Fair Credit Reporting Act
Fair Credit Reporting Act
Introduction
The “Fair Credit Reporting Act” (FCRA) is a federal law that seeks to regulate the use of consumer information with credit information system. Credit reporting systems are an essential part of every economy. These systems ensure that debt is appropriately managed within the society. Without these credit systems, debt facilities may be abused resulting in negative economic impact. According to White (2007), approximately 1.5 million people filed for bankruptcy in 2004. An average American company held a credit card debt of $15, 150. Information systems provide lenders with positive and negative credit information concerning a potential consumer (Luoto, McIntosh & Wydick, 2004).
While the credit information systems perform a critical role within the economy, their activities must be kept in check so as to ensure that the right of consumers is not violated. The FCRA law was enacted to control the credit information systems within the country. The main goal of FCRA is to promote fairness, accuracy and privacy in the use of consumer data. The law was first enacted in the 1970. The Federal Trade Commission is the government organ that has the mandate to enforce the FCRA.
Significance of Credit Information
The American credit information systems consist of private companies that facilitate information exchange. These companies collect and disseminate credit information. These organizations provide critical data that help to fill the information gap between the borrowers and lenders (Kallberg & Udell, 2003). Lending is an essential source of external financing within the United States. The American economy is largely driven by accessibility finances to business and consumers. However, the lending sector was previously slowed down by the absence of adequate source of credit information for creditors. The increased level of credit risks that is associated with inadequate information led to slowed lending. Creditors were afraid to lend money to consumers who had not asset or stream of income.
The credit information systems have charge the credit industry in the country. The credit information systems enable creditors to obtain the credit history of potential consumers and use to make lending decisions. The systems have created a platform where creditors can share positive and negative credit information about consumers. According to Kallberg & Udell (2003), the credit information systems have reduced the cost of obtaining loans by reducing adverse selection. Kallberg & Udell (2003) suggest that sharing customer information helps to expand the pool of borrowers. A large pool of borrowers enables the creditors to offer lower interest rates.
Today, the credit information system has been expanded to informing decision in other areas giving rise to the consumer information systems (Kallberg & Udell, 2003). Consumer information is today used by landlord, credit institutions, employers and other entities for various purposed. One of these purposes is to identify individuals who are subject to court orders or subpoena. Criminal records have significant implications on employers, landlords and other entities. Thus, these entities have a responsibility of investigating the background of potential employees or clients (Kallberg & Udell, 2003).
The consumer information systems provide a platform that facilitates consumer investigation. Consumer information is also use to inform insurers’ decision to underwrite. The consumer information system provides insurers with information that enable them to avoid adverse selection (Kallberg & Udell, 2003). This helps the insurer to minimize risks. Consumer data is also utilized by government institutions to inform decisions such as eligibility for licenses, child custody and child support. The American consumer information systems consist of two main players; consumer reporting agencies and information furnishers.
Consumer Reporting Agencies
Consumer Reporting Agencies refer to entities that collect and circulate information concerning the credit worthiness of consumers (Kallberg & Udell, 2003). This information is used for various purposes including credit processing and making employment decisions. Reporting agencies may be regional or nationwide. Regional reporting agencies keep consumer information on a regional basis. These agencies may be limited to a give city, county or state. Nationwide reporting agencies keep consumer information throughout the country. Nationwide reporting agencies provide comprehensive information about the consumer’s credit history.
Most of the consumers reporting agencies are commercial organizations. This implies that they sell the information about consumers to users of this information. They provide a central source from which entities can such consumer information and use to inform various decisions. Negative information that reporting agency may hold against a consumer include; tax lien, bankruptcies, medical records, tenant history, check writing, employment history, insurance claims and late payments. The reporting agencies/ bureaus compute indices that summarize the general credit worthiness of consumers and store the indices in their database (Kallberg & Udell, 2003). The organization may also provide descriptive information about the consumer’s credit history.
Information Furnishers
Information furnishers refer to entities that provide reporting agencies with information about consumers (Federal Trade Commission, 2010). This may comprise of banks, credit card companies, mortgage banking, municipal courts, employers and landlords (Federal Trade Commission, 2010). The information furnishers are generally creditors who shares credit experiences through the consumer reporting agencies. FCRA was enacted to ensure that information furnishers provide accurate information about the consumer.
FCRA has also charged the information furnishers with the responsibility of investigating disputes raised by the clients concerning negative information. The information furnisher are required to correct errors pointed out by consumers or offer a detailed account as to why the report provided in correct (Federal Trade Commission, 2010). This helps to make certain that only the correct information about the consumer is filed. The corrections must be made within 30 days after the dispute is raised by the consumer. FCRA also requires information furnishers to notify consumers before and after providing negative information to the reporting agencies.
The Fare Credit Reporting Act (FCRA)
The credit information systems have become an indispensible part of the national economy. However, giving control to vast information concerning consumers has raised the need for close regulation of this information industry. The FCRA was enacted to regulate this industry. Specifically, FCRA was enacted to ensure accuracy, fairness and privacy in the way consumer information is utilized (Barkeley Electronic Press, 1972). The laws grants consumers several rights in order to ensure that the reporting agency do not abuse the information that belongs to consumers.
Fairness and accuracy
FCRA guarantees several rights to the consumer that are designed to enhance fairness and accuracy. One of the rights granted by FCRA is the right for consumers to receive notification when reporting agencies use personal information against them (Moye, 2006). Any entity that uses a consumer report to deny services, employment opportunity, or credit facility to an individual is obligated by FCRA to notify the individual about the use of consumer report. The entity needs to furnish the individual with data concerning the kind of information received, the agency that provided this consumer information and the physical address of the agency. Providing consumers with this notification grants them the chance to verify the information that has been used against them.
FCRA is grants consumers the right to know what information is kept in their file by the reporting agencies (Moye, 2006). The consumer has the right to inspect the file and all information about him that has been kept by the reporting agencies. FCRA entitle the consumer to a free disclosure of information every year from the nationwide credit bureau. This right seeks to ensure fairness by giving consumers the opportunities to verify information that has been filed about them.
FCRA also grants the consumer the right to contest any negative information that is included in the file. Customers must provide facts and reason to support their disputes (Moye, 2006). The agency is then expected to investigate the issues raised by the customers. If the reasons provided by the consumers are justifiable, then the credit agency has a responsibility of removing the negative information from the consumer’s file. Failing to investigate disputes by the agency is considered as noncompliance by FCRA. The credit agency cannot reinsert the negative information without sending prior notification to the consumer. FCRA requires the credit agency to let the customer know, in writing, about the agency’s decision to reinsert the negative information at least five days before they reinsert this information.
FCRA also limits the duration of time in which reporting agencies may hold negative information concerning a client (Moye, 2006). FCRA has placed a maximum time limit of seven years for typical information. Bankruptcy and tax liens are some of the information that has been exempted from this rule. The maximum limit for bankruptcy is 10 years while that of tax liens is 7 years after the consumers has started paying tax. Placing a maximum limit to the duration of time enhances accuracy of information by limiting the reporting of outdated customer information.
FCRA also grants consumers the right to ask for credit scores (Moye, 2006). Credit scores are metrics that are computed to indicate the credit worthiness of the consumer. The customer is granted unlimited access to this information. The consumer has also been given the right to demand an explanation for the credit rating assigned to them by the agencies. If the consumer is not satisfied with the rating, he has the right to raise dispute with the agency.
Privacy
The FCRA law also notes that failing to regulate the consumer information systems may lead to abuse of consumer privacy (Consumer Union.org, 2003). Privacy is a basic right that is guaranteed by the constitution. This law seeks to enforce restrictions to the extent to which consumer information can be used. For instance, FCRA prohibits the use of consumer medical information in making any decision. Medical information refers to any information that relates to physical, mental or emotional well being of an individual (Consumer Union.org, 2003). FCRA treats medical information as private, which should only be disclosed after the approval of the consumer.
FCRA also limits exposure of consumer information to entities that have immediate use for this information (Consumer Union.org, 2003). This implies that consumer information cannot be accessed by an entity that does not have a justifiable reason. The reasons that are recognized under FCRA include; lending; leasing out property, extending credit, insurance and employment. Thus, reporting agency must evaluate requests for customer information and determine whether there is a genuine business need before releasing any information (Consumer Union.org, 2003). Entities that apply for consumer information must provide written documentation to verify business interest in the request information. The prospective information user must indicate why he needs the information and provide evidence of his business connections with the consumer.
Entities offering unsolicited services are not eligible to access consumer information (Consumer Union.org, 2003). For instance, an employer who would need the services a given individual but the individual has not applied for the post cannot request for consumer information belonging to this individual. This is because the employment opportunity is unsolicited. The same applies to credit firms. Firms cannot seek credit information on potential clients that have not applied for the services (Consumer Union. org, 2003). This limitation ensures that consumer information is not misused by service provide for advertising purposes.
Investigative Reports
Sometime users may request reporting bureau to provide an investigative consumer report. The investigative consumer report refers to a comprehensive background check that is conducted by consumer reporting agencies (The Berkeley Electronic Press, 1972). Apart from unveiling an individual’s credit worthiness, consumer investigative reports also focus on gathering information about an individual’s way of living, character and relationships. Investigative reports may encompass an interview with friends, business associates and neighbors of the person in question.
FCRA provides guidelines concerning how crediting reporting investigations should be conducted. According to this law, the users and the reporting agency have a responsibility of informing the consumer that he is under consumer investigation. The agencies should also inform the customers about the specific objectives of the investigation. The law also requires agencies to use accurate source of information, and which are up to date. FCRA also state that information that is widely used in previous investigations report should not be used in subsequent reports. FCRA has also placed a limit to the purpose for which investigative reports may be initiated. Investigative reports may be conducted for the purpose of employment and insurance.
Fraud Alert
FCRA also grants consumers the right to issue a fraud alert to agencies. Fraud alert is issued when the consumer has reasons to believe that his credit information has been accessed by unauthorized persons, who may try to access funds using this information (Consumer Union.org, 2003). The agency must include this fraud alert when provide reports to users. Creditors cannot extend new credit, honor request for higher credit limits or offer a new line of credit without verification from the customers. The purpose of the fraud alert provision is to protect consumers from fraud (Consumer Union.org, 2003). Reporting agencies that receive fraud alert from a consumer have the responsibility of sharing this alert with other agencies. Customers with extend calls for fraud alert may be opted out of consumer information system.
Federal Trade Commission
The duty to enforce the FCRA laws has been delegated to the Federal Trade Commission. This organ is responsible for investigating complaints made by consumers about reporting agencies (The Berkeley Electronic Press, 1972). The Federal Trade Commission has been empowered to take steps in the events that it has reason to believe that a violation of FCRA act has been committed. The commission is required to serve a notice of hearing to the person is alleged to have violated the law.
The person served is required to appear before the commission and give reason as to why his actions do not violate the act. If the commission concludes that the actions of the served party contravenes the law, the commission issues a written order that requires this party to desist from the act (The Berkeley Electronic Press, 1972). The served party may appeal the commission’s decision in a court of appeal within sixty days. The Federal Trade Commission has been granted powers to conduct investigations, request for reports and presentations of witnesses.
Remedies
FCRA has empowered consumers to file legal suits against agencies or information furnishers on discovery that negative information has been filed with ill intents or malice. FCRA recognizes that in order to enhance fairness in reporting, information needs to be shared in good faith. Sharing information with the intent to cause damage may expose the responsible party to legal liabilities. The consumers may instate several charges against agencies that are responsible for malicious publication of information. One of these charges is defamation (The Berkeley Electronic Press, 1972).
Defamation laws allow the consumer to sue the agency and information furnishers for the damages caused on customer due to the fabricated information. The consumer may also charge to agencies with negligence and invasion of privacy. In all these charges, the customers may be eligible to receive compensation for damages. FCRA also grants consumers the power to sue individuals who access information under pretentious reasons. Consumer information is supposed to remain private and is only disclosed to individuals with genuine business reason for requiring this information. In case a person gives pretentious reason in order to access information belonging to an individual, this individual can sue for damages.
Conclusion
Consumer report refers to oral or written information that has implication on a consumer’s creditworthiness, character, mode of living and reputation. Consumer information is used to advice many decisions such as; credit extension, employment and leasing of property. The need for consumer information has led to the emergence of the consumer information industry. This is multibillion dollar industry that is controlled by the consumer reporting agencies. Consumer reporting agencies are organizations that provide a platform through which creditors and other entities can share experiences with customers.
As a result of establishment of consumer information systems, banks, employers and other entities have access to vast consumer information. This has exposed consumer to various forms of abuse. Fair Credit Reporting Act establishes compliance requirements that are designed to ensure fairness, accuracy and privacy in the use of consumer information. This paper has discussed the customers’ rights that are guaranteed under the Fair Credit Reporting Act.
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