Part 11- Regulation of Business, Chapter 48: The Federal Trade Commission Act and Consumer Protection Laws, Note 5

The Fair Credit Reporting Act (FCRA), enacted in 1970, is a key piece of consumer protection legislation aimed at ensuring fairness and accuracy in credit reporting. Its provisions regulate how consumer information is collected, used, and shared by consumer reporting agencies (CRAs) to protect individuals from inaccurate or discriminatory practices in credit reporting. Key Provisions of the FCRA: 1. Duties of Consumer Reporting Agencies: o Accuracy and Fairness: CRAs must adopt reasonable procedures to ensure the accuracy and completeness of the information in consumer credit reports. This includes the duty to avoid reporting obsolete information (e.g., bankruptcies older than 10 years). o Use of Information: Information in credit reports must only be used for legitimate business purposes like credit sales, employment decisions, insurance underwriting, and government benefits. o Accuracy and Verification: CRAs must ensure that the information provided is accurate and that inaccurate or unverifiable data is corrected. They must investigate disputes raised by individuals regarding their reports. 2. Duties of Users of Credit Reports: o Disclosure Requirements: If an individual is denied credit, insurance, or employment (or offered less favorable terms) based on a credit report, the user (lender, employer, insurer) must notify the individual and provide details about the agency that provided the report. o Investigative Reports: If the report includes information from interviews with third parties (such as neighbors or associates), the person must be informed that an investigative report has been requested and that they have the right to obtain further disclosures. 3. Adverse Action Notices: o Requirements for Notice: If a credit report is used to deny an application or impose unfavorable terms, the consumer must be notified within a reasonable time, and they must be provided with information about how to obtain a copy of their report and dispute any inaccuracies. o Safeco Insurance Co. v. Burr: The Supreme Court clarified that the FCRA's "adverse action" notice requirement applies to situations where a consumer is charged a higher rate for insurance based on a credit report, even if it’s the first-time application (i.e., no prior dealings). This ruling expanded the scope of adverse actions under the FCRA to include first-time applicants who are charged higher premiums due to credit report issues. 4. Enforcement and Penalties: Violations: If a business fails to comply with the FCRA's provisions, it can face civil actions for negligence or willful violations. The penalties include actual damages, punitive damages, and legal fees. o Criminal Penalties: There are criminal penalties for individuals who knowingly and willfully obtain consumer information under false pretenses or provide unauthorized access to credit information. 5. Credit Score Use in Insurance: o Neutralization of Scores: In the case of GEICO, the company developed a method to neutralize a consumer's credit score (removing reliance on negative credit factors) in order to determine insurance premiums. They argued that no adverse action occurred unless the "neutralized" score would have resulted in a lower rate. However, the court ruled that if a consumer is charged a higher rate due to a credit report, an adverse action notice is required, even if it’s a first-time application. o Supreme Court Ruling: The Court clarified that for first-time applicants, an "adverse action" includes any increase in the charge (e.g., insurance premium) due to the credit report, requiring notification of the consumer. It also confirmed that reckless disregard of the FCRA's duties counts as a "willful" violation, exposing companies to potential punitive damages. o The FCRA plays a crucial role in safeguarding consumers from unfair credit reporting practices and ensuring transparency in how consumer credit data is used by financial institutions, insurers, and employers.