The Fair Credit Reporting Act (“FCRA”) is a federal law that governs the way that credit reporting agencies can collect, use, and share consumers’ credit information. The main purpose of the Fair Credit Reporting Act is to promote accuracy, fairness, and privacy across consumer credit reports. For instance, your credit history is regularly accessed by numerous parties, such as employers, retailers, lenders, and even landlords.
Without the protections of the FCRA, your credit history could be viewed and shared by any of those parties with no limitations at all. Thus, the FCRA also provides several important rights to consumers, such as:
- The right to request and view a copy of your personal credit report;
- The right to dispute errors or inaccurate information contained in your credit report;
- The right to know when and who accessed your credit report;
- The right to be informed if your credit report has been used negatively against you;
- The right to seek damages if a credit reporting agency violates the FCRA; and
- A few other significant protections..
Lastly, the FCRA is one of two federal laws that form the basis of consumer rights law in the United States; the second federal law being the Fair Debt Collection Practices Act (“FDCPA”).
When Are Disclosures Permitted Under the FCRA?
As discussed above, the FCRA gives consumers a right to request access and receive information about their credit reports. This includes receiving notifications when an entity asks to view their credit report. Thus, an FCRA disclosure is essentially a notice sent to consumers that contains details about their credit report.
A common example of when an FCRA disclosure will occur is when an employer performs a background check on a worker and that worker consents to it. It is important to note that such a disclosure will only be allowed with the worker’s permission. If the employer obtains information illegally or without their consent, then they will be in violation of the FCRA and may need to pay damages.
In general, a permissible disclosure under the FCRA will usually include the following:
- A written statement that explicitly says the employer intends to perform a background check on the worker and that it will be used to make a decision about them (e.g., hiring);
- The statement must come across as clear and unambiguous;
- While there are some exceptions, the statement should be a standalone document and drafted in legible font;
- The employer must receive written permission from the worker that they consent to the background check; and
- Both forms must comply with all applicable federal, state, and local laws concerning FCRA disclosures.
Disclosures may also be used when conducting a background check to receive a loan or credit card, for evaluating a child support order, and/or if responding to a request from a state or federal government agency.
Are There Penalties for Violating the FCRA?
There are many ways that a creditor can violate the FCRA. Some of the most common examples of Fair Credit Reporting Act violations include the following:
- Reporting outdated information and/or failing to update information found in a credit report;
- Reporting incomplete or inaccurate information (e.g., stating a person missed payments or never paid off a debt when they have already settled the issue);
- Combining consumer reports with other persons whose names are the same or are difficult to distinguish between;
- Failing to conduct a reasonable investigation of a consumer dispute;
- Releasing a report to parties who are not eligible to view it;
- Disclosing details about the report to an employer without the individual’s consent;
- Refusing to provide the contact information for an entity that used the report in a negative manner; and
- Failing to inform every credit reporting agency about a consumer dispute (e.g., dispute over debt, inaccurate information, etc.).
The penalties one might receive for violating the FCRA will depend on the type of violation and whether or not it was “willful”. If a consumer can prove that an entity willfully violated the FCRA, then they may potentially be able to recover the following damages:
- Statutory damages, which can range from $100 to $1,000;
- Actual damages;
- Attorneys’ fees and court costs;
- Punitive damages; and/or
- In some cases, criminal penalties.
On the other hand, if a consumer demonstrates that an entity violated the FCRA due to negligence, then they may only be able to recover actual damages and attorneys’ fees and/or court costs.
In addition, a consumer can be penalized for filing a frivolous lawsuit or bringing a lawsuit in bad faith. In such a scenario, the consumer will be required to pay the cost of the opposing party’s attorneys’ fees.
How Can an Employer Use Your Credit Information?
Generally speaking, an employer must obtain written consent to access a current or prospective employee’s credit report. In other words, employers can only access credit information in a limited context. The most common example of when an employer may request to review a person’s credit information is when they are performing a background check on a current or prospective employee.
Background checks can help an employer determine whether they should hire, promote, or terminate a specific employee. However, an employer cannot use certain information that they learned from the credit report to deny, demote, or terminate a worker. For instance, if an employer finds out that a prospective job candidate is a particular race or sex, they cannot use this knowledge to deny the candidate employment.
Additionally, if an employer uses the credit information in a negative way (e.g., denying employment), then the employer has a duty to tell that individual that they did so and why. The employer will also need to give that individual the name, phone number, and address of the credit reporting agency that sent them the report.
What Does the FCRA Require of Credit Reporting Companies?
The FCRA requires each of the three nationally recognized credit reporting companies (i.e., Equifax, TransUnion, and Experian) to provide one free copy of a FCRA credit report to each consumer every twelve months. An FCRA credit report is basically a standard credit report that is issued by one of the main three credit reporting companies.
Some other requirements that these three companies must comply with under the FCRA include:
- Sending a copy of a consumer’s credit report upon their request;
- Conducting an investigation on disputed information or errors in the credit report;
- Ensuring that access to the credit report is restricted to the proper parties; and
- Permitting a consumer to “opt-out” of prescreened credit offers.
In addition to the three major credit reporting companies, there are also other organizations that may collect and use consumer information. Companies that collect information about consumers are responsible for:
- Reporting accurate information to credit bureaus;
- Disclosing negative information about a consumer to that individual;
- Amending inaccurate information or fixing mistakes on a credit report;
- Making sure that the credit bureaus also update credit reports to match any new information; and
- Implementing identity theft reporting and prevention measures.
What Is in Your Credit Report?
A credit report provides a summary of how an individual manages their credit accounts, such as payment history, the types of credit accounts they have open, and many other financial details. It also helps creditors and lenders to determine whether to offer an individual credit, and if so, the proper amount. Landlords, utility services, insurance companies, and cell phone providers may use this information to make decisions about a consumer as well.
Some additional details that a credit report will typically contain include:
- Personal identifying information (e.g., name, address, date of birth, Social Security number, etc.);
- Information regarding credit accounts, such as mortgages, student loans, credit card accounts, car loans, and so forth, along with the balance, payment history, and amounts attached to those accounts;
- Information related to bankruptcy and/or debt collection accounts; and
- The types of inquiries made to check a credit report (e.g., soft or hard inquiries).
After gathering this information, a credit bureau will then combine it to generate a credit score. For instance, if a person has a lot of debt and many “hard” inquiries were made to check a credit report, then these factors could lower their official credit score. A credit score may indicate the level of risk that a consumer poses and can affect the interest rate imposed on the type of credit they receive (e.g., interest on a loan or a line of credit).
One final note to keep in mind about credit scores is that they can vary by credit bureau. Thus, an individual would need to check the score they received from each credit bureau in order to get a complete picture of their entire credit history.
Should I Consult an Attorney If I Have Issues with My Credit Report?
Credit lawyer can be a beneficial resource if you are involved in a credit dispute or are experiencing issues with your credit report. As previously discussed, maintaining a good credit score is essential for many reasons, such as obtaining a loan, extending a line of credit, and renting an apartment. This is why it is so important to clear up issues on your credit report because it can prevent you from being approved for all of those items.
Therefore, you should hire a finance or FCRA attorney who has significant experience in handling credit report matters. An FCRA attorney can review your credit report for potential errors and can determine whether a credit agency or financial institution possibly violated a credit law. Your attorney can also help you file a claim with the proper credit bureau and can provide representation in court if necessary.
In addition, your attorney can discuss other options for legal recourse, can offer advice on ways to increase your current credit score, and can explain how your personal credit score may be impacting your life.
Finally, if you are having a hard time resolving a specific credit report issue or even getting a copy of your credit report, an FCRA attorney can assist with these procedures as well. Furthermore, they will already be familiar with the types of consumer rights and protections offered by credit laws.