What Is the Fair Credit Reporting Act (FCRA)?
The Fair Credit Reporting Act (FCRA) is a federal law that regulates the collection of consumers' credit information and access to their credit reports. It was passed in 1970 to address the fairness, accuracy, and privacy of the personal information contained in the files of the credit reporting agencies (CRAs).
Key Takeaways
- The Fair Credit Reporting Act governs how credit bureaus can collect and share information about individual consumers.
- Businesses check credit reports for many purposes, such as deciding whether to make a loan or sell insurance to a consumer. Employers may check them, too.
- The FCRA also gives consumers certain rights, including free access to their own credit reports at least once a year.
- Violations of the FCRA can carry fines, including damages if any are incurred.
- Enforcement of the FCRA falls to the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).
How the Fair Credit Reporting Act (FCRA) Works
The Fair Credit Reporting Act is the primary federal law that governs the collection and reporting of credit information about consumers. Its rules cover how a consumer's credit information is obtained, how long it is kept, and how it is shared with others—including consumers themselves.
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are the two federal agencies charged with overseeing and enforcing the provisions of the law. Many states also have their own laws relating to credit reporting. The FCRA in its entirety can be found in United States Code Title 15, Section 1681.
The three major credit reporting bureaus—Equifax, Experian, and TransUnion—as well as other, more specialized companies, collect and sell information on individual consumers' financial history. The information in their reports is also used to compute consumers' credit scores, which can affect, for example, the interest rate that they'll have to pay to borrow money or whether they can qualify for a loan at all.
1970
The year the Fair Credit Reporting Act (FCRA), Public Law No. 91-508, was passed by the U.S. Congress to promote the accuracy, fairness, and privacy of personal information collected in credit reports. It has been amended a number of times in the years since.
What Credit Bureaus Can and Can't Do Under the Law
The Fair Credit Reporting Act describes the kind of data that credit bureaus are allowed to collect. That includes the person's bill payment history, past loans, and current debts. It may also include employment information, present and previous addresses, whether they have ever filed for bankruptcy or owe child support, and any arrest record.
The FCRA also limits who is allowed to see a credit report and under what circ*mstances. For example, lenders may request a report when someone applies for a mortgage, car loan, or another type of credit. Insurance companies may also view consumers' credit reports when they apply for a policy. The government may request it in response to a court order or federal grand jury subpoena, or if the person is applying for certain types of government-issued licenses.
In some, but not all, instances, consumers must have initiated a transaction or agreed in writing before the credit bureau can release their report. For example, employers can request a job applicant's credit report, but only with the applicant's permission.
However, some potential lenders and insurers can access portions of your credit report without your permission in order to decide whether to send you unsolicited offers for credit or insurance. This process is called prescreening, and the law allows you to opt out of it.
The Fair Credit Reporting Act (FCRA) mandates that when a business pulls a credit report on someone, they must specify the reason. For example, the reason could be in conjunction with a loan request, for employment purposes, or part of a credit check by a landlord.
Consumer Rights Under the FCRA
Consumers also have a right to see their own credit reports. By law, they are entitled to at least one free credit report every 12 months from each of the three major bureaus. They can request their reports at the official, government-authorized website for that purpose: AnnualCreditReport.com.
Under the FCRA, consumers also have a right to:
- Verify the accuracy of their report when it's required for employment purposes
- Receive notification if information in their file has been used against them in applying for credit or other transactions
- Dispute—and have the bureau correct—information in their report that is incomplete or inaccurate
- Remove outdated, negative information after seven years in most cases, or 10 in the case of some bankruptcies
If the credit bureau fails to respond to their request in a satisfactory manner, the person can file a complaint with the CFPB.
Certain negative information should fall off your credit reports automatically after the relevant period of time has elapsed (typically within seven or 10 years). If that doesn't happen, you have a right to have it removed.
Example of the FCRA in Action
Say that someone is looking to rent an apartment and the landlord denies their application, claiming it is because of their credit report or credit score. The potential tenant believes this to be a lie, suspecting that it is because of their skin color or religion instead, which is an unlawful reason to deny the lease.
Under the FCRA, they can request their credit report and check whether the information in it is in line with the landlord's claims. They can also see if the landlord actually pulled their credit report or lied about doing so. If a violation did occur, the landlord could be fined.
What Are Fair Credit Reporting Act (FCRA) Requirements for Releasing Your Report?
The FCRA requiresthat a lender, insurer, landlord, employer, or anybody else seeking someone's credit report have a legally permissible purpose to obtain it.
What Are the Penalties for Not Complying With the FCRA?
Each violation may carry a fine of $100 to $1,000. If damages are incurred, actual and punitive damages may also be imposed in addition to attorney fees. Criminal charges may apply if someone knowingly and willfully obtains information from a consumer reporting agency under false pretenses.
What Are an Employer's Obligations Under the FCRA?
An employer or potential employer may request an individual's credit report for internal purposes only. The individual must have consented to such a request, and the employer must specify that it is being pulled only for employment purposes.
Who Enforces the FCRA?
As a federal law, enforcement of the FCRA falls to the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).
The Bottom Line
The Fair Credit Reporting Act (FCRA) governs what credit bureaus can and can't do with the information they collect on you. It also gives you certain rights as a consumer. Because the information in your credit reports is important in many ways, it's worth checking them periodically for any errors, which you can then ask the bureaus to correct. Under the FCRA, you are entitled to free copies of your credit reports at least once a year.
