Fair Credit Reporting Act (FCRA)

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Fair Credit Reporting Act (FCRA)

What Is the Fair Credit Reporting Act (FCRA)?

The Fair Credit Reporting Act (FCRA) is a federal legislation that governs the gathering of credit information from individuals and their access to their credit reports. It was enacted in 1970 to address the fairness, accuracy, and privacy of personal information included in credit reporting organizations’ files.

Key Takeaways

  • The Fair Credit Reporting Act (FCRA) controls how credit bureaus gather and disclose consumer information.
  • Businesses examine credit reports for a variety of reasons, including determining whether to offer a loan or sell insurance to a client.
  • The FCRA also provides customers with certain rights, such as unfettered access to their own credit records.
  • Violations of the FCRA may result in penalties as well as damages, if any are incurred.
  • The FTC and CFPB are in charge of FCRA enforcement.

What Is A Credit Score?

How the Fair Credit Reporting Act (FCRA) Works

The Fair Credit Reporting Act is the principal federal legislation governing the collection and reporting of consumer credit information. Its laws govern how credit information about a consumer is gathered, how long it is maintained, and how it is shared with others, including customers.

The two federal agencies in charge of regulating and executing the act’s requirements are the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). Many states also have their own credit reporting laws. Title 15, Section 1681 of the United States Code contains the complete act.

Equifax, Experian, and TransUnion, as well as other, more specialized organizations, gather and sell information on individual individuals’ financial histories. The information in their reports is also used to calculate individuals’ credit scores, which might impact the interest rate they must pay to borrow money, for example.

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The Fair Credit Reporting Act (FCRA), Public Law No. 91-508, was enacted by the United States Congress in 1970 to enhance the accuracy, fairness, and privacy of personal information included in credit reports.

Rules and Restrictions of the Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) specifies the types of information that credit bureaus may collect. This contains the individual’s bill payment history, previous loans, and current obligations. It may also include work information, current and past homes, if they have ever declared bankruptcy or owing child support, and any criminal records.

The FCRA also restricts who may see a credit report and under what conditions. Lenders, for example, may seek a report when a person applies for a mortgage, auto loan, or other sort of credit. When a customer applies for a coverage, insurance firms may also look at their credit records. The government may seek information in response to a court order or a federal grand jury subpoena, or if the individual applies for certain government-issued permits.

Before the credit agency may share their record, customers must have started a transaction or consented in writing in certain cases, but not all. Employers, for example, may seek a credit report on a job candidate, but only with the applicant’s agreement.

The Fair Credit Reporting Act (FCRA) requires that when someone obtains a credit report, they state why they are doing so. For example, in combination with a loan application, for job considerations, or as part of a landlord’s credit check. Illegal uses are breaches of the FCRA.

Consumer Rights Under the Fair Credit Reporting Act (FCRA)

Consumers have the right to see their own credit reports. They are legally entitled to one free credit report from each of the three main agencies every 12 months. They may get their reports via the official, government-approved website AnnualCreditReport.com. Consumers have the following rights under the FCRA:

  • When necessary for employment considerations, confirm the veracity of their report.
  • If information in their file has been used against them in credit applications or other transactions, they will be notified.
  • In order to restore their credit, they should dispute—and have the bureau correct—any information in their report that is missing or erroneous.
  • Delete any obsolete or bad information (after seven years in most cases, 10 in the case of bankruptcy).
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A customer may register a complaint with the CFPB if the credit bureau fails to reply to their request in a timely way.

Example of the Fair Credit Reporting Act (FCRA)

Assume someone is wanting to rent an apartment and the landlord rejects their application on the basis of their credit score. The prospective renter feels this is a lie and suspects it is due to their skin color or religion, which is an illegal basis to decline the lease.

You may get your credit report under the FCRA and compare the facts to the landlord’s allegations. You can also determine if the landlord truly pulled your credit or lied about it. If a violation occurs, the landlord may face a fine.

What Are FCRA Reporting Requirements?

The FCRA mandates that a lender, insurance, landlord, employer, or anyone else requesting a credit report have a legally legitimate reason for doing so. According to the FCRA, credit rating firms must erase bad credit information after seven years, and bankruptcies after seven to ten years (depending on the type of bankruptcy involved).

What Are the Penalties for Not Complying With FCRA?

Each infraction may result in a punishment ranging from $100 to $1,000. If damages are incurred, actual and punitive damages, in addition to attorney’s fees, may be levied. If someone acquires information from a consumer reporting organization under false pretenses, they may face criminal prosecution.

What Are an Employer’s Obligations Under FCRA?

An employer or prospective employer may obtain a credit report from a person for internal reasons alone. The person must have agreed to such a request, and the company must clarify that information is only being pulled for work reasons.

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Who Enforces the Fair Credit Reporting Act (FCRA)?

As a federal statute, the FCRA is enforced by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).

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