Fair Credit Reporting Act

Are you worried about identity theft and someone ruining your good credit name? The Fair Credit Reporting Act was designed to ease your fears.

The Fair Credit Reporting Act (FCRA) is a federal law that regulates credit reporting agencies and compels them to make sure the information they gather and distribute is a fair and accurate summary of a consumer’s credit history.

The FCRA is chiefly concerned with the way credit reporting agencies use the information they receive about your credit history. The law is intended to protect consumers from bad information being used against them. It has very specific guidelines on how credit reporting agencies can collect and verify information, and it outlines reasons that information can’t be released.

History of the Fair Credit Reporting Act

Congress passed the FCRA in 1970, and it was primarily aimed at the three major credit reporting agencies – Experian, Equifax, and TransUnion. It also applies to other organizations that collect and use consumer financial information, like banks and credit unions.

Lawmakers felt the industry needed federal regulations because of the power it has over consumers. Their ability to buy many big-ticket items largely depends on their credit report.

If your score is low, it could torpedo your plans to buy a house or car. The interest rate and terms you are offered might be too stiff.

That all-important credit score is calculated by the credit reporting agencies, so it’s vital they get it right. Consumer advocacy groups have long questioned the accuracy of credit reporting, and they’ve lobbied for consumers to have more power to dispute information and have it removed if it’s inaccurate.

What Are Credit Reporting Agencies?

Credit reporting agencies (CRA) are responsible for gathering, processing and archiving credit information on consumers. The CRAs have information on more than 200 million Americans. They sell that information to help businesses make decisions about granting loans or credit.

The agencies collect information on every consumer’s use of credit and their bill-paying habits. The data comes from “information suppliers,” or any business that extends credit to customers. Information is also taken from public records like court judgments and bankruptcy filings. Information suppliers transmit consumer credit information electronically to the credit reporting agencies on a continuous basis, thus credit reports could change almost daily depending on the level of consumer activity.

The CRAs feed the data they receive into their own set of algorithms to produce a score that predicts the likelihood a consumer will repay his/her loans.

CRAs do not make decisions on whether consumers get a loan. That decision is made by banks, credit unions, mortgage companies or card companies that extend credit. The information from the CRA is used to set the interest rate and conditions for a loan.

Basic Consumer Rights

Under the Fair Credit Reporting Act, you have the right to:

• Access to Your Credit Report – The Act requires credit reporting agencies to provide you with any information in your credit file upon request once a year. You must have proper identification. You have a right to a free copy of your credit report within 15 days of your request.
• Protected Access – The FCRA limits access to your file to those with a valid need. That would usually be banks, insurance companies, employers, landlords or others doing business that involves offering credit. You also have the right to know who has requested your credit report in the last year or, for employment-related requests, two years.
• Accurate Reporting – If inaccurate information is discovered in your file, the consumer reporting agency must examine the disputed information, usually within 30 days. If the inaccurate information cannot be verified, the consumer reporting agency has a responsibility to remove it. If you are not able to clear up the matter, you are allowed to add a statement to your credit file explaining the situation.
• Have Outdated Information Removed – Negative information must be removed from your file after seven years. Bankruptcy, however, may remain on record for 10 years, and criminal record information can remain indefinitely.
• Maintain Medical Information Privacy – You are protected from having medical information in a consumer report, as creditors are prohibited from obtaining or using medical information when making a credit decision.
• Limit Unsolicited Credit Offers – The law allows you to request to have your name and address removed from unsolicited prescreened offer lists for credit and insurance. To opt out of such correspondence, call (888) 5-OPTOUT (888-567-8688).
• Protect Your Personal Account Numbers – Businesses are notpermitted to publish full credit card numbers on receipts. The law also allows you to protect your Social Security number by having it truncated on your credit report.
• Receive Notification of Possible Negative Information – You have the right to be notified if any financial institution submits, or plans to submit, negative information to a credit reporting agency. This information may be included in a billing statement or a notice of default.
• Seek Damages – You have the right to sue and seek damages in a state or federal court from anyone, such as a consumer reporting agency or a user of consumer reports, who violates the Fair Credit Reporting Act.
• Know When Your Credit Report Is Used Against You – If you are denied credit, insurance, or employment because of your credit report, you can ask for the specific reason for the denial.
• Know Your Credit Scores – You have a unique credit score with each credit bureau, which you can request. In some cases, you may be required to pay for this information.

Are There Acts Within the Fair Credit Reporting Act?

The FCRA is 116 pages long, so there is plenty of detail on several smaller acts that help consumers. Here are three of the most visible.

1. Credit CARD Act

Under the Credit Card Accountability, Responsibility and Disclosure Act, credit card companies are not allowed to increase your interest rate on an existing balance. The act also requires a company to give you 45-day notice prior to increasing the rate on the new account balances. It also requires credit card companies to keep regular and consistent payment deadlines.

2. Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) is one of the most visible parts of the FCRA. It was passed in 2010 to stop major financial institutions and creditors from continuing unfair practices. The act is intended to prevent a major recession like the one that began in 2007.

The DFA created an independent watchdog system to monitor information given to consumers and ensure consumers receive clear and accurate credit information. It ended bailouts, meaning taxpayer money cannot be used to save failing financial firms. It also imposed new requirements on big companies to deter them from growing. And it implemented a new warning system to give the government more advanced notice of problems before they significantly weaken the economy.

The DFA also forces big financial institutions to be more transparent and accountable. It gives investors a greater say in company issues, strengthened enforcement of existing laws and eliminated loopholes that allowed risky and detrimental behavior.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) is a government agency that serves as a consumer watchdog on the financial industry.

It was created as part of the Dodd-Frank Act financial reform law and gives consumers a voice when they want to dispute something with the financial industry. Much of their focus has been on helping consumers understand the laws and regulations that govern the credit card, mortgage, and banking industries.

The CFPB website invites consumers to send questions and complaints to the agency. It also publishes blogs and news stories on subjects like how to avoid overdraft fees from banks, dealing with debt collection agencies, problems with pre-paid accounts and facts about payday lenders.

The Volker Rule

This section of the Dodd-Frank Act restricts large banks from making speculative, high-risk investments with funds from their own accounts.

It essentially prohibits a bank from engaging in proprietary trading and acquiring ownership interest in a hedge fund or private equity fund.

The rule was named after former Federal Reserve Chairman Paul Volcker and is meant to keep banks from hedging bets that put their customers in danger, one of the banking practices that led to the recession in 2008. Although it passed in 2010, it wasn’t implemented until 2015.

The Financial Stability Oversight Council

The Financial Stability Oversight Council monitors the financial system and regulates companies whose practices pose a threat to the economy. It’s composed of nine members of various governmental financial agencies and is chaired by the Treasury Secretary.

SEC Office of Credit Ratings

The SEC Office of Credit Ratings oversees credit rating agencies. It issues information that educates investors on the risks involved with investing in debt securities like bonds, notes, and asset-backed securities. Credit ratings are also assigned to companies and governments.

Credit ratings reflect a relative ranking of credit risk and play a critical role in the marketplace. The ratings have a dramatic effect on the perceived value. Unfortunately, there were some “conflict of interest” situations involving credit rating agencies and certain investments that led to significant mismanagement of risks during the economic meltdown of 2018.

3. The Fair and Accurate Credit Transaction Act

The third and most well-known part of the FCRA is the Fair and Accurate Credit Transaction Act.

If someone assumes your identity through stolen personal information and commits fraud, it will likely damage your credit report. FACTA outlines rights to protect consumers’ finances and repair damage to the credit report if this happens. It specifically protects identity theft victims and active duty military personnel.

If you are an identity theft victim, the FACTA gives you the right to:

• Place a “Fraud Alert” in Your Credit Reports – An alert makes potential creditors wary of credit applications and inquiries in your name, protecting you from additional fraud. This can be short-term or long-term, anywhere from 90 days to seven years.
• Receive Free Copies of Your Credit Reports – Check the documents for signs of fraud, such as an unauthorized line of credit or a change of address.
• Request and Obtain Copies of Documents Related to Fraudulent Dealings – You may be required to show proof of identity theft, such as a police report.
• Request and Obtain Relevant Information from Debt Collectors – This includes details of the debt, such as the creditor and amount due.
• Request a “Block” on Information Resulting from Identity Theft – When supplied with adequate proof, credit reporting agencies can prevent an identity thief’s actions from appearing on your credit report and negatively affecting your credit score.
• Request Businesses Not Report Information Related to Your Identity Theft – Once you provide proof of identity theft, the involved businesses can stop reporting the false information to credit reporting agencies, preventing negative effects to your credit report.

Special regulations allow active duty military personnel to place “active duty alerts” in their credit reports. That forces creditors to take extra steps to verify your identity. The alert typically lasts one year, but it may be canceled or renewed sooner.

To place an active duty alert, you must call one of the three national reporting agencies – TransUnion, Experian, or Equifax. The agency will notify the remaining two.