What is the FCRA?
The Fair Credit Reporting Act (FCRA) is the primary federal law that provides minimum protections for consumers regarding the disclosure, compilation, and access to credit reports and files. The FCRA was created to protect consumers from any willful or negligent use of inaccurate or outdated information on credit reports.
To accomplish that goal, the FCRA regulates the collection, use, and dissemination of consumer information. This allows people to control who receives their credit report, review the information contained in it, and correct inaccuracies. The Federal Trade Commission, Consumer Financial Protection Bureau (since the 2009 Credit CARD Act), and private parties enforce the terms of the FCRA.
Purpose of the FCRA
The FCRA (along with the Fair Debt Collection Practices Act) forms the basis of consumer rights in the United States. The FCRA was passed in 1970, a turbulent time in U.S. history. The country was reeling from the Vietnam war, the economy was stagnating for the first time since the Great Depression, and people were scared.
The FCRA was passed to create some order among the disparate entities involved in the economy. The government originally imposed these obligations on the credit reporting agencies and a handful of entities that provide information. The FCRA has since evolved to take a more active role in regulating the economy, including regulating unscrupulous credit practices.
Outline of Disclosure Obligations
The FCRA regulates every entity that comes into contact with a consumer’s credit report. It imposes obligations on employers who conduct background checks, credit card companies, credit reporting agencies, and specialized agencies that generate reports on specific items — for instance, medical records, check writing history, tenant history, and criminal background.
The FCRA requires these entities to protect the consumer’s information. These entities may only release the data for a “valid” reason. Failure to enforce these obligations could give rise to penalties levied by the government and a lawsuit brought by the consumer.
Specifics of FCRA Disclosure Obligations
A credit reporting agency may only disclose consumer information for a valid reason. The FCRA includes an enumerated list of valid reasons, but the most common are:
- Credit card applications
- Mortgage applications
- Job applications
- Applicant / residential applications
- Bankruptcy proceedings
If a credit reporting agency receives any information that is includable on a consumer’s credit file (such as the applications discussed above), then the reporting entity must follow four essential rules. First, the agency must provide complete and accurate information to the reporting agency. Second, these entities are required to investigate consumer disputes received from credit agencies. This burden ensures that these agencies do not continue sending incorrect information to the credit agencies, which could restart the entire process.
Furnishing entities are also required to correct, delete, and verify information within 30 days of receipt of the dispute. The quick turnaround was passed as part of the 1996 Amendment Act, which dramatically reduced the amount of time these agencies have to respond to the request.
Finally, these entities must inform consumers when the agency is in the process of incorporating negative information into the consumer’s credit report. The objective is to grant the consumer sufficient time to review the numbers and issue corrections if necessary.
Moreover, there are special rules imposed on entities that use the information. First, they are only permitted to obtain these reports for a valid reason. Second, they must alert the affected consumer if a negative action is taken against them due to the findings in the report. Finally, these entities must identify the reporting agency that provided the credit report to the user.
Additionally, there are special rules for certain entities. For example, employers are required to give applicants the option of receiving a copy of their credit report if they were not selected for the position.
Consequences of Violating the FCRA
The FCRA permits a private right of action which allows people to sue credit reporting agencies to enforce the terms of the Act. If a litigant establishes that their consumer rights were violated, then they may recover:
- Court costs
- Attorney’s fees
- Damages, actual or statutory
- Punitive damages if the action was willful
The purpose of these various methods of recovery is to encourage individuals to participate in the process and hold these entities accountable for their actions. Additionally, there is an added incentive because plaintiff’s attorneys can recover their attorney’s fees and court costs.
Changes to Disclosure Requirements
In 2014, the Consumer Financial Protection Bureau (CFPB) announced that the ceiling on allowable charges for requested credit reports would increase from $11.50 to $12.00. The FCRA obligates the CFPB to change the reporting fee every year based on fluctuations in the Consumer Price Index. The Consumer Price Index (CPI) is a basket of items that are used to track the necessary “cost” of everyday expenses for consumers.