What is the Fair Credit Reporting Act (FCRA)

Last updated Jan 13, 2020

Disclaimer: This website is neither an exhaustive summary of the Fair Credit Reporting Act (FCRA) nor legal advice for you to use in complying with it. Instead, it provides background information to help you better understand the FCRA and how it can apply to your business. This legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so you should consult an attorney if you’d like advice on your interpretation of this information or its accuracy. You may not rely on this paper as legal advice, nor as an endorsement of any particular legal understanding.

Here is a table of contents for the FCRA:

  1. Fundamentals of The Fair Credit Reporting Act (FCRA)
  2. Industry Players Under FCRA
  3. Accuracy and Reasonable Procedures
  4. FCRA Permissible Purpose
  5. Adverse Action Notification
  6. Reinvestigation, Disclosures, Disposal of Consumer Information
  7. What is a Consumer Report?
  8. A summary of consumer rights under FCRA
  9. FCRA Litigation
  10. State Versions of FCRA and FCRA California

What is the FCRA?

The Fair Credit Reporting Act (FCRA) was initially instituted by Congress with the establishment of 15 USC 1681 (1992). When it was originally enacted, the FCRA imposed requirements exclusively on Credit Reporting Agencies (CRAs) such as credit bureaus. Exceptions included users of consumer reports and other third parties which were required to provide certain notices to consumers. The outlining act delineated findings and a statement of purpose identifying the need to ensure that consumer reporting agencies must exercise their responsibilities with fairness, impartiality, and a respect for the consumer’s right to privacy. (The Fair Credit Reporting Act, 15 USC 1681, 1992)

Under the FCRA, CRAs are required to establish procedures to ensure that they report consumer information only to those with a legitimate purpose for it and to achieve maximum possible accuracy in the information they report. The FCRA further sought to improve the accuracy of data in CRA files by requiring CRAs to disclose information in their files to consumers and investigate items disputed in good faith by them.

The act contained sections defining the permissible purposes for consumer reports, prohibited reporting of obsolete information, required disclosures needed before procurement of an investigative consumer report, compliance procedures, procedures in case of disputed accuracy, requirements on users of consumer reports, as well as civil liability for willful noncompliance and administrative enforcement.

Fair Credit Reporting Act of 1970

Further legislative actions were taken with the Fair Credit Reporting Act of 1970 which instituted controls for the collection, use, and redistribution of consumer information. Enacted October 26, 1970 as title VI of Public Law 91-508, 84 Stat. 1114, the act represents the amendment to the Consumer Protection Act of 1968 and is enforced by the Federal Trade Commission. The law is usually referred to as FCRA. The FCRA was originally passed by Congress in 1970 to ensure the accuracy and privacy of personal information filed by credit agencies in consumer credit reports.

Prior to 1970, consumers did not have the right to know what information was listed on their credit reports. There was no way to order a copy of reports and no way to see if the information was accurate or not. Even worse, if it was learned that there were inaccurate items on the credit report, there was no way of challenging or getting rid of those items with the credit bureaus. Because there were no limits on how long listings could remain on credit reports, erroneous listings could haunt a customer forever.

The federal Fair Credit Reporting Act (FCRA) of 1970 was the first federal law to regulate the use of personal information by private businesses. The intent of the law was to protect consumers from having misinformation used against them, and with consumer protection in mind the FCRA implemented several very specific guidelines including:

  • Governing the collection, assembly, and use of consumer report information.
  • Promoting the accuracy, fairness, and privacy of information in the files of consumer reporting agencies (CRA)
  • Covering how a consumer’s credit information is obtained, how long it is kept, and how it is shared with others-including consumers themselves.
  • Describing the kind of data that bureaus are allowed to collect.
  • Limiting who is allowed to see a credit report and under what circumstances.
  • Giving consumers certain rights, including free access to their own credit reports as well as the right to dispute.

Major Amendments to the Fair Credit Reporting Act (FCRA)

Since the enactment of the original act, two major amendments have been made: the Consumer Credit Reporting Reform Act of 1996 and the Fair and Accurate Credit Transactions Act of 2003 (“FACT ACT” or “FACTA”).

On September 30, 1996, the Congress enacted substantial reform of the Fair Credit Reporting Act (FCRA) by enacting the Consumer Credit Reporting Reform Act of 1996.

The Consumer Credit Reporting Reform Act of 1996 made extensive revisions to the FCRA (the “1996 Amendments”) in a number of areas. First, it expanded the duties of CRAs, particularly in regard to CRA responses to consumers’ disputes – establishing a 30-day time frame for completion of an investigation, mandating written notice to the consumer of the results of the investigation within five days of its completion, and adding restrictions on the reinsertion of items that were deleted following a dispute. Second, the 1996 Amendments also increased the obligations of users of consumer reports, particularly employers. Most significantly, the 1996 Amendments imposed duties on a class of entities not previously treated by the FCRA – furnishers of information to CRAs – by including requirements related to accuracy and the handling of disputes by the entities that provided information to CRAs. (2011, July 20) 40 Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report with Summary of Interpretations.

The Fair and Accurate Credit Transactions Act of 2003 (“FACT ACT” or “FACTA”) was Congress’ second major amendment and expansion of the FCRA. This act had two significant impacts including granting consumers the right to free annual reports from Credit Reporting Agencies and required blocking of information placed on a consumer report as a result of identity theft. The act also targeted three areas including identity theft issues, the truncation of credit card numbers on receipts and the targeting of certain obligations and rights of consumers to help detect and remedy issues with identity theft.

It added several sections to assist consumers and businesses in combating identity theft and reducing the damage to consumers when that crime occurred. The FACT Act established a national fraud alert system, required merchants to truncate account numbers on electronic credit/debit card receipts, and ordered agencies to promulgate rules on proper disposition of consumer report information and on what companies should do to respond to the “red flag” indicators of identity theft.

In addition, it granted consumers the right to request free annual reports from national CRAs, required “blocking” of information placed on a consumer report as a result of identity theft, and required businesses to provide copies of relevant business records to identity theft victims. (2011, July 20) 40 Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report with Summary of Interpretations.

FCRA Chief Concerns

The FCRA is chiefly concerned with the way credit reporting agencies (CRAs) use the information they receive regarding credit history. Credit reporting agencies (CRA) are responsible for gathering, processing, and archiving credit information on consumers and sell that information to help businesses make decisions about granting loans or credit.

Credit reporting 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 a consumer’s activity.

The CRAs feed the data they receive into their own set of algorithms to come up with a score that predicts a consumer’s creditworthiness. 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.

Primary Enforcement of FCRA

From 1970 through 2009, the Federal Trade Commission (FTC) was responsible for the primary enforcement of the FCRA. From 2010, under the Consumer Financial Protection Act of 2010 (CFPA), the Federal Trade Commission (FTC) shared enforcement authority with the Consumer Financial Protection Bureau (CFPB).

The Federal Trade Commission was created on September 26, 1914, when President Woodrow Wilson signed the Federal Trade Commission Act into law. The FTC opened its doors on March 16, 1915. The FTC's mission was to protect consumers and promote competition.

The FTC maintains the power to bring civil suits in federal court to secure financial compensation and penalties for individuals, or for class-action litigants damaged by violators of applicable laws. Fines and punishments against violators are imposed by the courts, rather than directly by the FTC.

Because the FCRA includes “private right of action,” private litigants can bring lawsuits for FCRA violations. For willful violations (intentional or reckless disregard of the law), consumers can recover statutory damages of $100-$1,000 and receive punitive damages and attorney’s fees. For negligent violations, consumers can recover actual damages and attorney’s fees.

Tourists-looking-at-the-capitol

Continue to Industry Players Under FCRA, or jump to a different article.

  1. Fundamentals of The Fair Credit Reporting Act (FCRA)
  2. Industry Players Under FCRA
  3. Accuracy and Reasonable Procedures
  4. FCRA Permissible Purpose
  5. Adverse Action Notification
  6. Reinvestigation, Disclosures, Disposal of Consumer Information
  7. What is a Consumer Report?
  8. A summary of consumer rights under FCRA
  9. FCRA Litigation
  10. State Versions of FCRA and FCRA California