Cole Crumples: Value Not a Factor in Most Firm Offer Cases

A “firm offer of credit” does not have to cross a value threshold or have all material terms spelled out like an offer at common law to justify a lender’s access to a customer’s credit file. As bankers know too well, the Fair Credit Reporting Act (FCRA) allows a company to access a consumer’s credit information only if the consumer initiates the transaction or if it uses the information to make a firm offer of credit or insurance. Just what constitutes a firm offer of credit has spawned a lot of litigation. Last week, in Murray v. New Cingular Wireless Services, Inc., the Seventh Circuit provided some much-needed guidance and (we would say) relief. It joins the First Circuit, which provided some clarity last month in Sullivan v. Greenwood Credit Union. Since Cole v. U.S. Capital (Cole) was decided in 2004, plaintiffs’ counsel have argued, with some success, that offers of credit must not only be “firm” but also “valuable” to the consumer. They also said that the offers had to contain all material terms, just like at common law. Murray and Sullivan say otherwise.

In Cole, an Illinois-based automobile dealer accessed an Illinois resident’s credit report to see whether she met certain pre-screening qualifications. She did, and the dealer sent her a mailing stating she had been pre-approved for up to $19,500 of credit toward the purchase of a car. Of this, though, only $300 was guaranteed, and the fine print suggested the plaintiff would have to go to Florida to get the $300 line. The Cole court found the car dealer’s offer simply was not valuable enough to justify the dealer’s poking around in the consumer’s credit record. The offer of credit really was an advertisement for the car, rather than an offer of a loan. The court held that Cole could proceed on her claims against the dealer.

Since Cole, plaintiff’s lawyers around the country have filed claims asserting that offers of credit — even those not coupled with a product offer — have no value if they lack all material terms. They reason that without that, the consumer cannot evaluate the offer fairly. Murray rejects this notion. According to Murray, Cole applies only to an offer of merchandize and not to a simple offer of credit. A lender’s failure to include all material terms in a credit offer does not undercut the firm nature of the offer. If an offer recipient is guaranteed credit of some amount, the terms need not be fully disclosed at this time. Bona fide offers of credit that are not simply advertisements for products or services will, in the Seventh Circuit at least, no longer be evaluated to determine whether they provide value to the customer. The operative question is now whether the offer is “firm.” Whether the interest rates are too high or the credit too low is not relevant for purposes of determine the “firmness” of the offer.

In Sullivan, the plaintiffs argued that a solicitation letter is not a firm offer of credit if it lacks the crucial terms for it to be considered a contract offer and is so vague that it is not capable of acceptance. The Sullivan court rejected this view. It ruled that because “firm offer of credit” is a defined term in the FCRA, common-law definitions could not be used. An offer of credit meets the statutory definition so long as a lender does not deny credit to a consumer who meets the pre-screen criteria.

There still may be situations where a purported “firm offer of credit” is just a sham. Suppose a lender buys a list of potential borrowers meeting a certain profile, but actually plans to individually analyze each applicant regardless of whether they meet the prescreen standards. Or assume that the lender simply “reserve[s] the right to walk away by naming onerous terms anytime it does not want to lend money to a particular consumer.” In both cases the offer likely will fail to meet the requirements of a firm offer. However, such practices can be revealed only with discovery. The Cole line of cases was certified on the basis of the offer letter alone. Class certification should now be more difficult to obtain because fewer letters will, on their face, be rejected as not making a firm offer of credit.

OCC Issues Final Rule
The Office of the Comptroller of the Currency (OCC) published a final rule in the Federal Register on April 24, 2008 that reduces unnecessary regulatory burden and revises and updates various OCC regulations. The OCC final rule is effective on July 1, 2008. 

The OCC final rule results from the agency’s most recent review of its regulations and includes:

1. Measures updating and revising the qualifying standards and after-the-fact notice procedures that apply to national bank operating subsidiaries
2. Lists of operating subsidiary activities that are permissible upon filing an after-the-fact notice
3. Revisions to reduce the burden associated with applications for fiduciary powers and intermittent branches, with change in bank control notices, and with requirements to make securities filings
4. Measures to incorporate previously published interpretive opinions concerning electronic banking activities
5. Measures to harmonize the OCC rules with rules issued by other federal agencies, update OCC rules to reflect recent statutory changes, and make technical and conforming amendments to improve clarity and consistency

To view the final rule, please visit: http://www.occ.gov/ftp/release/2008-47a.pdf.

Legal News: Consumer Financial Services Litigation Update is part of our ongoing commitment to providing up-to-the minute information about pressing concerns or industry issues affecting our clients and our colleagues.

If you have any questions about this issue or would like to discuss these topics further, please contact your Foley attorney.