THE FAIR CREDIT REPORTING ACT

The Fair Credit Reporting Act is a consumer protection law that has far reaching effects on lenders and brokers. The Act was recently revised placing new obligations and responsibilities on those individuals, agencies and organizations that maintain and/or report data on individuals and/or consumers. Violations of the act can be punishable by fines and awards granted to defendants in cases where liability on the part of such information providers has been determined through the courts. The Federal Trade Commission enforces the Fair Credit Reporting Act and complaints can be channeled through that agency or through the state or federal courts.

Credit providers, employers, insurers

The Fair Credit Reporting Act (15 USC 1681 et seq.) provides consumer protections regarding the use, accuracy and privacy of consumer credit reports. This law, originally passed in 1970, ensures that consumers have access to information about them that lenders, insurers, and others obtain from credit bureaus and use to make decisions about providing credit and other services.

The changes to the Fair Credit Reporting Act make some improvements for consumers to increase the accuracy of credit reports, prevent identity theft, and restrict the marketing of financial products using sensitive information that is shared with affiliates. In addition, the FCRA amendments provide for one free credit report per year from each agency and guarantee consumers access to credit scores at a reasonable fee.

A part of the following is a summary prepared by Consumer Federation of America, Consumers Union and U.S. PIRG of the principal changes made to the FCRA by enactment of the FACT Act:

Identity Theft: In 1998, Congress made identity theft a felony and ordered the FTC to coordinate federal efforts to monitor the crime. The FACT Act makes several changes to the FCRA, largely based on already-enacted state laws.

One Call Fraud Alerts: Establishes the right of any consumer to request a fraud alert for 90 days or, if a consumer provides an “identity theft report” (which could include an FTC ID theft affidavit if filed with a law enforcement agency), the consumer could place an extended fraud alert of seven years in his or her credit file. The alert must be included with a credit report and with the delivery of a credit score. Users of reports and scores have a new duty to honor fraud alerts. They cannot issue a new credit line, extension of credit, new cards or a requested higher credit limit on existing accounts unless the consumer is called or other reasonable verification steps are taken. Any national credit bureau contacted by a consumer must inform other bureaus that a fraud alert has been placed (one-call fraud alert). Non-national bureaus are required to advise consumers how to contact national bureaus. Persons who file an extended fraud alert are automatically opted out of pre-screening for five years. Active duty military personnel gain the right to request one-year “active-duty” alerts. All consumers who place an alert may receive a free credit report. Persons who place an extended fraud alert may also get two free reports in the first year.

Trade Line Blocking: Requires Consumer Reporting Agencies (CRAs, or credit bureaus) to block fraudulent trade lines when a consumer provides an identity theft report, provided that it has been filed with a law enforcement agency.

Business Records Disclosure: Allows ID theft victims with a police report (a higher standard than “identity theft report”) to request and get copies of records from businesses where a thief opened accounts or obtained goods or services, to help clear their names. The business may insist on a police report, and may take 30 days to provide the information.

Red Flag Guidelines for New Accounts and Change of Address Verification: Regulators are required to establish guidelines for issuers to follow to identify patterns and practices leading to identity theft. The regulations will require reasonable procedures to comply with the guidelines. The regulations will also require card issuers to verify changes of address in certain circumstances (e.g. when a request for a new card comes within 30 days following a change of address).

Credit Card Number Truncation On Consumer Reports: Requires credit card machines to truncate all credit and debit card numbers on non-manual receipts by 2007.

Social Security Number Truncation: Allows a consumer to request that the credit report disclosed to the consumer truncate any included Social Security Numbers.

Prohibits Sale or Collection of ID Theft Debts: Prohibits any person or business from selling, transferring, or placing for collection any item subject to an identity theft trade line block or debt which resulted from identity theft once the block has been placed and the creditor has notice of the block. (However, there is an exemption for information provided in the securitization of debts).

Debt Collector Notice Requirements: Any third party debt collector that is notified that the debt they are trying to collect may be fraudulent must notify the third party and also must provide the consumer upon request with notice of his or her rights in debt collection.

Prevention of Re-pollution: Creditors and others who furnish information to a CRA and who are notified by a CRA of the existence of an identity theft trade line block must maintain reasonable procedures to prevent refurnishing (re-pollution) of the information arising from the ID theft. A furnisher receiving an identity theft report at a proper address may not refurnish such information unless it subsequently verifies that information.

Accuracy, Access to Reports and Re-investigations Studies have shown that credit reports and resulting credit scores are often inaccurate or incomplete, resulting in consumers paying too much for credit. Further, consumers face difficulty fixing mistakes.

Annual Free Credit Reports: Each national credit bureau must provide a free report upon request within 15 days of a request by phone, Internet, or mail through a one_call centralized source to be established by the FTC within a year. Reports will also be available from specialty bureaus, such as landlord/tenant or insurance reporting services, with the method of distribution to be established in regulations to be issued within six months, effective six to nine months thereafter. States are preempted from increasing the frequency of the provision of free reports (free report laws in Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, Vermont are “grandfathered”).

Re-investigations: CRAs have 45 days to conduct re-investigations of disputed items resulting from free report requests (compared to 30_45 days for all other re-investigations). This does not apply if the CRA has not been continuously providing consumer reports for 12 months preceding request.

Credit Bureaus Must Provide Credit Scores, and information on up to four key factors (or five factors if the number of inquiries was a factor and not among the four key factors) adversely affecting a consumer’s score. Bureaus can charge a “fair and reasonable fee” for score, as determined by the FTC. This does not apply to mortgage scores, such as those created by automated underwriting programs.

Mortgage Lenders Must Provide Credit Scores, and information on key factors lowering a consumer’s score to those who apply for mortgages. No fee is authorized for this disclosure. States are preempted from acting further regarding the disclosures of credit scores for credit granting purposes (California and Colorado statutes grandfathered). States are allowed to continue to act in the area of insurance scores, credit based scores used in connection with insurance, and credit score issues other than disclosure issues.

One-Time Written Notification That Negative Information Will Be Or Has Been Sent To Credit Bureaus: Any financial institution that submits negative information to national CRA must give consumers one-time written notice that they have done so or will do so. This notice may be included in a notice of default or a billing statement, but not with Truth-in- Lending disclosures.

New Risk Based Pricing Notice: Existing law provides that consumers who are denied credit or services or required to pay extra for credit due to their credit report receive an “adverse action notice” triggering their credit reporting rights. The FACT Act establishes a new notice for certain additional circumstances. Whenever credit is extended on terms “materially less favorable than the most favorable terms available to a substantial proportion of consumers” from that creditor, creditors must provide notice that the terms offered are based on information in a consumer’s credit report and that the consumer can request a free copy of the report. (No civil enforcement is allowed--federal enforcement only. States are preempted from acting further with respect to the notice.)

Guidelines/Regulations On Accuracy And Integrity Of Information: The FTC and financial regulators are to create guidelines for accuracy and integrity of information and require furnishers of information to establish reasonable policies and procedures to implement guidelines.

Higher Standard For Furnishers Of Information To CRAs: Under pre-revision rules, those who provide information to credit reporting agencies were not allowed to report inaccurate information if they knew or consciously avoided knowing that the information was inaccurate. The new standard prohibits reporting of inaccurate information if the furnisher “knows or has reasonable cause to believe that the information is inaccurate.”

Consumers Can Dispute Incorrect Information Directly With Furnisher: Under pre-revision rules, furnishers of information were only required to perform a reinvestigation of the accuracy of information if they received a complaint from a consumer via a credit reporting agency. The new law requires financial regulators and the FTC to prescribe regulations outlining circumstances when creditors and other furnishers of information to CRAs should re-investigate complaints that come directly from a consumer.

Improved Disclosure Of Results Of Re-investigation: CRAs must notify furnishers when changes are made because of a re-investigation based on a consumer complaint about a credit reporting error.

Requirement For Furnishers To Update Records: Furnishers must change records, delete records, or permanently block reporting to CRAs of information found to be inaccurate or incomplete.

Notification Of Address Discrepancy: CRAs must notify anyone requesting a consumer’s report if the address on the request substantially differs from the address in the consumer’s file.

Reasonable Re-investigation: Clarifies the obligation on CRAs to re-investigate items of disputed accuracy by requiring a “reasonable reinvestigation”.

Medical Information Protections: Any medical information in a consumer report must be coded to obscure the specific healthcare provider and the nature of medical services provided. Creditors are prohibited from obtaining or using medical information in credit decisions. Prohibits the sharing among affiliates of medical information, including individual or aggregate lists based on payments for products or services. Medical providers must identify themselves as such within 15 months.

Individuals, consumers

A good understanding of a lender’s obligations and responsibilities under the FCRA is obtained by seeing a consumer’s view toward his/her rights under the law. Anyone who has a social security number and has ever applied for a charge account, a personal loan, insurance, or a job, has a record in the public domain and/or in a credit repository. This file contains information on where the person works and lives, how he pays his bills, and whether he has been sued, arrested, or filed for bankruptcy.

Companies that gather and sell this information are called Consumer Reporting Agencies (CRAs). The most common type of CRA is the credit bureau. The information CRAs sell about individuals to creditors, employers, insurers, and other businesses is called a Consumer Report.

The Fair Credit Reporting Act (FCRA) is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Recent amendments to the Act expand individuals’ rights and place additional requirements on CRAs. Businesses that supply information about individuals to CRAs, and those that use consumer reports, also have new responsibilities under the law.

Here are some commonly asked questions about consumer reports and CRAs, and the answers. Note that individuals may also have additional rights under state laws.

Q. What can a consumer do about inaccurate or incomplete information?

A. Under the new law, both the CRA and the information provider have responsibilities for correcting inaccurate or incomplete information in an individual’s report. A sound plan for repairing a report includes: First, tell the CRA in writing what information is believed to be inaccurate. CRAs must reinvestigate the items in question, usually within 30 days. They also must forward all relevant data provided by the consumer about the dispute to the information provider. After the information provider receives notice of a dispute from the CRA, it must investigate, review all relevant information provided by the CRA, and report the results to the CRA. If the information provider finds the disputed information to be inaccurate, it must notify all nationwide CRAs so that they can correct this information in the file. When the reinvestigation is complete, the CRA must provide the written results and a free copy of the report to the consumer if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in the file unless the information provider verifies its accuracy and completeness, and the CRA provides a written notice to the consumer that includes the name, address, and phone number of the provider. Second, the consumer should tell the creditor or other information provider in writing that an item is in dispute. If the provider then reports the item to any CRA, it must include a notice of the consumer’s dispute. In addition, if the consumer prevails in the dispute, that is, if the information is inaccurate, the information provider may not use it again.

Q. Does an individual have a right to know what’s in his or her report?

A. Yes, if the consumer asks for it. The CRA must disclose everything in the report, including medical information, and in most cases, the sources of the information. The CRA also must provide the consumer with a list of everyone who has requested a report on him/her within the past year in the instances of credit or insurance, and two years for employment related requests.

Q. Is there a charge for a report?

A. Sometimes. There’s no charge if a company takes adverse action against a consumer, such as denying a credit application, or an application for insurance or employment, providing the report is requested within 60 days of receiving the notice of the action. The notice will give the consumer the name, address, and phone number of the CRA. In addition, consumers are entitled to one free report a year if: (1) unemployed and plan to look for a job within 60 days, (2) on welfare, or (3) the report is inaccurate because of fraud. Otherwise, a CRA may charge up to $9 for a copy of the report.

Q. How would a consumer go about finding the CRA that has his/her report?

A. By contacting the CRAs listed in the Yellow Pages under “credit” or “credit rating and reporting.” Because more than one CRA may have a consumer’s file, each should be called until all the agencies maintaining the file are located.. In addition, anyone who takes action against a consumer in response to a report supplied by a CRA, such as denying an application for credit, insurance, or employment, must provide the name, address, and telephone number of the CRA that provided the report.

The three major national credit bureaus are:

Equifax Experian Trans Union

P.O. Box 740241 P.O. Box 2104 P.O. Box 1000

Atlanta, GA 30374_0241 Allen, TX 75013 Chester, PA 19022

(800) 685-1111. 888-397-3742 800-916-8800

Q. What can a consumer do if the CRA or information provider won't correct the disputed information?

A. A re-investigation may not resolve a dispute with the CRA. If that’s the case, the consumer should ask the CRA to include a statement of the dispute in the file and in future reports. If requested, the CRA also will provide the statement to anyone who received a copy of the old report in the recent past. There may be a fee for this service. If the consumer tells the information provider that an item is in dispute, a notice of the dispute must be included anytime the information provider reports the item to a CRA.

Q. Can an employer get a copy of an employee’s report?

A. Only if the employee agrees. A CRA may not supply information about an individual to his/her employer, or to a prospective employer, without the employee’s or applicant’s consent.

Q. Can creditors, employers, or insurers get a report that contains medical information about an individual?

A. Not without the individual’s approval.

Q. What are “investigative consumer reports”?

A. “Investigative consumer reports” are detailed reports that involve interviews with neighbors or acquaintances that delve into questions about lifestyle, character, and reputation. They may be used in connection with insurance and employment applications. An individual must be notified in writing when a company orders such a report. The notice will explain the individual’s right to request certain information about the report from the company ordering the report. If an application is rejected, the individual may get additional information from the CRA. The CRA does not have to reveal the sources of the information.

Q. How long can a CRA report negative information?

A. Normally seven years. There are certain exceptions:

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