Trans Union Corp. may pay a big price for a clerical error.
In a legal case that casts light on the way banks use credit bureau data, a jury has decided Trans Union should pay $23 million to a bank whose customers' names were released to competing card issuers.
The company plans to appeal the breach-of-contract judgment in favor of First National Bank of Omaha, which sued Chicago-based Trans Union in 1995. The bank objected to the credit bureau's practice of including the names of customers who met certain criteria on lists that other banks used to fish for credit card prospects.
Trans Union did not deny that it had signed an agreement-unusual in the industry-forbidding it to supply First of Omaha customers' names to other banks. But the credit data company argued that the bank had intentionally prolonged its investigation before suing in order to maximize the damages it could claim.
Whether or not the Aug. 29 verdict is upheld, the case is likely to prompt a debate over the pre-screening practices that are an important part of the business of all the major credit bureaus. They are what make "pre- approved" credit card solicitations possible.
A card issuer may ask for a "pre-screen" identifying people who have at least three credit cards, have never filed for bankruptcy, and have not been more than 30 days delinquent on any account. The lender may also want to know whether the consumer has a mortgage or auto loan, how long the consumer has had these loans, and whether credit card balances are paid in full each month.
But some issuers-like First of Omaha-fear competitors can use information from pre-screens to try to steal other banks' customers.
The lawsuit shows that companies are "becoming more protective of their data," said Rick Leavy, president and chief executive of Neuristics Corp., which works with credit bureau data to provide credit scores.
In 1994, TRW Information Services, now Experian Inc., confronted the issue of poaching.
"TRW realizes the potential exists for use of our services by one credit grantor to attempt to gain an unfair competitive advantage over another," the company said in a letter to customers. "Despite safeguards, today's sophisticated information-gathering and marketing techniques make it possible for competitors to gain the specific information they need to make certain assumptions and target desired consumers."
First of Omaha, the 23d-largest credit card issuer, with more than $3 billion of receivables, objected to having its customers on pre-screen lists. But its customers got credit card offers from banks that had used Trans Union information.
Citicorp, First Chicago NBD Corp., and Chemical Banking Corp. (now Chase Manhattan Corp.) were subpoenaed in the First of Omaha case because they had solicited the Nebraska bank's customers.
First of Omaha discovered this when it fed phony names to Trans Union to test whether the credit bureau was honoring its agreement. The names, indeed, were passed along to other banks.
First of Omaha calculated that 237,252 of its customers were wrongfully included on pre-screening lists.
The jury in U.S. District Court for the District of Nebraska decided that Trans Union had violated an agreement the two companies signed in 1993.
Trans Union made a "clerical" error, said its lawyer, Oscar Marquis. The credit bureau contends that the bank was aware of the error three years before it sued, Mr. Marquis said, but deliberately waited so that damages would accrue.
Only 70 Trans Union customers have asked to be kept off pre-screening lists, according to court documents, and First of Omaha was the only bank to formalize such an arrangement by signing a contract. Mr. Marquis said Trans Union may not sign such contracts in the future.
While the bank's complaint focused on a contract provision with Trans Union, it raises wider questions about pre-screening, such as those that prompted the earlier TRW statements.
First of Omaha has a history of keeping data close to its vest, said its attorney, Allen S. Rugg, who is based in Washington at the law firm Kutak Rock. The bank had a similar agreement with Experian. Equifax, the third of the Big Three credit data providers, would not allow bank clients to keep their customers off pre-screening lists.
The deal between Trans Union and First of Omaha was uncommon, but some industry experts speculated that more creditors would want to emulate it in the interest of protecting their customer data.