Fair Credit Reporting

Fair Credit Reporting

Last updated: March 2007

Statutes and Regulations
Introduction
Importance of the Credit Report
          Basic Purpose
          Coverage
What is a Consumer Report
         What is in a Consumer Report 
         What is NOT a Consumer Report
Notice to the Consumer
          Notice of Information Gathering
          Notice of Adverse Action Based on Report
Permissible Uses of a Consumer Report
Information in Agency’s File  
          Obsolete Information
          Accuracy of Information
Consumer’s Right to Information
          How to Obtain the Contents of Consumer’s File
          Correction of Errors
The Reinvestigation Procedure
Liability for Furnishing Inaccurate Information
Enforcement 
          Civil Remedies
          Criminal
          Administrative Enforcement
Cleaning Up a Blemished Credit Rating
Creditor Threats to Ruin Credit Rating
Effect of Disputing a Debt on Credit Rating
Spouse's Credit Record
Help In Seeking Information

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Statutes and Regulations

Federal Statutes

  • 15 U.S.C. § 1681 et seq. Fair Credit Reporting Act (FCRA)
  • Title VI of the Consumer Credit Protection Act of 1968

Federal Regulations

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Introduction

Information about consumers is often sought by lenders, credit sellers, insurance companies, employers and others who use the information to minimize their risk. There are companies called "credit bureaus" or "credit reporting agencies" which gather and store information on all Americans who use credit. They then sell this information to those who need it. Credit bureaus do not grant credit to anyone, but they do collect enormous quantities of information on consumers and issue consumer credit reports.

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Importance of the Credit Report

A person’s credit reporting file affects their access to home mortgages, car loans, and other forms of consumer credit, residential leases, employment and insurance. A consumer’s ability to access credit depends on the credit bureau’s accuracy in documenting his/her credit history as well as the bureau’s prompt compliance in correcting mistakes once they are discovered. Unfortunately, the consumer cannot choose or replace the particular credit bureau that gathers and maintains the information about him/her.

Basic Purpose

The FCRA is designed to:

  • Regulate the collection and dissemination of information on consumers;
  • Define the duties of consumer reporting agencies;
  • Define the rights of consumers to verify and correct information in credit files; and
  • Establish remedies for violations.

Coverage

The FCRA covers consumer reports or investigative consumer reports made by consumer reporting agencies (e.g., credit bureaus, investigative reporting companies).

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What is a Consumer Report

Pursuant to 15 U.S.C. § 1681(a), a consumer report is any oral or written communication made by a consumer reporting agency that bears on a consumer’s:

  • Creditworthiness
  • Credit standing
  • Credit capacity
  • Character
  • General reputation
  • Personal characteristics, or
  • Lifestyles

and is used, expected to be used, or collected for the following purposes:

  • Serving as a factor in establishing a consumer’s eligibility for credit or insurance for personal, family or household purposes
  • Employment purposes
  • Licensing purposes, or
  • Other legitimate business purposes

Consumer Purpose. A report is generally a consumer report if the information was expected to be used or was gathered for any consumer purpose.

What Is In a Consumer Report

The information contained in a consumer report includes:

  • Consumer’s name
  • Age
  • Social Security number
  • Home and business addresses
  • Previous addresses
  • Job
  • Marital status, and
  • Spouse’s name and number of children

It contains financial information such as:

  • Estimated income
  • Value of car and home
  • Bank accounts, and
  • Mortgages held

It provides detailed information regarding the status, payment history, and credit limits of a consumer’s credit accounts; tax liens, bankruptcies or court judgments; and who requested credit in the last 2 years.

What Is Not a "Consumer Report"

A report is not a "consumer report" (and the FCRA does not apply) if:

  • The information was not gathered for one of the above-listed specific purposes of a consumer report; or
  • The report contains only experiences between the reporter of the information and the consumer.

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Notice to the Consumer

Notice of Information Gathering

Pursuant to 15 U.S.C. § 1681d, the creditor need not notify the consumer before obtaining a "consumer report" unless it is an "investigative consumer report" (where information was obtained through personal interviews with neighbors, friends, or associates).

Advance Notice of Investigative Report

Before obtaining an investigative consumer report, the user must:

  • Notify the consumer in writing that:
        - Such a report may be prepared, and
        - It will include information on character, reputation, personal characteristics, and mode of living.
  • Mail the notice to the consumer within three days after the report is first requested; and
  • Inform the consumer that he or she has the right to request complete information about the nature and scope of the investigation being requested.

Notice of Adverse Action Based on Report

Notification of Credit Denial

Pursuant to 15 U.S.C. § 1681d, if a consumer requests credit for personal, family, or household purposes, and it is denied (or the charge for it is increased) because of information contained in a consumer report from a consumer reporting agency, the user of the report must notify the consumer, orally or in writing, of the name and address of the consumer reporting agency making the report.

NOTE: The notice must be given "even though the information itself may not be adverse."

Information Not From Agency

If the adverse action is based on similar information from someone other than a "consumer reporting agency," the user must notify the consumer of his or her right to request disclosure of information.

The consumer has 60 days to make such a request in writing.

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Permissible Uses of a Consumer Report

Pursuant to 15 U.S.C. § 1681b, a consumer report may lawfully be used only for:

  • Any aspect of a credit transaction including collection
  • In response to a court order
  • Governmental agencies needing consumer identifying information
  • Employment purposes
  • Underwriting insurance involving the consumer
  • Granting a government license or other benefit where financial status is a required consideration
  • A specific business transaction if there is a legitimate business need (A consumer reporting agency cannot distribute reports generally to all businesses), and
  • When a consumer instructs CRA (Credit Reporting Agency), in writing, to provide a report to the user.

NOTE: An attorney’s use of a consumer report on prospective witnesses, jurors, or clients is restricted.

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Information in Agency's File

Obsolete Information

Pursuant to 15 U.S.C. § 1681c, information becomes obsolete after seven years (10 years for bankruptcy).

  • Obsolete information can be retained in the files, but cannot be reported.

Exceptions. The time limitation is not applicable in:

  • A credit transaction involving a principle amount of $50,000 or more
  • The underwriting of life insurance involving $50,000 or more, or
  • The employment of an individual at an annual salary of $20,000 or more

No Duty to Update

A consumer reporting agency has no affirmative duty to update information (except for the limitation on reporting obsolete information) that was:

  • Accurate when received, and
  • Not challenged by the consumer

Accuracy of Information

Pursuant to 15 U.S.C. § 1681e, a consumer reporting agency must maintain reasonable procedures to assure maximum accuracy of the information reported.

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Consumer's Right to Information

Pursuant to 15 U.S.C. § 1681g, a consumer can request the information in his or her file with a consumer reporting agency.

A consumer reporting agency has no affirmative duty to inform a consumer of this right.

Disclosure of Information

A consumer may not examine the actual file, but is entitled to disclosure of:

  • The "nature and substance" of the information
  • The sources of the information, and
  • The names of recipients of consumer reports within the past six months (two years if for employment purposes)

The form of the disclosure must not only be accurate but must be presented in such a way that the consumer can be able to clearly understand the data that is disclosed. The consumer must be told about each item in the file; a mere summary is not enough. Explanations of coded information must be provided.

Negligent or willful failure of the agency to comply with these disclosure requirements is actionable.

Fee for Information

The consumer reporting agency must provide the requested information free if the consumer requests it within 30 days after receiving notice of an adverse action (by creditor, insurer, or employer) based on a consumer report. Otherwise, a reasonable fee may be charged.

How to Obtain the Contents of Consumer's File

Disclosures can be in person or by telephone, with a prior written consent and proper identification. Disclosures can also be provided by mail with the consumer’s consent. A request for a written disclosure should be made since it provides a record of the CRA’s compliance or noncompliance with the FCRA.

If a consumer has received notice that a consumer report contributed to a denial, that notice will identify the agency providing the report. That is usually the best agency from which to first request a report. However, for a full picture of a consumer’s credit record, it is generally advised to request disclosure from all three major reporting agencies.

See NCLC manual on FCRA for phone numbers and addresses of the three major CRAs to obtain information about ordering reports.

Time for CRAs to respond: The law does not specify. It can take from several working days to 3 weeks.

Correction of Errors

Pursuant to 15 U.S.C. § 1681i, the consumer reporting agency must investigate and correct the file if necessary.

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The Reinvestigation Procedure

When a consumer has identified inaccurate or incomplete information in the report, the consumer may ask the CRA to reinvestigate the information. This procedure has several components.

First, the consumer requests the CRA to reinvestigate the information in writing (although it is not required to be in writing by the statute). All letters should include the consumer’s name, address and Social Security number; a clear description of the items in the credit report that the consumer is disputing; an explanation why the item is disputed; a request for the deletion or correction of the item; and a copy of the credit report in question.

The CRA must reinvestigate within a reasonable time of receiving the consumer’s request. The industry standard appears to be within 30 days. If the consumer does not receive a response from the credit bureau within 30 days, a follow-up letter should be sent, along with a copy of the original letter. Failure of the agency to comply with the reinvestigation provisions within a reasonable period of time should subject the CRA to liability under the FCRA.

The reinvestigation must be a good faith effort; it must be a full investigation of the underlying facts. The CRA must check with both the original sources and other reliable sources of the disputed information. Its not enough to determine whether the information was accurate or complete at the time it was furnished to the agency. The agency must record the current status of the information.

The consumer should try to correct an item on the reports of all three national credit bureaus. The agency cannot charge the consumer for the reinvestigation.

Second, if the agency does not correct or delete the information, the consumer can file a statement with the agency disputing the item. This then will be included in future consumer reports on the consumer. Merely including the statement in a consumer report does not satisfy the statute. The report must also note that the information is disputed.

The CRA cannot charge the consumer to receive this statement or to include it in future reports

Third, the consumer can request the agency to contact past users of an inaccurate report to explain the inaccuracy or the consumer’s dispute with the information in the report. The notice indicates the items that were deleted and includes the consumer’s statement, or a summary of that statement. Consumers cannot be charged for such notices to past users.

The agency must clearly and conspicuously disclose to the consumer the right to request the agency to notify past users of a disputed report. This notice must be provided no later than the time that the information is deleted or the statement of dispute is filed.

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Liability for Furnishing Inaccurate Information

Creditor or Other Third-Party Liability for Furnishing Inaccurate Information to a CRA

The FCRA imposes no liability on a creditor or other third party for giving inaccurate information to the reporting agency. Moreover, the FCRA limits a consumer’s right to bring a proceeding in the nature of defamation, invasion of privacy or negligence with respect to the reporting of information.

There are two exceptions to this immunity: first, there is no immunity if the false information was provided with malice or willful intent to injure the consumer. Second, there is no immunity if the consumer obtained the information directly from the furnisher.

Agency Liability for Reporting Inaccurate Information

CRAs are not liable under FCRA merely for reporting inaccurate information. Liability is based instead on an agency, whenever it prepares a consumer report, failing to follow reasonable procedures to assure maximum possible accuracy of the information about the consumer. Thus, the FCRA provides a cause of action for an agency failing to enact reasonable procedures, not for furnishing one particular inaccurate report.

It is also actionable under FCRA if the CRA violates any of the consumer’s rights to reinvestigation; to have deleted or corrected inaccurate or unverified information,; to file a statement of dispute and have it appear in future reports; and, to have the correction or statement of dispute provided to past users.

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Enforcement

Civil Remedies

Willful Noncompliance

Pursuant to 15 U.S.C. § 1681n, a credit reporting agency that willfully fails to comply may be liable for:

  • Actual damages
  • Punitive damages (discretionary)
  • Attorney fees and costs

Negligent Noncompliance

Pursuant to 15 U.S.C. § 1681o, a consumer reporting agency that negligently fails to comply may be liable for:

  • Actual damages
  • Attorney fees and costs

Statute of Limitations

Pursuant to 15 U.S.C. § 1681p, the statute of limitations is two years.

If willful misrepresentation exists, a discovery rule applies.

Criminal

The Act imposes criminal liability (with up to $5,000 fine and/or up to one year imprisonment) for:

  • Any person’s knowingly and willfully obtaining information from a consumer reporting agency under false pretenses or
  • Any officer or employee of a consumer reporting agency’s knowingly and willfully giving information from the agency’s files to someone not authorized to receive it.

Administrative Enforcement

Any violation of the FCRA is deemed an unfair or deceptive act or a deceptive act or practice in violation of the Federal Trade Commission Act, subject to the FTC’s administrative enforcement mechanisms.

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Cleaning Up a Blemished Credit Rating

Obviously, the consumer should utilize the above procedure to clear up inaccurate or incomplete or outdated credit reports. However, there are other things a consumer can do to clean up a blemished credit rating. Some of these other things include:

  • Dispute the amount owed with creditors;
  • Defend collection lawsuits;
  • Provide favorable credit information on unreported accounts;
  • Contact the CRAs and explain away negative information or blemishes on report to the extent that it is not the consumer’s fault or when the circumstances leading to the bad credit report have changed, so that there is no risk of the problem recurring;
  • Negotiate repayment agreements with the creditor and obtain the creditor’s cooperation in correcting a credit record. If the consumer stays current on a repayment schedule, the consumer report cannot say that consumer is delinquent. This will not alter the credit history portion of the consumer report, but will clean up the current status of the account;
  • File for bankruptcy;
  • Present a pattern of stability in employment and income and a reasonable debt burden in relation to income;
  • Establish new credit accounts and pay in a timely fashion;
  • Correct older blemishes on the report through negotiation with the creditor (or simple payment); and
  • Deal with public record information by improving the situation at its source, and then notifying the CRA. For example, if an arrest was reported, but the case was later dropped, make sure that is in the report. Other examples include arranging for liens to be removed, or vacating a default judgment in favor of a repayment agreement, or cleaning up student loan defaults.

Even if some blemishes on a credit rating cannot be cleared up, a consumer should not assume a blemished credit rating will lead to a credit denial. If one creditor refuses to extend credit, a consumer should try another one. However, some selectivity should be used in sending out credit applications because credit denials will appear on future credit reports sent to other users.

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Creditor Threats to Ruin Credit Rating

A common creditor and collection agency threat is to ruin the consumer’s credit record if s/he does not pay up on the debt. Essentially, the creditor or collector threatens the consumer that they will report the debt to a credit bureau, thereby ruining their credit standing. These threats are designed to wrench compliance with payment terms.

Consumers should largely ignore these threats. They are unlikely to be meaningful. If a creditor is a subscriber to a credit reporting agency, information is reported in a standardized fashion each month, so a delinquent debt probably has already been reported. Even when payment is made, the existence of the delinquency will remain on the report as historical information. The threat is meaningless because it has already been carried out.

Threats from collection agencies also are meaningless. It is unlikely that a collection agency subscribes to a credit reporting agency or will want to go to the expense of collecting and sending them information. The consumer should also bear in mind that false threats from collection agencies are actionable under the Fair Debt Collection Practices Act (see section of manual on Collection Agencies). 

Consumers in financial trouble should not pay the creditor that threatens the loudest, but instead should pay off those debts whose nonpayment will have the most adverse consequences for the family. It is essential that consumers not pay unsecured debts (like credit cards, hospitals, etc.) ahead of mortgages, rent, utilities, and secured debts.

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Effect of Disputing a Debt on Credit Rating

If a consumer has a valid defense to a debt, the best course of action usually is to withhold payment of that debt. Consumer concerns over ramifications of such an action on their credit record are misplaced. Federal law protects consumers from adverse marks in their credit records while they are disputing debts. Disputing a debt will not result in the creditor ruining the consumer’s credit record. Usually, the opposite is true – disputing the debt is the best tactic to clearing up the credit record.

Dispute settlements should cover credit reporting issues. Settlements should have language that either requires the creditor to withdraw the entire report of the disputed debt, or permits reporting the debt but requires the creditor to take steps to avoid having unfavorable information about the debt included in any credit report. There is model language for such settlements.

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Spouse's Credit Record

A consumer’s file at a CRA should contain only information on the consumer. There must be a separate file for the spouse. Thus, a spouse or former spouse’s poor credit history will not reflect on the consumer.

Under the ECOA, creditors must furnish certain data to CRAs. If a consumer can use or is obligated on a spouse’s account, the creditor must designate the account to reflect the participation of both spouses. The CRA can use this information to update the files for both spouses. However, the general rule under the ECOA is that a creditor cannot make inquiry about an applicant’s spouse or former spouse to the applicant, a CRA, another creditor or any other source. Moreover, in general, credit cannot be based on information that the creditor sought on the spouse or former spouse.

Exceptions to the general rule:

  • Where the spouse will be permitted to use the account or be contractually liable on the account
  • Where the applicant is relying on a spouse’s income for repayment of the credit, and
  • Where the applicant is relying on alimony, child support or separate maintenance payments from a spouse or former spouse for repayment

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Help in Seeking Information

If a consumer wants to know what information a consumer reporting agency has collected about him or her, he or she can:

  • Locate consumer reporting agencies in the "Yellow Pages" under such headings as "Credit" or "Credit Rating and Reporting Agencies."
  • Once the consumer reporting agency has been located, the consumer can arrange for a personal interview at the agency’s office, or arrange in advance for telephone interview.
  • Call the Federal Trade Commission toll-free at 1-877-FTC-HELP (382-4357).

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