By Kevin Coy[1]

It's January, and with the beginning of the New Year, this January also brings the beginning of a new Congress (the 113th) as well as President Obama's inauguration for his second term. The new Congress brings new bills and new members, including Consumer Financial Protection Bureau (CFPB) architect and now Senator Elizabeth Warren (D-MA). More new faces in the Senate may be on the way shortly, with President Obama having nominated Senator John Kerry to be Secretary of State. Senator Kerry is widely expected to be confirmed, and he could be succeeded in the Senate temporarily by former Congressman Barney Frank and permanently by Congressman Ed Markey, both of whom have long been active on FCRA, background screening and other privacy and consumer protection measures. In fact, then-Representative and Chair of House Financial Services Committee, Mr. Frank led the charge on the Dodd-Frank Act which created the CFPB. The new Congress is just getting underway, however, and while background checks are on the agenda, its background checks for gun sales, not employment or tenant screening that is dominating the discussion in Washington this month. With that in mind, the primary focus of this first Washington Report of the New Year will be the Federal Trade Commission (FTC).

FTC Personnel Changes

The New Year also, coincidentally, has brought change to the FTC. On January 1st, the Senate, in one of the final acts of the outgoing 112 th Congress, unanimously confirmed the nomination of Joshua Wright, as FTC Commissioner. Commissioner Wright was a Professor at the George Mason University School of law prior to his appointment and has a background in antitrust and consumer protection law. Commissioner Wright replaces Commissioner Tom Rosch, who had served on the Commission since 2006 prior to his retirement. With the swearing in of Commissioner Wright, which occurred on January 11, four of the five FTC Commissioners have been in office less than three years. Commissioners Edith Ramierez and Julie Brill joined the Commission in April 2010 and Commissioner Maureen Ohlhausen joined the Commission in April 2012. If Chairman Jon Leibowitz, who has been a member of the Commission since 2004, leaves the Commission shortly, as has widely been speculated, we could have a complete turnover at the FTC in just three years.

There also have been important changes at the Staff level, chief among them, David Vladeck's departure from his position as the head of the Bureau of Consumer Protection on December 31st to return to his teaching position at Georgetown University Law Center. Vladeck has been replaced on an interim basis by his Deputy, Charles Harwood. Maneesha Mithal continues in her role as the head of the Division of Privacy and Identity Protection (DPIP) and no changes to the FTC's enforcement priorities are expected in the short term.

FTC Brings Its First FCRA Mobile Application Enforcement Action

On January 10th, the FTC announced its first FCRA case involving a mobile application; an area the FTC identified as an area of interest in February 2012 when it publicly released six warning letters to mobile application developers. The proposed settlement ( In Re: Filiquarian Publishing, et. al.) resolves FTC allegations that the respondents violated the FCRA by offering a series of state-specific criminal background check applications, which company advertising indicated could be used for employment purposes, without complying with FCRA requirements.

According to the FTC complaint, each application, such as "Texas Criminal Records Search" or "Orange County Criminal Records Search" was sold for 99 cents and entitled the purchaser to an unlimited number of searches using the application in that jurisdiction. The application's terms included disclaimers indicating that the information was not to be used for an FCRA permissible purpose, but the FTC found this language to be ineffective, concluding that since the company advertised the reports for employment purposes, the company expected the information to be used for consumer reporting purposes and therefore the definition of consumer reporting agency was satisfied. As a result, since the respondents treated the offering as not being FCRA regulated, the FTC charged them with failing to meet FCRA permissible purpose, credentialing, accuracy and notice distribution requirements under FCRA §§ 604, 607(a), 607(b), and 607(d).

The FTC brought the case against not only the mobile application developer, Filiquarian, but also against the company which provided the data that powered the applications, Choice Level LLC, and the principal in both companies. The complaint attributes its action against the affiliated data supplier to the common ownership and control of both companies which, when combined with the fact that Filiquarian advertised the materials for employment purposes, made the data supplier "aware" that the records it provided to Filiquarian were subject to use for employment purposes.

Interestingly, the FTC did not seek a monetary penalty in the case, only compliance with the FCRA and various recordkeeping requirements common to FTC Orders. The lack of a monetary penalty may be because Filiquarian does not appear to have generated much revenue from the applications. According to the complaint, 6,879 copies of the application were sold, which at 99 cents each would amount to about $6,800.

The proposed Filiquarian settlement, which will not be finalized until after the public comment period, is another reminder that despite all of the attention that the CFPB (rightly) receives, the FTC continues to play an important role in the employment and tenant screening space. The FTC's action underscores the fact that the FCRA applies even in the smartphone application space and that while the platform is different, the FCRA rules-when applicable-remain the same.

Filiquarian also is a useful reminder that not only are a company' contracts and terms and conditions important, but so too is the content of company advertising, particularly in cases where a company is offering what it believes to be non-FCRA regulated products and services (although, of course, advertising consumer reports for purposes other than permissible purposes poses comparable problems). The FTC complaint does not allege that any of the applications actually were used for employment purposes. The fact that it advertised use of the criminal record applications for employment purposes was sufficient to trigger application of the FCRA. In a blog post released the same day that the settlement was announced, the FTC Staff Attorneys that led the FTC investigation in the case underscored that Filiquarian's non-FCRA disclaimers were trumped by advertising the product for use for FCRA purposes.

Disclaimer: The Washington Report provides a general summary of recent legal and legislative developments and is for informational purposes only. It is not intended to be, and should not be relied upon as legal advice. For more information, please contact Kevin Coy at 202-677-4034.

[1] Kevin Coy is a Partner in the Washington DC office of Arnall Golden Gregory LLP. Kevin advises background screening companies and other clients on a wide range of privacy issues, including Fair Credit Reporting Act, Gramm Leach Bliley Act, Drivers' Privacy Protection Act compliance issues, and data breach matters. Kevin also represents clients with matters before the Federal Trade Commission, the Consumer Financial Protection Bureau, and other consumer protection agencies. Kevin can be contacted at or 202-677-4034.