot
harbor such criminal intent unless he “acted with knowledge that
his conduct was unlawful.”
Bryan,
supra, at 193.
Civil use of the term, however, typically presents neither the
textual nor the substantive reasons for pegging the threshold of
liability at knowledge of wrongdoing. Cf.
Farmer v.
Brennan,
511 U. S. 825, 836–837 (1994)
(contrasting the different uses of the term “recklessness” in civil
and criminal contexts).
Footnote 10
Since the posted price seems to be addressed
to the world in general, one could argue that the increased gas
price is not the initial quote. But the same usage point can be
made with the example of the clothing model who gets a call from a
ritzy store after posing for a discount retailer. If she quotes a
higher fee, it would be natural to say that the uptown store will
have to pay the “increase” to have her in its ad.
Footnote 11
See S. Rep. No. 91–517, p. 7 (1969)
(“Those who … charge a higher rate for credit or insurance wholly
or partly because of a consumer report must, upon written request,
so advise the consumer …”); S. Rep. No. 103–209, p. 4 (1993)
(adverse action notice is required “any time the permissible use of
a report results in an outcome adverse to the interests of the
consumer”); H. R. Rep. No. 103–486, p. 26 (1994) (“[W]henever
a consumer report is obtained for a permissible purpose … , any
action taken based on that report that is adverse to the interests
of the consumer triggers the adverse action notice
requirements”).
Footnote 12
In fact, notice in the context of an
initially offered rate may be of greater significance than notice
in the context of a renewal rate; if, for instance, insurance is
offered on the basis of a single, long-term guaranteed rate, a
consumer who is not given notice during the initial application
process may never have an opportunity to learn of any adverse
treatment.
Footnote 13
For instance, if a consumer’s driving record
is so poor that no insurer would give him anything but the highest
possible rate regardless of his credit report, whether or not an
insurer happened to look at his credit report should have no
bearing on whether the consumer must receive notice, since he has
not been treated differently as a result of it.
Footnote 14
The history of the Act provides further
support for this reading. The originally enacted version of the
notice requirement stated: “Whenever … the charge for … insurance
is increased either wholly or partly because of information
contained in a consumer report … , the user of the consumer report
shall so advise the consumer … .” 15 U. S. C.
§1681m(a) (1976 ed.). The “because of” language in the original
statute emphasized that the consumer report must actually have
caused the adverse action for the notice requirement to apply. When
Congress amended FCRA in 1996, it sought to define “adverse action”
with greater particularity, and thus split the notice provision
into two separate subsections. See 110 Stat. 3009–426 to 3009–427,
3009–443 to 3009–444. In the revised version of §1681m(a), the
original “because of” phrasing changed to “based on,” but there was
no indication that this change was meant to be a substantive
alteration of the statute’s scope.
Footnote 15
While it might seem odd, under the current
statutory structure, to interpret the definition of “adverse
action” (in §1681a(k)(1)(B)(i)) in conjunction with §1681m(a),
which simply applies the notice requirement to a particular subset
of “adverse actions,” there are strong indications that Congress
intended these provisions to be construed in tandem. When FCRA was
initially enacted, the link between the definition of “adverse
action” and the notice requirement was clear, since “adverse
action” was defined within §1681m(a). See 15 U. S. C.
§1681m(a) (1976 ed.). Though Congress eventually split the
provision into two parts (with the definition of “adverse action”
now located at §1681a(k)(1)(B)(i)), the legislative history
suggests that this change was not meant to alter Congress’s intent
to define “adverse action” in light of the notice requirement. See
S. Rep. No. 103–209, at 4 (“The Committee bill … defines an
‘adverse action’ as any action that is adverse to the interests of
the consumer and is based in whole or in part on a consumer
report”); H. R. Rep. No. 103–486, at 26 (“[A]ny action based
on [a consumer] report that is adverse to the interests of the
consumer triggers the adverse action notice requirements”).
Footnote 16
Consider, too, a consumer who, at the initial
application stage, had a perfect credit score and thus obtained the
best insurance rate, but, at the renewal stage, was charged at a
higher rate (but still lower than the rate he would have received
had his credit report not been taken into account) solely because
his credit score fell during the interim. Although the consumer
clearly suffered an “increase” in his insurance rate that was
“based on” his credit score, he would not be entitled to an adverse
action notice under the baseline used for initial applications.
Footnote 17
We reject Edo’s alternative argument that
GEICO’s offer of a standard insurance policy with GEICO Indemnity
was an “adverse action” requiring notice because it amounted to a
“denial” of insurance through a lower cost, “preferred” policy with
GEICO General. See §1681a(k)(1)(B)(i) (defining “adverse action” to
include a “denial … of … insurance”). An applicant calling GEICO
for insurance talks with a sales representative who acts for all
the GEICO companies. The record has no indication that GEICO tells
applicants about its corporate structure, or that applicants
request insurance from one of the several companies or even know of
their separate existence. The salesperson takes information from
the applicant and obtains his credit score, then either denies any
insurance or assigns him to one of the companies willing to provide
it; the other companies receive no application and take no separate
action. This way of accepting new business is clearly outside the
natural meaning of “denial” of insurance.
Footnote 18
Unlike civil recklessness, criminal
recklessness also requires subjective knowledge on the part of the
offender.
Brennan, 511 U. S., at 836–837; ALI, Model Penal
Code §2.02(2)(c) (1985).
Footnote 19
Respondent-plaintiffs point to a letter,
written by an FTC staff member to an insurance company lawyer, that
suggests that an “adverse action” occurs when “the applicant will
have to pay more for insurance at the inception of the policy than
he or she would have been charged if the consumer report had been
more favorable.” Letter from Hannah A. Stires to James M. Ball
(Mar. 1, 2000), http://www.ftc.gov/os/statutes/fcra/ball.htm (as
visited May 17, 2007, and available in Clerk of Court’s case file).
But the letter did not canvas the issue, and it explicitly
indicated that it was merely “an informal staff opinion … not
binding on the Commission.” Ibid.
Footnote 20
Respondent-plaintiffs argue that evidence of
subjective bad faith must be taken into account in determining
whether a company acted knowingly or recklessly for purposes of
§1681n(a). To the extent that they argue that evidence of
subjective bad faith can support a willfulness finding even when
the company’s reading of the statute is objectively reasonable,
their argument is unsound. Where, as here, the statutory text and
relevant court and agency guidance allow for more than one
reasonable interpretation, it would defy history and current
thinking to treat a defendant who merely adopts one such
interpretation as a knowing or reckless violator. Congress could
not have intended such a result for those who followed an
interpretation that could reasonably have found support in the
courts, whatever their subjective intent may have been.
Both Safeco and GEICO argue that good-faith
reliance on legal advice should render companies immune to claims
raised under §1681n(a). While we do not foreclose this possibility,
we need not address the issue here in light of our present
holdings.
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