A Business Week investigation into privacy problems in the credit reporting business has wound up on the wrong side of a court ruling, which found that the reporter and his publisher committed fraud in obtaining information. However, the federal judge refused to award punitive damages because he said the story served a vital public interest.
In the spring of 1989, Business Week reporter Jeffrey Rothfeder approached WDIA Corp., a superbureau providing computerized access to the credit files of the "Big Three" agencies: Equifax, TRW and TransUnion Corp. Rothfeder wanted to see if the superbureau would let him set up an account. He falsely told WDIA that he intended to use the data to screen prospective employees.
The Fair Credit Reporting Act limits who can obtain consumer credit information and for what reasons. Among those permitted access are credit card and insurance companies and prospective employers, who review the data to determine whether job applicants are financially stable.
Rothfeder signed a contract with WDIA, agreeing to abide by FCRA requirements to keep information he retrieved confidential, to make inquiries through the computerized system only for a "permissible purpose," and to indemnify WDIA if it suffered damages as a result of improper use of the data. Company officials later testified they had noted a few flaws in Rothfeder's application, but because of publisher McGraw-Hill's reputation for "truth and veracity," WDIA approved the contract anyway.
In July 1989, Business Week retrieved credit reports for several high-profile public figures, including Vice President Dan Quayle, to show how easy it was to do so. The magazine obtained consent from all the subjects before writing about them in a cover story published that September 4.
A few days before Business Week's story appeared, the Federal Trade Commission started its own investigation of WDIA--prompted by the findings of a trade association audit that found WDIA had failed to prevent a "dubious user" from gaining access to confidential information. The FTC concluded in May 1992 that the superbureau had been lax in policing access to its system.
Business Week's story didn't identify WDIA by name. But the superbureau claimed that because of the article, it was forced to dispatch representatives to Chicago to reassure Trans- Union that it had complied with the law--before TU cut off access to its files. WDIA sued McGraw-Hill and Roth-feder for breach of contract and fraud and sought millions in punitive damages.
In December, Herman J. Weber, a federal judge in Cincinnati, agreed the publisher committed fraud and violated the contract when it acquired credit reports not for employment screening, but to test whether privacy safeguards were being followed. He awarded WDIA about $7,500 in out-of-pocket damages.
But Weber declined to assess punitive damages, finding that using the information in a truthful news story, with the subjects' permission, was not a violation of federal requirements. Business Week, Weber wrote, had informed Con-gress and consumers about a matter of vital importance.
WDIA has filed an appeal; McGraw-Hill is considering one, spokesmen said. Business Week argues it did not commit fraud and that WDIA's claim was an attempt to receive compensation for its damaged reputation without proving "actual malice." WDIA says the publisher's conduct was a "wanton and premeditated" violation of federal requirements, deserving punitive damages to deter it and others from trying the same ploy.
Like Food Lion's case against ABC, the WDIA lawsuit asks whether reporters can lie with impunity to get an important story. But another issue lurks in the background. Suppose McGraw-Hill's personnel department contracted with WDIA to obtain credit reports for employment screening and then passed them on to a reporter? The publisher's access would be for a permissible purpose, and under Weber's analysis, a reporter who used the material for a story of vital public interest would act properly. At most, they would be liable for minimal damages for breach of contract.
Under the First Amendment, that's the right answer. But will it prevail in the face of global regulations designed to "protect privacy" by policing dissemination of personal information? The European Union's new Data Protection Directive exempts purely journalistic activities. But it says data cannot be exchanged between the business and editorial sides of a news organization without violating the privacy laws imposed on companies in its member states and on the American businesses that trade data with them.
Business Week's mixed victory should prevail on this side of the Atlantic. But if multinational media try to export it to Europe, it may not survive the crossing.