Legal Definitions - Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) is a federal law enacted in 1970 that governs how consumer reporting agencies collect, use, and share information about individuals. Its primary purpose is to ensure the accuracy, fairness, and privacy of the information contained in consumer reports, which are often used to make decisions about a person's eligibility for credit, insurance, employment, housing, and other important transactions. The FCRA grants consumers specific rights regarding their credit information and places obligations on the companies that compile and use these reports.

Key aspects of the FCRA include:

• It dictates when and how consumer reporting agencies can provide consumer reports to third parties.
• Generally, entities like banks, employers, or landlords must obtain a consumer's permission before accessing their report, though there are some exceptions.
• It requires consumer reporting agencies to provide individuals with a free copy of their credit report annually.
• It mandates that these agencies promptly investigate and correct any inaccurate information reported by consumers.
• It requires users of consumer reports to notify individuals if information in their report led to an adverse decision, such as a denial of credit or employment.
• It sets limits on how long certain negative information can remain on a consumer's report.

Here are some examples of how the FCRA applies:

• Mortgage Application Denial: Sarah applies for a home loan and is denied. The bank informs her that her credit score, based on information from a consumer report, was a significant factor in their decision.

  This illustrates the FCRA because the bank, as a user of Sarah's consumer report, is required to notify her if information from that report led to an adverse action (the loan denial). Sarah then has the right under FCRA to obtain a free copy of her report from the credit reporting agency to review the information and dispute any inaccuracies she finds.

• Job Offer Rescinded After Background Check: David receives a conditional job offer, pending a successful background check. A week later, the company rescinds the offer, stating that information found in his background report raised concerns.

  This demonstrates the FCRA in two ways. First, the employer would have needed David's written consent before conducting the background check, as it constitutes a consumer report for employment purposes. Second, because the background check information led to an adverse decision (rescinding the job offer), the FCRA requires the employer to provide David with a copy of the report and a summary of his rights, giving him an opportunity to review and dispute any incorrect information before the final decision is made.

• Discovering Identity Theft on a Credit Report: Maria checks her annual free credit report and discovers a credit card account she never opened, showing a large outstanding balance and late payments.

  This example highlights the FCRA's role in ensuring the accuracy of consumer reports and providing a mechanism for consumers to correct errors. Under FCRA, Maria has the right to dispute this fraudulent account directly with the credit reporting agency. The agency is then legally obligated to investigate her claim, typically within 30 days, and remove the inaccurate information if it cannot be verified.