9. What is the “Fair Credit Reporting Act”?
The Fair Credit Reporting Act protects consumers (not businesses) by regulating the accuracy, fairness, and privacy of consumer information reported to or held by consumer reporting agencies. It protects consumers from the negative consequences associated with inaccurate information in their personal credit reports. The FCRA regulates each stage of the credit reporting process, including collection of information, reporting of that information to credit agencies, dissemination of credit information, and use of a consumer’s credit information (such as in extending new credit). The Act applies to anyone who prepares or uses a credit report in connection with extending credit, selling insurance, or hiring or firing an employee.
A Little More on the Fair Credit Reporting Act
The Federal Trade Commission, and Consumer Financial Protection Bureau, developed by FCRA, oversee and implement the Act provisions. The FCRA is in U.S. Code Title 15, Section 1681. The primary provisions include:
◦ Obtaining Credit Reports – Section 604 of the FCRA states that the permissible purposes for obtaining consumer credit reports. The reasons include:
⁃ Review of credit info for credit application,
⁃ Background checks or the consumer’s request for the same.
⁃ Other: court order, child support and business dealings.
• Reporting Standards for Credit Information – The FCRA also imposes standards for determining the validity of credit information on credit reports as well as the nature of information. It established a trade line for consumer’s credit account with reporting agencies. The trade line records the consumer’s info reported by a creditors and other information about child support liability, tax liability, and bankruptcy.
• Duration of Consumer Information – The FCRA established the length of time that negative credit information can remain in an individual’s record. Some reported elements are releases after a short time, while ore extreme elements remain on report for 7 years, or even 10 years, like in the case of bankruptcy.
The FCRA gives consumers the right to:
• Know their file’s content
• Have free of cost file disclosure once a year from all key credit bureaus
• Have report accuracy determined for employment purpose
• Notification for file issuance
• File dispute to correct incorrect or incomplete info
• Request removal of old negative info
• Note: The FCRA was amended in 2003 (by the Fair and Accurate Credit Transaction Act) to allow consumers to receive one copy of their credit reports each year from each credit reporting agency. It also established rules for credit reporting agencies and businesses to increase identity theft protections. These provisions include placing fraud alerts on credit reports, truncation of debit and credit card numbers, secure disposal of consumer information, etc.
• Example: You walk into my store and ask to finance the purchase of a large piece of machinery that I sell. I may request authorization to request your credit report. My request and use of this credit report in my decision of whether to extend you credit will be governed by the FCRA.