The Fair Credit Reporting Act (FCRA) is a federal law that regulates how consumer credit information is collected and shared. Enacted in 1970, the law ensures fairness, accuracy, and privacy in credit reports maintained by credit reporting agencies (CRAs).
Key takeaways
- The FCRA sets rules on how credit bureaus collect and share consumer data.
- Businesses use credit reports for decisions on loans, insurance, and employment.
- Consumers have rights under the FCRA, including free credit reports annually.
- Violations of the FCRA can lead to fines and damages.
- The Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) enforce the law.
How the fair credit reporting act (FCRA) Works
The FCRA is the main federal law governing credit reporting. It dictates how consumer credit data is gathered, how long it is kept, and who can access it.
The FTC and CFPB oversee and enforce the law’s provisions. Some states also have their own credit reporting regulations. The full text of the FCRA is available in United States Code Title 15, Section 1681.
Major credit bureaus like Equifax, Experian, and TransUnion collect and sell consumer credit information. This data influences credit scores, which affect loan approvals and interest rates. Specialized agencies also compile consumer financial histories.
What credit bureaus can and can’t do
The FCRA specifies the types of information credit bureaus can collect. This includes:
- Bill payment history
- Past loans and current debts
- Employment and address history
- Bankruptcy filings
- Child support obligations
- Criminal records (for up to seven years or until the statute of limitations expires)
The law also limits who can access a credit report. Common authorized users include:
- Lenders reviewing a credit application
- Insurance companies issuing policies
- Government agencies with a court order or federal subpoena
- Employers, but only with the applicant’s written permission
Some businesses, like credit card companies, can access reports without permission for prescreened offers. Consumers can opt out of this by calling 1-888-5-OPTOUT (1-888-567-8688) or visiting OptOutPrescreen.com.
When a business requests a credit report, it must state the reason, such as evaluating a loan or employment application.
Consumer rights under the FCRA
Consumers have the right to access their credit reports. By law, they can receive one free report per year from each of the three major bureaus at AnnualCreditReport.com. Currently, free weekly reports are available.
Other rights under the FCRA include:
- Verifying report accuracy when required for employment
- Receiving notice if negative information in a report affects a credit application
- Disputing and correcting incomplete or inaccurate data
- Removing outdated negative information after seven years (or ten years for some bankruptcies)
If a credit bureau does not respond adequately to a consumer dispute, a complaint can be filed with the CFPB.
Negative information should automatically disappear from credit reports after the allowed time. If it doesn’t, consumers have the right to request its removal.
Example of the FCRA in action
Imagine someone applies to rent an apartment but is denied due to their credit report. However, they suspect the real reason is discrimination based on race or religion.
Under the FCRA, they can request their credit report to verify the landlord’s claim. If the landlord falsely stated they checked the report, this could result in legal consequences. Violations of the FCRA can lead to fines.
Frequently asked questions (FAQs)
What are the requirements for releasing a credit report? Lenders, insurers, landlords, employers, and others must have a legally valid reason to access a credit report.
What are the penalties for FCRA violations? Each violation can result in fines ranging from $100 to $1,000. If damages occur, actual and punitive damages may be imposed, along with attorney fees. Criminal charges apply if someone obtains a credit report under false pretenses.
What are employers’ Responsibilities Under the FCRA? Employers can request credit reports for internal use but must obtain written consent. They must also specify that the request is for employment purposes.
Who enforces the FCRA? The FTC and CFPB are responsible for enforcing the FCRA.
The bottom line
The FCRA regulates how credit bureaus collect and share your financial data. It also grants consumers important rights, including access to free credit reports. Because credit reports impact many aspects of life, checking them regularly for errors is essential. If you find inaccurate information, you have the right to dispute it and request corrections.
