course material

1. Did this investigation violate the Fair Credit Reporting Act? Explain.
ASSIGNMENT1. Lavon Phillips became engaged to marry Sarah Grendahl and moved in with
her. Sarah’s mother, Mary, became suspicious that Phillips was not telling the truth about
his past, particularly about whether he was an attorney and where he had worked. She also
was confused about who his ex-wives and girlfriends were and where they lived. She did
some preliminary investigation herself, but she felt that she was hampered by not being
able to use a computer, so she contacted Kevin Fitzgerald, a family friend who worked for
McDowell, a private investigation agency. She asked Fitzgerald to do a “background check”
on Phillips. Fitzgerald searched public records in Minnesota and Alabama, where Phillips
had lived earlier and discovered one suit against Phillips for delinquent child support in
Alabama, a suit to establish child support for two children in Minnesota, and one
misdemeanor conviction for writing dishonored checks. Fitzgerald then supplied the social
security information to Econ Control (a business which furnishes credit reports, Finder’s
Reports, and credit scoring for credit companies and for private investigators) and asked for
“Finder’s Reports” on Phillips. Fitzgerald testified that he believed that Finder’s Reports
were not consumer reports and therefore they were not subject to the Federal Credit
Reporting Act (FCRA). William Porter, president of Econ Control, stated that he believed a
“Finder’s Report” could be obtained without authorization of the person who was the
subject of the report because the Finder’s Report contained no information on credit history
or creditworthiness. Econ Control then obtained a consumer report from Computer Science
Corporation on Phillips and passed it on to McDowell. Fitzgerald met with Mary Grendahl
and gave her the results of his investigation, including the Finder’s Report. Did this
investigation violate the Fair Credit Reporting Act? Explain.2. In the late 1990s, Ian
Eisenberg and Chris Hebard formed Electronic Publishing Ventures, LLC (EPV) and its four
subsidiaries: Cyberspace.com, LLC; Essex Enterprises, LLC; Surfnet Services, LLC; and
Splashnet.net, LLC. Two offshore entities, French Dreams Investments, N.V. (collectively
EFO and owned by Eisenberg) and Coto Settlement (controlled by Hebard) owned EPV in
equal parts. Between January 1999 and mid-2000, EPV’s four subsidiaries mailed
approximately 4.4 million solicitations offering Internet access to individuals and small
businesses. The solicitations included a check, usually for $3.50, attached to a form
resembling an invoice designed to be detached from the check by tearing at the perforated
line. The check was addressed to the recipient. and the recipient’s phone number appeared
on the “re” line. The back of the check and invoice contained small-print disclosures
revealing that cashing or depositing the check would constitute agreement to pay a monthly

2. fee for Internet access, but the front of the check and the invoice contained no such
disclosures. The mailing explained in small print that a monthly fee would be billed to the
customer’s local phone bill after the check was cashed or deposited. At least 225,000 small
businesses and individuals cashed or deposited the solicitation checks. The EPV
subsidiaries used a billing aggregation service to place charges for $19.95 or $29.95 a
month on the small businesses’ and individuals’ ordinary telephone bills. Internet usage
records show, however, that less than 1 percent of the 225,000 individuals and businesses
billed for Internet service actually logged on to the service. Eisenberg and Hebard were
aware that the solicitation had misled some consumers. The companies received complaints
from recipients of the solicitations, which indicated that some customers had deposited the
solicitation check without realizing that they had contracted for Internet services. Run
inThe Federal Trade Commission alleges that the solicitations were deceptive in violation of
Section 5 of the Federal Trade Commission Act. Explain whether the FTC is correct.