Understanding the Fair Credit Reporting Act (FCRA)

The Fair Credit Report Act, FCRA, is a federal law of the US, passed in 1970 and implemented by the United States Federal Trade Commission. The act is meant to protect individuals and businesses by restricting how credit information may be collected, accessed, used, and shared. 

Primarily, the law is intended to protect consumers from misinformation being used against them. It does this by compelling credit reporting agencies to ensure the information they collect and distribute in a fair and correct summary of a consumer’s credit history. This federal law offers concrete guidelines on the techniques credit reporting agencies use to gather and verify the information and defines reasons that information can be released.

The FCRA directly affects anyone whose credit information is often used by consumer credit reporting agencies. The three major credit reporting agencies in the U.S are Experian, Equifax, and Transunion. The law also applies to other information-gathering companies such as banks, credit unions, Westlaw, LexisNexis, and agencies that sell medical records or rental history records. A business that uses the information on credit for hiring purposes may also be subjected to some of the stipulations of FCRA. 

Since credit history can have a significant impact on loan or mortgage, qualifying for a job, it is highly advisable to understand the particular rights that are offered by this federal act.

The purpose of the Fair Credit Reporting Act

The FCRA assists consumers to understand what actions they take regarding the information in their credit reports. Credit information is being collected about consumers all the time, not only by credit reporting agencies but also by other organizations. For instance, a bank can use your credit information history to determine whether to offer you a loan.

Why does it matter how your credit information is used? Every time you apply for a credit card, mortgage loan, car loan, or any other kind of credit, the issuing organization checks your credit history to evaluate your creditworthiness. The terms you are provided for credit may be centered on your credit score and your credit report information.

Your credit history influences more than just your ability to get an annual percentage rate on your credits or loans. For example, prospective landlords could check your credit reports to evaluate your creditworthiness when deciding if they can have faith in you to pay your rent on time. Besides, in some states, employers can check your credit report for hiring purposes. Moreover, based on the state, insurance companies can check your credit to determine if they should offer you coverage. 

What is a credit reporting agency under FCRA?

Definition of Credit Reporting Agencies under FCRA

The FCRA defines consumer reporting agencies as organizations that gather credit information about consumers to sell the information to third parties. These companies sell that information to help businesses make decisions about offering loans and credit. 

The best-known credit reporting agencies are the three major credit bureaus- Experian, TransUnion, and Equifax. But they are not the only consumer reporting agencies in the United States. The Consumer Financial Protection Bureau publishers list of almost 50 various organizations that self-identify as consumer reporting agencies. The FCRA rules for credit reporting apply to these unions as well.

How does the FCRA assist consumers?

The Fair Credit Reporting Act helps protect consumers by regulating how information in their consumer report can be accessed and used. Below is an overview of the critical aspects of the law.

  1. The FCRA gives you the right to request and access all the information a consumer reporting agency has about you (this is usually known as file disclosure). Consumers can get one free disclosure every year from each national credit bureau.
  2. The FCRA offers you the right to be informed if your credit information is used against you to deny your application for employment, insurance, or credit.
  3. The FCRA also gives you access to your credit report but limits others’ access. Generally, access is limited to people with permissible reasons like creditors, landlords, insurance companies, and creditors. In case an employer wants to see your credit report, you have to give written consent. The employer must meet other requirements as well, and not all states enable employers to get credit reports as part of a contestant’s background check.
  4. The FCRA provides you the option to opt-out of prescreened offers of credit you get.
  5. The FCRA also offers you the right to dispute what you believe is inaccurate or incomplete information on your credit report. The credit reporting agencies will then reach a data furnisher to confirm if the information is accurate. In case it is incorrect, the credit bureau will either remove or correct it within a specified period. Accurate negative information, like bankruptcies and late payments, will be deleted after a certain period.
  6. Lastly, the FCRA offers you the ability to put a security freeze on your credit report, which guarantees that potential lenders cannot check your credit report without first lifting the freeze or offering the specific lender with a one-time pin to access your credit report.

Note that in addition to the FCRA laws, some states have their statutes regulating consumer credit reporting. 

Fair Credit Reporting Act Summary

What are your rights under the Fair Credit Reporting Act?

The Federal Fair Credit Reporting Act promotes fairness, accuracy, and privacy of information in the files of consumer reporting agencies. Below is a summary of the primary rights under the FCRA.

Basic consumer rights under the FCRA

The FCRA offers a list of consumer rights regarding individuals’ credit report information.

  • Access to your credit report information

The law requires reporting agencies to offer you any information in your credit file upon request every 12 months. You must have the correct identification. And you have a right to a free copy of your credit report within 15 days of the request.

Other times that the credit bureaus have to offer you a free copy of your credit report include:

  • If a business has taken an adverse action, such as denied your application or charged a higher interest rate because of the information in your credit report.
  • You are not employed and planning to look for a job within the next three months.
  • You are a victim of identity theft
  • You are on welfare.
  • Your credit report has inaccurate information resulting from identity theft
  • Access to your credit file is limited

The act limits access to your data to those with a valid reason. That would usually be insurance companies, banks, landlords, employers, or others doing business that involves providing credit. A consumer also has the right to know who has appealed your credit report in the last year, when it comes to employment-related requests, two years.

  • Right to dispute false credit information

You have a right to dispute any data you find to be incorrect. Most accurate credit reports contain errors, of different degrees. Thus, a critical component of the FCRA is to entitle you to the right to dispute any false information you find. In case you do so, the CRA should investigate your claim, typically within 30 days. If your dispute claim is against you directly with the creditor or another third party, then the creditor cannot report their alleged information to the CRA without also incorporating notification that you have disputed the allegation.

  • Have outdated information removed

Negative information should be removed from your credit file after seven years of bankruptcy. Nonetheless, it may remain on record for ten years, and criminal record information can remain indefinitely.

  • Maintain medical information privacy

FCRA protects you from having medical information in a consumer report since creditors are restricted from obtaining or applying medical information when making a credit decision.

  • Limit unsolicited credit offers

The act allows you to request to have your name and address removed from unwanted prescreened offer lists for insurance and credit.

  • Protect your account numbers

Organizations are not permitted to publish full credit card numbers on receipts. The act also allows you to protect your social security number by having it truncated on your credit report.

  • Get notification of possible negative information

It is your right to be apprised in case any financial organization submits or wants to submit negative information to a credit reporting bureau. This information may be incorporated in a billing statement or a notice of default.

  • The right to request a credit score

A credit score is a numerical synopsis of your creditworthiness based on information from credit bureaus. You might request a credit score from a consumer reporting agency that build scores or distribute scores used in residential real property loans. However, you will have to pay for it. But in some mortgage transactions, you will get credit score information for free from the mortgage lender.

  • You have the right to acquire a security freeze 

You have a right to put a security freeze on your credit report, which will restrict a consumer reporting agency from distributing information in your credit report without express authorization.

The security freeze is meant to prevent credit loans, and services being approved in your name without your consent. Nonetheless, you should be aware that applying a security freeze to take control over who can access the personal and financial information in your credit report might interfere with, delay, or restrict the timely acceptance of any subsequent request or application you place regarding a mortgage, new loan, or any other account engaging the extension of credit.

As an alternative to a security freeze, a consumer has the right to extend or place an initial fraud caution on your credit file at no cost. An initial fraud alert is one year alert that is placed on a consumer’s credit file. Upon seeing a fraud alert display on the consumer’s credit file, a business is needed to take steps to substantiate the consumer’s identity before extending new credit. In case you are a prey of identity theft, then you are authorized to an expanded fraud alert, which is a fraud alert abiding seven years.

A security freeze doesn’t apply to an entity or person, or its affiliates or collection agencies action on behalf of the entity or person, with which you have a current account with that requests information in your credit file for the aim of reviewing or gathering the account. Assessing the account includes activities related to account maintenance, credit line increases, monitoring, and account upgrades and enhancements.

  • Fair credit reporting act violations

You can seek damages from a company that violates your rights under the FCRA, whether it is a credit bureau, an information furnisher, or a user of your credit report information.

In case the tenets of the FCRA are not upheld by a CRA, this noncompliance might result in required payments to the individual impacted by the breach. In other words, in case your credit information is unfairly distributed, withheld, or in case of false information is not corrected in a fair and prompt manner, the CRA may owe you corresponding to the damages.

Based on the case, you may also be sanctioned to punitive damages and any reasonable attorney’s charges. The statute of restrictions for these infractions is five years from the date that the misdeed is discovered.

Credit Card Act

The fair credit reporting law incorporates various smaller acts that deal with different arms of the financial market. The Credit Card law is one of the three most evident sections of the FCRA.

In accordance with the Credit Card Accountability, Responsibility, and Disclosure Act, credit card organizations are not permitted to accelerate your interest rate and existing balance. The law also requires an organization to give you a 45-day notice before increasing the rate of new account balances.

Dodd-Frank Act

This law is one of the most visible parts of the FCRA. Most of the Dodd-Frank Act’s statutes stand on their own and have become essential parts of the digital financial structure.

The Dodd-Frank Wall Street Reform and Consumer Protection law were passed in 2010 to stop financial companies and creditors from doing unfair practices. The law is intended to prevent a major recession like one of 2007.

The DFA established an independent watchdog system to monitor information provided to consumers and ensure consumers get clear and accurate credit information. It also ended bailouts, indicating taxpayer money cannot be utilized in saving failing financial institutions.

  • Consumer financial bureau

CTPB or the Consumer Financial Protection Bureau is a government agency that acts like a consumer watchdog on the financial industry. 

It was formulated as part of the Dodd-Frank Act financial reform law and offered consumers a voice when they need to dispute something with the financial industry. Most of their focus has been on assisting consumers in understanding the laws and regulations that govern the mortgage, banking industries, and credit cards.

  • The Volcker rule

The Volcker law is part of the Dodd-Frank Act meant to protect consumers. It restricts large banks from making speculative, high-risk innovations with funds from their accounts. It permanently restricts a bank from engaging in proprietary trading and from acquiring an ownership interest in a private equity fund or hedge fund.

Fair and accurate credit transactions law

Fair and accurate credit transactions act is the third most well-known part of the FCRA.

If someone assumes your identity via the use of stolen personal information and commit fraud, the event is likely to destroy your credit history. FACTA outlines the rights to protect consumers’ finances and repair damage to the credit report in case this occurs. It protects identity theft victims and active-duty military personnel explicitly.

If you are an identity theft prey, FACTA offers you the right to:

  • Receive free copies of your credit reports
  • Place a fraud alert in your credit reports
  • Request and acquire relevant information from debt collectors
  • Request and obtain copies of documents associated with fraudulent dealings
  • Request businesses not to report information associated with your identity theft
  • Request a block on information obtained as a result of identity theft
  • Request and obtain relevant information from debt collections
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