1. 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:, LLC; Essex Enterprises, LLC; Surfnet Services, LLC; and, 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 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.


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