The Fair Credit Reporting Act (FCRA) and the rights of consumers
The Fair Credit Reporting Act or FCRA is a federal law that was enacted to ensure the accuracy, fairness, and privacy of the consumer information that is contained within the files of consumer reporting agencies. The law provides regulation concerning the ways in which credit agencies are permitted to collect, access, use and share the information that is collected in consumer data reports. Passed in 1970, the FCRA was designed to help consumers understand the specific actions they can take in relation to the accuracy of the information on their credit reports. As a consumer’s credit score can have long standing effects and implications in regards to their purchasing ability and financial status, such legislation is extremely important.
Aside from information that is collected from the three major credit bureaus, Equifax, Transunion, and Experian, consumer credit is collected in a myriad of other ways as well. Whenever a consumer applies for a credit card, a student loan, or apartment, some form of credit check is conducted. In addition to this, some states even go so far as to employ credit checks in relation to prospective employees, while credit checks can also be employed when a consumer is applying for a new insurance policy. As such, it is imperative that the information that is contained within a consumer’s credit report is both precise and accurate at all times.
How does the FCRA protect consumers?
The FCRA protects consumers by regulating how information in a credit report can be accessed and ultimately used. The FCRA affords consumers the following rights:
- The right to be told if the information in your credit report has been used against you to deny your application for credit, insurance, or employment.
- The right to request and access all information that a consumer reporting agency has about you. This is referred to as “file disclosure”, and consumer are entitled to a free file disclosure every 12 months from the 3 national credit bureaus (Equifax, Transunion, Experian).
- The right to restrict others’ access to your credit report. Generally speaking, a consumer’s credit report can only be accessed by people with a “permissible purpose”, such as landlords or credit card companies. In the case of employers, their access to a consumer’s credit report would depend on the state in which the job is located. What’s more, a consumer must still provide written consent allowing their employer to access their credit report, even if such access is legally permitted within their state.
- The right to dispute any inaccurate or incomplete information on your credit report. When a consumer files a credit report dispute, the credit bureau will then contact the data furnisher who provided the information to confirm if the information is correct or false. If the information is proven to be inaccurate, the credit bureau will then correct it or remove it within a certain time period. Alternatively, accurate negative information on a consumer’s credit report, such as late payments or bankruptcies, will also be removed after a certain time period.
- The right to opt out of prescreened credit offers that consumer receive.
- The right to put a security freeze on your credit report, which will ensure that potential lenders will not be able to check your credit without your approval to lift the freeze. Consumers can also choose to provide a specific lender with a one time PIN that can be used to access their credit report in the midst of a credit freeze.
What information are credit bureaus allowed to collect under the FCRA?
The FCRA specifically describes the type of information that credit bureaus are permitted to collect from consumers. This information includes:
- A consumer’s payment history.
- Past loans.
- Current debts.
- Previous and present addresses.
- Any arrest record.
- Whether or not a consumer has ever filed for bankruptcy.
- Currently owes child support.
- Employment information.
Conversely, the FCRA also provides limitations in relation to when lenders can access a consumer’s credit report and under what circumstances. An example of this would be a mortgage lender looking to access a consumer’s credit report in regards to a mortgage application that was submitted.
What can consumer’s do if their FCRA rights are violated?
There are several common ways in which a consumer’s FCRA rights can be violated, whether it be on the part of an individual lender or one of the three major credit reporting bureaus. Examples of such violations include:
- Furnishing and reporting old credit information.
- Mixing files with another consumer who have similar background information.
- Failing to follow the proper procedures for the debt dispute process.
- Privacy violations.
- Withholding notices in relation to the handling, use, and reporting of a consumer’s credit information.
The penalties for violating a consumer’s rights under the FCRA will depend on the extent of the violation in question and the manner in which said violation took place. In the case of willful FCRA violations, consumers are entitled to statutory damages that can range from $100 to $1000, as well as actual damages that have no financial limit and are dependent upon the severity of the violation. Consumers are also entitled to punitive damages that can be levied against a credit agency or individual. These damages are designed to deter the party in question from violating the FCRA again and also have no financial limit. Consumers are also entitled to any attorney or court fees that may be incurred as a result of an FCRA violation.
Another way in which a consumer’s FCRA rights can be violated is through negligence. When a business or agency fails to exercise the proper care and diligence in relation to handling a consumer’s credit information, the consumer in question is also entitled to damages. Much like willful credit violations, consumers can also file actual, punitive, and statutory damages in cases where their FCRA rights have been violated through negligence. Furthermore, the extent and monetary value of actual and statutory damages will also depend on the level of negligence that was shown, and the severity of the damage that such negligence caused the consumer.
As a consumer’s credit score will be one of the most important factors in determining how they can advance in life, having this score be based on accurate information at all times is a top priority. The FCRA was passed to help support this priority by regulating the ways in which credit bureaus and lenders can access consumers credit information, as well as outline avenues of recourse in the cases in which a consumer’s credit information is accessed improperly. With the rise of online fraud in recent decades, legislation such as the FCRA is more relevant than ever before. Through the FCRA, American consumers can not only rest assured that the information in their credit report is accurate at all times, but also ensure that they have a means of correcting any information that is found to be inaccurate.