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How the FCRA Benefits Credit-Active Consumers
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The Fair Credit Reporting Act, or FCRA, is a law that originally went into effect in 1971 and that was beefed up considerably, in 1997, by amendments passed in Congress. The original FCRA protected your rights as a credit-active consumer by placing limits on who may see a copy of your credit report. It mandated that, while you yourself may request a copy at any time, no one else may legally review your report unless they intend to:
- Conduct a credit transaction.
- Make an employment decision.
- Underwrite insurance.
- Conduct a legitimate business transaction.
- Review an account to see whether the terms are still being met.
- Complete a business transaction initiated by the consumer.
- Determine eligibility for a governmental license or benefit.
- Assess the credit or prepayment risks in insuring, investing in or servicing an existing credit obligation.
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The 1971 FCRA also provided that your credit report may be reviewed
in response to a court order or federal grand jury subpoena.
Anyone who knowingly and willfully obtains a credit report under false pretenses may be
fined up to $5,000 and imprisoned for up to one year.
The new version of the law that went into effect on September 30, 1997 further protects credit-active consumers and gives them more control
over their credit information.
Highlights of the updated version of the FCRA law are summarized below.
Credit Reports
- Anyone reviewing your credit report for any reason other than those listed above
is now guilty of a felony, instead of a misdemeanor as in the old law.
Credit bureaus and other information providers must take careful precautions to make
sure that they are disclosing credit information to users who are obtaining it for
legal, permissible purposes as outlined in the FCRA. Any credit grantor or other
entity that wants to obtain credit reports from a credit bureau must certify to the
bureau the legally authorized purpose(s) for which it will use the reports.
- Free credit reports must be provided once a year to victims of identity fraud and
anyone who is unemployed or poor. Individuals who have been denied credit may obtain
a free credit report within 60 days, instead of 30 days as in the old law. Anyone else
who requests a credit report will be charged up to $8.00 per report (this price will
be adjusted for inflation).
- Potential employers may no longer use credit reports to make employment decisions
without the consent of the job applicant. Before the potential employer can deny
offering the job to the applicant based on the information in the credit report,
the applicant must receive a copy of the report.
Credit Disputes
- When a consumer disputes credit information on his or her credit report, the three
major credit bureaus, Equifax, Experian, and TransUnion, must notify
each other of the reinvestigation. In the past, it was the consumer's responsibility
to notify each bureau.
- Under the updated law, credit bureaus are required to use information supplied by the
consumer as well as the credit grantor when reinvestigating inaccurate credit
information. This was not a requirement under the old law, and bureaus relied
primarily on the credit grantor's version.
- Reinvestigations requested by consumers must be completed within 30 days by the major
credit bureaus.
- If the completeness or accuracy of any data reported by a credit grantor to a credit
bureau continues to be disputed by a consumer after the information has been
reinvestigated by the credit grantor, the credit grantor may not report the
information to the credit bureaus without indicating that it is still being disputed
by the consumer.
- Bureaus as well as credit grantors (such as banks or retailers) must provide consumers
with better notices of their rights. In the past, when a consumer was denied credit,
the credit grantor was required to include the name and address of the credit bureau
that supplied the report on which the decision was based. Under the new law, the
following information must also be included:
- Phone number of the credit bureau (including a toll-free number if it is one
of the three major bureaus).
- A statement that the credit bureau did not make the decision to take adverse action.
- Notice of the consumer's right to obtain a free copy of the report from the credit
bureau by submitting a written request within 60 days.
- Notice of the consumer's right to dispute the accuracy or completeness of the
information in his or her report with the credit bureau.
Credit Accuracy
- Banks, retailers, and credit card issuers that report credit information to credit
bureaus are now, for the first time, held responsible for ensuring that the information
they report is as accurate as they can make it (i.e., they must use information
supplied by the consumer to correct or update their own records before reporting
it). In addition, these credit grantors are required to assist credit bureaus
in reinvestigations.
- If a consumer closes
out a credit account, the credit bureau, bank, or retailer must label the account as
one in good standing that was closed at the consumer's request. In the past, creditors
many times assumed that if an account was closed, it was done at the request of the
credit grantor, and this was interpreted as negative payment behavior on the part of
the consumer.
Credit Offers
- Prescreened lists,
which banks, retailers, and credit card issuers purchase from credit bureaus and
use to identify qualified and interested consumers to whom they market credit cards
and other retail loans, have also been affected by the FCRA amendment. Under the old
law, companies who used the lists were required to send "firm" credit offers to
creditworthy consumers, meaning that even if it was determined later that the consumer
did not qualify, the offer could not be withdrawn. Under the new law, card issuers
can withdraw an offer of credit if the consumer does not meet the prescreening criteria.
- Banks are required to provide consumers with a new prescreening disclosure
that explains that the offer results from prescreening by a credit bureau, and
that consumers may notify the credit bureau if they wish to be dropped from future
prescreening.
- The three major
bureaus must provide a joint toll-free number for consumers to call who wish to
opt out of prescreened lists.
Credit Clinics
- Credit repair clinics
often charge consumers hundreds or thousands of dollars to allegedly "fix" bad credit
reports. Although these clinics claim to be able to eliminate negative credit
information from a consumer's file, if the negative information is accurate, it will
remain on the consumer's credit report for up to 10 years. This is mandated by Federal
law. If the consumer pays the credit repair clinic before it performs its services, the
consumer may lose a great deal of money. Under the new law, credit repair clinics may
no longer collect a fee before performing their services.
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