Fair Credit Reporting Act (FCRA)

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.

How the Fair Credit Reporting Act 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 act. Many states also have their own laws relating to credit reporting. The act 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 they'll have to pay to borrow money.

The Fair Credit Reporting Act (FCRA), Public Law No. 91-508, was passed in 1970 by the U.S. Congress to promote accuracy, fairness, and the privacy of personal information found in credit reports.

Special Considerations

The Fair Credit Reporting Act describes the kind of data that the 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.

FCRA also limits who is allowed to see a credit report and under what circumstances. 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.

The Fair Credit Reporting Act mandates that when somebody pulls a credit report they specify for what purposes. For instance, in conjunction with a loan request, for employment purposes, or as part of a credit check by a landlord. Impermissible uses are violations of the FCRA.

Consumer Rights Under the Fair Credit Reporting Act

Consumers also have a right to see their own credit reports. By law, they are entitled to 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 FCRA, consumers also have a right to:

If the credit bureau fails to respond to their request in a satisfactory manner, a consumer can file a complaint with the Federal Consumer Financial Protection Bureau (CFPB).

Example of the FCRA

Say that somebody is looking to rent an apartment and the landlord denies their application, claiming it is because of their 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, you can request your credit report and see if the information you receive is in line with the landlord's claims. You can also see if the landlord actually pulled your credit or simply lied about it. If a violation did occur, the landlord could be fined.

What Are FCRA Reporting Requirements?

The FCRA requires that a lender, insurer, landlord, employer, or anybody else seeking somebody's credit report, have a legally permissible purpose to obtain the report. The FCRA also states that credit rating agencies must remove negative credit information after 7 years and bankruptcies after 7- 10 years (depending on the type of bankruptcy involved).

What Are the Penalties for Not Complying With FCRA?

Each violation may carry a fine of between $100 and $1,000. If damages are incurred, actual and punitive damages may also be imposed in addition to attorney's fees. Criminal charges may apply if somebody knowingly and willfully obtains information from a consumer reporting agency under false pretenses.

What Are an Employer’s Obligations Under 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 it is being pulled only for employment purposes.

Who Enforces the Fair Credit Reporting Act?

As a federal law, the enforcement of the FCRA falls to the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).