U.S. Supreme Court rules reckless behavior is 'willful'.

Byline: David Ziemer

The U.S. Supreme Court held on June 4 that reckless disregard of the notice requirements in the Fair Credit Reporting Act (FCRA) can entitle the consumer to actual, statutory, and punitive damages, reversing the current law in the Seventh Circuit. The case Safeco Ins. Co of America v. Burr, is a consolidation of two cases involving insurers who failed to inform consumers that their automobile insurance rates were based on credit reports containing adverse information. The FCRA requires that notice be given 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). Negligent failure to send notice results only in actual damages, but anyone who "willfully fails" to file notice is liable for actual damages, statutory damages of $100 to $1,000, and punitive damages. When an applicant applies for auto insurance from GEICO, the insurer compares the rate it is offering the customer with the rate he would have been given had credit history not been considered, and only sends a notice if using a neutral credit score would have resulted in a lower rate. Safeco Insurance also relies on credit reports to set initial insurance premiums, but does not send adverse action notices when reports result in higher rates. Both insurers were sued for violating the FCRA. On appeal from district court dismissals of the actions, the Ninth Circuit reversed both. The Supreme Court granted review and reversed in both cases, in a majority opinion by Justice David H. Souter. The court held as follows: 1. Willful failure includes violations committed in reckless disregard of the notice obligation, not just knowing violations; and 2. Initial rates charged for new insurance policies may be adverse actions, as well as increases to existing policies. Applying the holdings to the insurers, the court held that GEICO did not violate the statute at all, and that, while Safeco may have, it did not act recklessly. Willful Failure The court concluded that willful failure includes reckless conduct, because, in civil statutes, as opposed to criminal ones, willfulness is generally construed to include not only knowing violations of a standard, but reckless ones, as well. In addition, at common law, actions in reckless disregard of the law were treated as willful violations. The insurers argued that Congress intended to change the standard in the FCRA, citing legislative...