June 4 (Bloomberg) -- The U.S. Supreme Court limited the rights of consumers under a federal credit-reporting law in a victory for insurers Safeco Corp. and Geico Corp. and other financial services companies.

The justices today said the Fair Credit Reporting Act doesn't require insurers to notify every consumer who is offered something short of the lowest premiums when seeking a rate quote or applying for a policy.

``Notices as common as these would take on the character of formalities, and formalities tend to be ignored,'' Justice David Souter wrote for seven of the court's nine justices.

The court also unanimously limited the applicability of a provision that permits damage awards even when consumers don't suffer any injury. Although the justices didn't go as far as the insurance industry had sought, they said Safeco wasn't subject to the provision because it didn't recklessly violate the law.

The insurance industry had said it faced the prospect of billions of dollars in damage claims had it lost the high court case. Some 2,600 lawsuits alleging violations of the fair-credit law are pending in federal courts, according to filings at the Supreme Court.

The ``most critical aspects'' of the ruling favored the industry, said David F. Snyder, a lawyer with the American Insurance Association. ``The Supreme Court balanced both consumer needs and business needs in a common-sense decision.''

Consumer Setback

The ruling may also bolster other financial services companies, including credit-card companies fighting lawsuits over pre-approval letters sent to consumers and retailers defending against claims that center on the inclusion of expiration dates on credit-card receipts.

Today's ruling overturned a decision by the San Francisco- based 9th U.S. Circuit Court of Appeals, which had let cases go forward against Safeco, Berkshire Hathaway Inc.'s Geico and other insurers.

``We're disappointed, and it's not a good result for consumers, but there are some good silver linings in the case,'' said the consumers' lead lawyer, Scott A. Shorr. He said it's ``too early to say'' whether any aspects of his cases will go forward.

Shorr is pressing similar cases against several other insurers, including State Farm Mutual Automobile Insurance Co.

Better Rate

In Safeco's case, two customers said they should have been notified that better credit scores would have reduced their premiums for their auto and renters insurance policies. In the Geico case, a would-be customer said he wasn't told that his credit history prevented him from getting the company's lowest rate when he called for a quote.

The dispute asked the Supreme Court to decide whether insurers had to notify every customer who would have received a better rate with a perfect credit score. Disclosure is required under the fair-credit law only when a low credit score results in an ``adverse action.''

Souter said insurers need provide notice only when they would have provided a lower rate using a ``neutral score'' approach -- that is, one that doesn't consider the consumer's score. He rejected consumer and Bush administration arguments that the standard would leave a ``loophole'' penalizing applicants who have inaccurate credit reports yet manage to score higher than the neutral level.

``Assuming that Congress meant a notice of adverse action to get some attention, we think the cost of closing the loophole would be too high,'' Souter wrote.

Stevens and Ginsburg

Two justices, John Paul Stevens and Ruth Bader Ginsburg, said they would have adopted the approach advocated by the government and consumers. Stevens said in a concurring opinion that insurers will be ``free to adopt whatever `neutral' credit scores they want'' and that those scores ``will in many cases be quite low.''

The court also restricted a provision that subjects ``willful'' violators to penalties ranging from $100 to $1,000 per consumer, even if the consumers weren't harmed. The 9th Circuit said the willfulness requirement includes actions taken in ``reckless disregard'' of the law.

Souter rejected insurer contentions that the provision incorporates only intentional violations while at the same time setting a high bar for consumers seeking to show recklessness.

Souter said Safeco hadn't acted recklessly, in part because its view of the statute's notification requirements ``has a foundation in the statutory text.'' He pointed to a federal trial judge's agreement with the insurers on the issue.

`Defy History'

``Where, as here, the statutory text and relevant court and agency guidance allow for more than one reasonable interpretation, it would defy history and current thinking to treat a defendant who merely adopts one such interpretation as a knowing or reckless violator,'' Souter wrote.

The high court's approach to recklessness probably will help the credit-card issuers and retailers in their fights under the fair-credit law, according to Anne P. Fortney, a Washington lawyer who filed a brief in the insurance case on behalf of the trade group representing credit-reporting companies.

``There are many provisions in the act that are subject to more than one reasonable interpretation,'' she said.

Ford Motor Co. and trade groups for the mortgage-lending, insurance and banking industries were among those who filed briefs backing Safeco and Geico.

The cases are Safeco v. Burr, 06-84, and Geico v. Edo, 06- 100.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

Last Updated: June 4, 2007 16:02 EDT