On April 29, 2021, Vivint Smart Homes, Inc. (Vivint), a home security and monitoring company, entered into an agreement with the Federal Trade Commission (FTC) regarding alleged violations of the Fair Credit Reporting Act (FCRA), including the Red Flags Rule. Under this agreement, Vivint will pay a $15 million civil penalty and $5 million in compensation to consumers. According to the FTC press release, this is the largest monetary judgement to date for an FTC FCRA case. So, what did Vivint allegedly do that ran afoul of the FCRA?
According to the complaint filed by the Department of Justice on behalf of the FTC, Vivint’s smart home security systems cost over $1,000, so many consumers will finance the cost. Some of this financing is through a third-party bank, but a significant portion are also financed by Vivint using retail installment contracts where the seller of goods also finances the purchase. Consumers had to meet a minimum credit score to qualify for the financing, and Vivint often used seasonal sales representatives paid solely on commission to sell the systems. The sales representatives would use a tablet to conduct the transactions including checking credit histories of potential buyers.
If a consumer did not meet minimal requirements, some sales representatives used a method described as “white paging” to get applications approved. Section 604 of the FCRA requires a “permissible purpose” to access a consumer report – such as a transaction initiated by a consumer. If a consumer did not independently satisfy the credit requirement, the sales representative would use the white pages to identify someone who had the same or similar name to the consumer but was not related to them. The Vivint representative would then enter this unrelated person’s address as a “previous address” in their application and re-run the credit check. This would pull the credit score of the similarly named person. This essentially duped the software into approving someone by accessing credit history of the unrelated individual without a permissible purpose, and Vivint would extend credit to this unqualified customer.
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