Key Takeaways
- FCRA regulates credit reporting agencies (CRAs) and users of consumer reports to ensure accuracy, fairness, and privacy of credit information
- Consumers have the right to one free credit report per year from each of the three major CRAs through AnnualCreditReport.com
- Lenders must provide adverse action notices including credit score, key factors, and CRA contact information when denying credit based on a credit report
- Consumers have 30 days to dispute inaccurate information, and CRAs must investigate and respond within 30 days (extendable to 45 days)
- Permissible purposes for obtaining credit reports include credit transactions, employment screening (with consent), and insurance underwriting
- Negative credit information generally stays on credit reports for 7 years; bankruptcies remain for 10 years
FCRA (Fair Credit Reporting Act)
The Fair Credit Reporting Act (FCRA) is a federal law that promotes accuracy, fairness, and privacy of information in the files of consumer reporting agencies. Originally enacted in 1970, FCRA has been significantly amended, most notably by the Fair and Accurate Credit Transactions Act (FACTA) in 2003.
Purpose and Scope
FCRA was designed to:
- Promote accuracy of consumer report information
- Ensure fairness in credit reporting
- Protect consumer privacy regarding credit information
- Limit access to consumer reports to those with legitimate purposes
Key Players Under FCRA
| Entity | Role |
|---|---|
| Consumer Reporting Agency (CRA) | Collects and reports consumer credit information (Equifax, Experian, TransUnion) |
| Furnisher | Provides information to CRAs (lenders, creditors, collection agencies) |
| User | Obtains consumer reports for permissible purposes (lenders, employers, insurers) |
| Consumer | Individual whose information is reported |
Consumer Reports Defined
A consumer report is any communication by a CRA that bears on a consumer's:
- Creditworthiness
- Credit standing
- Credit capacity
- Character
- General reputation
- Personal characteristics
- Mode of living
Types of Consumer Reports
| Report Type | Description |
|---|---|
| Credit report | Traditional credit history and scores |
| Investigative report | Includes interviews about character and lifestyle |
| Employment report | Used for hiring and promotion decisions |
| Tenant screening report | Used for rental decisions |
Permissible Purposes
A CRA may furnish a consumer report only for permissible purposes:
| Permissible Purpose | Example |
|---|---|
| Credit transaction | Mortgage application, credit card application |
| Employment purposes | Hiring decision (requires written consent) |
| Insurance underwriting | Policy application evaluation |
| Government license | Evaluating license application |
| Legitimate business need | Account review, collection activity |
| Court order | Subpoena for litigation |
| Written consumer consent | When consumer authorizes access |
Mortgage-Related Access
For mortgage lending, creditors may access consumer reports:
- To evaluate a mortgage application
- For underwriting decisions
- For servicing and collection
- To review existing accounts
Consumer Rights Under FCRA
FCRA provides extensive rights to consumers:
Right to Free Credit Reports
Consumers are entitled to one free credit report per year from each of the three major CRAs:
- Access through AnnualCreditReport.com
- Additional free reports available when:
- Unemployed and seeking employment
- On welfare
- Report is inaccurate due to fraud
- Adverse action taken based on report
Right to Know What's in Your File
Consumers have the right to:
- Obtain their credit file information
- Know their credit score (for a fee)
- Know who has accessed their report in past 2 years
- Be told if information has been used against them
Right to Dispute Inaccurate Information
Consumers can dispute information they believe is inaccurate:
| Step | Timeframe |
|---|---|
| Consumer submits dispute to CRA | Any time |
| CRA must investigate | Within 30 days (45 days if consumer provides additional info) |
| CRA notifies furnisher | Within 5 business days of dispute |
| Furnisher investigates and responds | Within 30 days of notice |
| CRA provides results to consumer | Within 5 business days of completion |
Right to Add Statement
If the dispute does not resolve the issue, consumers can add a 100-word statement to their file explaining their position.
Adverse Action Requirements
When taking adverse action based on a consumer report, users must:
Required Notifications
| Requirement | Details |
|---|---|
| Adverse action notice | Written notice of the action taken |
| CRA information | Name, address, phone of CRA that provided report |
| CRA disclaimer | CRA did not make decision, cannot explain reasons |
| Right to dispute | Consumer can dispute accuracy with CRA |
| Free report offer | Right to free report within 60 days |
| Credit score disclosure | If score used, provide score, range, key factors |
Credit Score Disclosure Details
The adverse action notice must include:
- The credit score used in making the decision
- Score range (e.g., 300-850)
- Key factors that adversely affected the score (up to 4 factors)
- Date the score was created
- Name of CRA or score provider
Information Retention Limits
Negative information has time limits on credit reports:
| Information Type | Retention Period |
|---|---|
| Late payments | 7 years from delinquency |
| Collections | 7 years from original delinquency |
| Civil judgments | 7 years from entry (removed from most reports as of 2018) |
| Chapter 7 bankruptcy | 10 years from filing |
| Chapter 13 bankruptcy | 7 years from filing |
| Tax liens (unpaid) | Removed from most reports (as of 2018) |
| Hard inquiries | 2 years |
Exceptions to Time Limits
Time limits do not apply to:
- Credit transactions of $150,000 or more
- Life insurance policies of $150,000 or more
- Employment with annual salary of $75,000 or more
Furnisher Responsibilities
Furnishers (those who provide information to CRAs) have duties under FCRA:
Accuracy Requirements
| Duty | Description |
|---|---|
| Report accurate information | Cannot report information known to be inaccurate |
| Update information | Correct inaccurate information when discovered |
| Investigate disputes | Respond to CRA inquiries within 30 days |
| Report complete information | Cannot selectively omit relevant information |
When Consumers Dispute Directly
If a consumer disputes information directly with a furnisher:
- Furnisher must investigate
- If inaccurate, must correct or delete
- Must notify all CRAs to which it reported
Identity Theft Protections
FCRA (as amended by FACTA) provides identity theft protections:
Fraud Alerts
| Alert Type | Duration | Effect |
|---|---|---|
| Initial fraud alert | 1 year | User must verify identity before extending credit |
| Extended fraud alert | 7 years | Requires identity theft report |
| Active duty military alert | 1 year | For deployed military members |
Credit Freezes (Security Freezes)
Consumers can freeze their credit files:
- Prevents new credit from being opened
- Must be done with each CRA separately
- Free to place and lift (since 2018)
- Does not affect existing accounts
Prescreening Rules
Prescreened offers (firm offers of credit) are permitted but regulated:
Requirements
| Requirement | Details |
|---|---|
| Firm offer | Must be bona fide offer of credit |
| Opt-out notice | Must include opt-out information |
| Retention | Keep criteria records for 3 years |
Consumer Opt-Out
Consumers can opt out of prescreened offers:
- Call 1-888-5-OPT-OUT (1-888-567-8688)
- Visit OptOutPrescreen.com
- Opt-out lasts 5 years or can be permanent
Enforcement and Remedies
Enforcement Agencies
| Agency | Jurisdiction |
|---|---|
| CFPB | CRAs, furnishers, users |
| FTC | Various entities |
| State attorneys general | State enforcement |
Private Remedies
| Violation Type | Remedies |
|---|---|
| Negligent violation | Actual damages, attorney's fees |
| Willful violation | Actual damages OR $100-$1,000 statutory damages, punitive damages, attorney's fees |
Statute of Limitations
- 2 years from date of discovery of violation
- 5 years maximum from date of violation
Key Takeaways
- FCRA regulates CRAs, furnishers, and users of consumer reports
- Consumer reports can only be obtained for permissible purposes
- Consumers get one free report per year from each major CRA
- Disputes must be investigated within 30 days
- Adverse action notices must include credit score and key factors
- Most negative information remains on reports for 7 years (bankruptcies: 10 years)
- Fraud alerts and credit freezes protect against identity theft
How long does a consumer reporting agency have to investigate a consumer dispute about inaccurate information?
How long does a Chapter 7 bankruptcy remain on a consumer's credit report?
When a lender denies a mortgage application based on credit report information, the adverse action notice must include all of the following EXCEPT: