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Fair Credit Reporting Act (FCRA) Overview
The Fair Credit Reporting Act, renamed the Fair and Accurate Credit Transactions Act in 2003, is a federal law that protects consumer information, specifically information that is reported to the credit reporting bureaus, including Equifax, Experian and TransUnion.
The information in a person’s credit report is vitally important. The information reported can determine whether a person can get a mortgage to buy a house or a loan for a car. Credit reports also govern the interest rates consumers qualify for on their loans.
Further, employers may obtain a credit report on job applicants or employees.
The Fair Credit Reporting Act, or FCRA, sets standards for how consumer credit information is handled and reported. Violations of the FCRA can harm a person’s chances at a loan or low interest rate or even cost them a job.
FCRA Protections
Under the FCRA, consumers are entitled to certain protections when it comes to their credit information. Credit information can include information from lenders and creditors, any bankruptcy history, as well as information about inquiries into your credit report.
Two federal agencies are governed by the FCRA, the Federal Trade Commission and the Consumer Financial Protection Bureau. There are three main companies that hold credit report information, Equifax, Experian, and TransUnion, along with some smaller companies that provide specialized information.
When a person wants to take out a loan, get a credit card, or apply for a mortgage, lenders will often “pull” that person’s credit report to assess risk. Credit reporting companies do this by assigning a “credit score” to each person’s credit report. This score can determine someone’s interest rate on a loan or whether they get the loan at all.
Under the FCRA, consumers have rights when it comes to their credit reports, including a right to see their credit report. Further, consumers have a right to be notified if information in their credit report has resulted in the denial of a loan, credit card, or other credit decision. Consumers can dispute incorrect information on their credit report and ask credit report companies to remove outdated information after a certain period of time.
In addition, consumers have a right to ensure that the credit report pulled for employment purposes is accurate.
Employers and others who use credit reports must abide by the provisions of the FCRA or face steep penalties, often paid out, in part, to consumers whose rights were violated.
FCRA provisions come up frequently in certain scenarios, namely employee background checks and credit report errors.
Employee Background Checks
Some employers pull credit reports on job applicants and new hires. Though it is not illegal for an employer to do so, they must abide by certain disclosure and notification provisions under the FCRA.
Employers who wish to pull credit reports about prospective employees must provide proper notification. The job applicant must be told, in writing, about the intent of the employer to obtain a credit report as a part of the hiring process. The notification must be presented in a stand-alone document and must inform the job seeker that negative information on the report could cost them the job.
Further, an employer who decides not to employ an applicant based on information in their credit report must provide notice of that decision and a copy of the report to the denied applicant.
Credit Report Errors
As noted above, since the information in a credit report determines a person’s credit score and potentially whether or not they get a loan for a house or car, credit cards, and even some jobs, it is imperative that this information be accurate.
In some cases, incorrect information is included in a credit report, however, negatively affecting a person’s credit score. Errors can occur because of simple mistakes, or they can even be caused by identity theft or fraud.
Under the FCRA, each person has the right to access a copy of their credit report from each of the three major credit reporting companies once a year. Those who access their reports and notice an error have the right to dispute the information and correct the mistake.
Further, companies or individuals who provide inaccurate information on a person’s credit report violate the FCRA
