DISPOSITION:  [*1]  CheckFree's motion for summary judgment as it applies to Kvalheim's federal claims under FCRA GRANTED. Claim DISMISSED WITHOUT PREJUDICE. FINAL JUDGMENT entered in favor of defendant CheckFree Corporation and against plaintiff Kenneth C. Kvalheim.

COUNSEL: For KENNETH C. KVALHEIM, plaintiff: Stephen E. Clements, Esq., Clute & Clements, P.C., Mobile, AL.
 
For CHECKFREE CORP, defendant: Lawrence J. Seiter, Esq., Johnstone, Adams, Bailey, Gordon & Harris, Mobile, AL.
 
For COMPASS BANK, movant: Jerry Wayne Powell, Compass Bank, Birmingham, AL.

JUDGES: RICHARD W. VOLLMER, JR., UNITED STATES DISTRICT JUDGE.

OPINIONBY: RICHARD W. VOLLMER, JR.

OPINION: MEMORANDUM OPINION AND ORDER

Plaintiff Kenneth C. Kvalheim contends that defendant CheckFree Corporation violated the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. §§ 1681 et seq., when it obtained his credit report without permission and then failed to respond to his letter when he discovered this credit check. Kvalheim also brings a state law claim for invasion of privacy.

CheckFree has moved for summary judgment on the grounds that its conduct did not violate the FCRA and that Kvalheim's state law claim is preempted  [*2]  by the FCRA.

After carefully reviewing the law and considering the submissions of the parties, n1 the court concludes that the FCRA does not impose any civil liability for the actions alleged in Kvalheim's amended complaint. Accordingly, the court will grant CheckFree's motion for summary judgment as to Kvalheim's FCRA claims. Because the court declines to exercise supplemental jurisdiction over Kvalheim's remaining state law claim for invasion of privacy, that claim will be dismissed without prejudice.
 
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n1 The court has considered CheckFree's "Motion for Summary Judgment" (Doc. 26); CheckFree's "Brief in Support of Motion for Summary Judgment" (Doc. 27); CheckFree's "Evidentiary Materials in Support of Motion for Summary Judgment" (Doc. 28); Kvalheim's "Response to Defendant's Motion for Summary Judgment" (Doc. 30); and CheckFree's "Reply to Plaintiff's Response to Defendant's Motion for Summary Judgment" (Doc. 32).
 
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I. BACKGROUND

CheckFree is engaged in the business of designing, developing and marketing  [*3]  services that allow customers to conduct financial transactions over the Internet. Specifically, CheckFree processes more than 12 million electronic transactions per month on behalf of some 3 million customers at over 350 banks and financial institutions. CheckFree's services are available through several Internet sites, including Yahoo!.com, Quicken.com, and Wingspan Bank.com. CheckFree is also the exclusive provider of electronic bill payment services to individuals and financial institutions who use the Quicken money management computer software program.

Most electronic bill payment services utilize the Federal Reserve's Automatic Clearing House ("ACH"). Under ACH rules, a debit from a customer's bank account is reversible for up to forty-eight hours. As a result, the electronic payment processing service must either hold the debited funds for two days, and incur the displeasure of the customer, or immediately send the payment to the intended payee, and run the risk that the transaction will be reversed because the customer's account has insufficient funds.

CheckFree avoids this dilemma by using a multi-step procedure that is designed to ensure the efficient remittance of electronic  [*4]  payments while taking into account the ACH rules. First, a CheckFree customer selects the "due date" that the electronic payment is to occur. CheckFree then initiates the credit side of the transaction in advance of that due date and sends the payment to the payee. Finally, on the actual due date itself, CheckFree electronically debits the customer's bank account.

Credit risk is inherent in this process. When CheckFree initiates the electronic payment to the payee prior to the due date, CheckFree does not yet know whether the customer's account contains sufficient funds to cover the amount of the payment. Indeed, CheckFree does not actually collect the payment from the customer until the due date, well after the funds have already been advanced to the payee.

There are other ways of dealing with the ACH "two day" rule. For example, one method is to send the payee a paper draft of the electronic transaction that is coded to the customer's bank account. The payee then negotiates the instrument and the transaction is settled through normal banking channels. The advantage of this method is that it lowers an electronic payment provider's exposure to credit risk. The downside, however,  [*5]  is that the cost of sending a paper draft is almost ten times more than the cost of sending a purely electronic payment. Intuit Services Corporation ("ISC"), which was also engaged in the business of providing electronic bill payment services, used this method to process all of its electronic transactions. Due in part to the high costs associated with this "paper draft" procedure, ISC's parent company, Intuit, Inc., decided to sell the business to CheckFree.

On January 27, 1997, CheckFree merged with ISC. As one of many initiatives intended to make the business more efficient after the merger, CheckFree began setting up the technology and internal procedures to permit customer payments originally initiated through the ISC system to be processed completely electronically. A determination first had to be made as to the relative credit-worthiness of the former ISC customer base. According to CheckFree, if the overall credit profile of these former ICS customers was unsatisfactory, it would be necessary for CheckFree to introduce a number of more expensive risk-minimizing parameters to the ISC system.

To help determine the relative credit-worthiness of the ISC customer base, CheckFree  [*6]  ordered a "credit score" n2 of the 1,371,883 former ISC customers from Experian (formerly TRW), a credit reporting agency. On March 26, 1998, Experian ran its "data synchronization" program, which compares a name and address combination against the information contained on magnetic tapes supplied by CheckFree, to identify the former ISC customers in its system. Experian then sent CheckFree a magnetic tape containing identifying information for each customer and their score. CheckFree analyzed the data base and calculated averages, means and standard deviations of the customers' scores to determine the overall credit worthiness of the former ISC customer base.
 
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n2 A credit score "is a supposedly scientific way of assessing the likelihood that a debtor will repay a loan. . . . The score is based on all credit-related data in a credit bureau report, but it is not a measure of a borrower's income, assets, or bank accounts." In re Ellingsworth, 212 B.R. 326, 331 (Bankr. W.D. Mo. 1997).
 
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Approximately  [*7]  three weeks before CheckFree obtained the credit scores of the former ISC customers, Kvalheim completed an application for Compass Bank's "CompassPC" home banking program, which allowed him to conduct his banking and to pay bill through his personal computer. Because Compass Bank had formerly used ISC's electronic payment service, CheckFree obtained the credit score of every CompassPC customer, including Kvalheim, from Experian. However, CheckFree did not attempt to access specific information about Kvalheim, who was merely one of more than 1.3 million individuals used to generate the credit score.

After discovering this credit inquiry, Kvalheim requested information from CheckFree by a letter dated October 21, 1998. CheckFree did not respond to Kvalheim's letter.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In reviewing a motion for summary judgment, the court must view the evidence and  [*8]  all reasonable inferences drawn therefrom in the light most favorable to the non-moving party. See Swain v. Hillsborough County School Bd., 146 F.3d 855, 857 (11th Cir. 1998).

The party seeking summary judgment has the initial burden of showing that there is no genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). Once the moving party meets that burden, the non-moving party must set forth specific facts demonstrating that there is a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S. Ct. 1348, 1355, 89 L. Ed. 2d 538 (1986). A genuine issue of material fact exists for trial if a reasonable jury could return a verdict in favor of the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986).

To avoid an adverse ruling on a motion for summary judgment, the non-moving party "may not rest upon the mere allegations or denials of [its] pleading." Fed R. Civ. P. 56(e). Nor may the non-moving party defeat a summary judgment motion  [*9]  by simply providing a mere "scintilla" of evidence. See Burger King Corp. v. Weaver, 169 F.3d 1310, 1321 (11th Cir. 1999). Instead, there must be a genuine factual conflict in the evidence to support a jury question. See Burton v. City of Belle Glade, 178 F.3d 1175, 1187 (11th Cir. 1999).

III. DISCUSSION

Kvalheim's amended complaint contains three causes of action. Count one alleges that CheckFree violated the FCRA by obtaining Kvalheim's credit report without his permission. Count Two contends that CheckFree violated the FCRA by not responding to a letter Kvalheim wrote seeking information concerning that credit inquiry. Count Three asserts that CheckFree invaded Kvalheim's privacy in violation of state tort law by performing the credit check without his authorization. The court will discuss each allegation in turn.

A. Whether CheckFree Violated the FCRA by Requesting Kvalheim's Credit Score

Kvalheim first argues that CheckFree violated the FCRA by improperly obtaining his credit report from Experian without his permission. At the outset, the court notes that the Eleventh Circuit has not directly addressed whether the FCRA imposes  [*10]  liability upon a party who obtains a consumer report n3 from a consumer reporting agency for an impermissible purpose, n4 and that the courts which have tackled this issue have reached conflicting results. Compare Duncan v. Handmaker, 149 F.3d 424, 427 (6th Cir. 1998) (the FCRA imposes liability upon individuals who obtain consumer reports for an improper purpose); Bakker v. McKinnon, 152 F.3d 1007, 1012 (8th Cir. 1998) (same); Mone v. Dranow, 945 F.2d 306, 307-08 (9th Cir. 1991) (same); Boothe v. TRW Credit Data, 557 F. Supp. 66, 71 (S.D.N.Y. 1982) (same), with Frederick v. Marquette Nat'l Bank, 911 F.2d 1, 2 (7th Cir. 1990) (the FCRA imposes no liability upon the recipients of consumer reports obtained for impermissible purposes); DiCarlo v. Maryland Auto. Ins. Fund, 855 F. Supp. 823, 824 (D. Md. 1994) (same); see also Dobson v. Holloway, 828 F. Supp. 975 (M.D. Ga. 1993) (implying that no cause of action exists against parties who obtain consumer reports for improper reasons).
 
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n3 The FCRA defines a "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, credit capacity, character, general reputation, personal characteristics, or mode of living 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-- (A) credit or insurance to be used primarily for personal, family, or household purposes; (B) employment purposes; or (C) any other purpose authorized under section 1681b of this title.

 
15 U.S.C. § 1681a(d)(1). Because neither party contends that the credit scores obtained by CheckFree from Experian were not consumer reports, the court assumes without deciding that Kvalheim's credit report was a "consumer report" within the meaning of the FCRA.  [*11] 

n4 It is, however, arguable that in Yang v. Government Employees Insurance Co., 146 F.3d 1320 (11th Cir. 1998), the Eleventh Circuit recognized that an insurer could be held liable under the FCRA for improperly obtaining its insureds' credit report from a credit reporting agency).
 
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However, the court need not resolve whether the FCRA imposes liability on a party who obtains a consumer report for an improper purpose, because the court concludes that CheckFree's purpose for obtaining Kvalheim's credit score is permitted under the statute. Specifically, the FCRA authorizes a party to obtain a consumer report when it "has a legitimate business need for the information-- (i) in connection with a business transaction that is initiated by the consumer." 15 U.S.C. § 1681b(3)(F).

In this case, Kvalheim's credit score was obtained in connection with CheckFree's service of providing electronic payments to third-party creditors, a service which was initiated by Kvalheim when he enrolled in the Compass PC home computer banking service. Because the court concludes  [*12]  that this was a legitimate "business transaction" under section 1681b(3)(F), see, e.g., Williams v. AT&T Wireless Service, Inc., 5 F. Supp. 2d 1142, 1151-52 (W.D. Wash. 1998), CheckFree is not subject to any liability under the FCRA for obtaining Kvalheim's credit score. CheckFree's motion for summary judgment will therefore be granted as to this claim.

B. Whether CheckFree Violated the FCRA by Failing to Respond to Kvalheim's Written Inquiry Concerning The Credit Check

Count Two of Kvalheim's amended complaint alleges that CheckFree violated the FCRA when it failed to respond to his October 21, 1998 letter because it had a statutory duty to respond. CheckFree counters that it has no duty under the FCRA to reply to such inquiries. In his response to CheckFree's summary judgment motion, Kvalheim concedes this point. See Pl.'s Resp. to Def.'s Mot. for Summ. J. (Doc. 30, at 1-2) ("Since the filing of this instant action, Plaintiff has now discovered that there apparently is no statutory duty imposed upon the Defendant to have responded to his inquiry. . . . For the reasons set forth hereinabove [sic], the Plaintiff concedes that the portion of the complaint  [*13]  seeking to recover for Defendant CheckFree's failure to respond to Plaintiff's inquiry is due to be dismissed.").

Based on Kvalheim's concession, the court will assume for purposes of this motion that the FCRA imposed no duty upon CheckFree to respond to Kvalheim's October 21, 1998 letter concerning his credit report. Accordingly, summary judgment will be granted as to this issue.

C. Whether Kvalheim's State Law Claim for Invasion of Privacy is Preempted by the FCRA

Finally, Kvalheim alleges that CheckFree invaded his privacy in violation of state tort law when it obtained his credit report without his permission. CheckFree counters that this claim is preempted by the FCRA. Because CheckFree is entitled to summary judgment as to Kvalheim's federal claims, the court declines to exercise supplemental jurisdiction to resolve the remaining state law invasion of privacy claim. See 28 U.S.C. § 1367(c)(3). Accordingly, this claim will be dismissed without prejudice.

IV. CONCLUSION

The FCRA imposes no liability for the allegations contained within Kvalheim's amended complaint. Accordingly, the court GRANTS CheckFree's motion for summary judgment  [*14]  as it applies to Kvalheim's federal claims under the FCRA. Because the court declines to exercise supplemental jurisdiction over Kvalheim's state law claim for invasion of privacy, that claim is DISMISSED WITHOUT PREJUDICE.

DONE this 17 day of February, 2000.

RICHARD W. VOLLMER, JR.

UNITED STATES DISTRICT JUDGE

JUDGMENT

Pursuant to Rule 58 of the Federal Rules of Civil Procedure, FINAL JUDGMENT is hereby entered in favor of defendant CheckFree Corporation and against plaintiff Kenneth C. Kvalheim. In accordance with the court's February 17, 2000 order granting CheckFree's motion for summary judgment as to Kvalheim's federal claims, Kvalheim shall recover NOTHING from CheckFree. Each party shall bear its own costs.

DONE this 17 day of February, 2000.

RICHARD W. VOLLMER, JR.

UNITED STATES DISTRICT JUDGE