The Fair Credit Reporting Act of 1970 ("FCRA") - answerThe Fair Credit Reporting Act
of 1970 ("FCRA") was enacted in the dawn of the computer age when concerns started
to arise that decisions could be made about an individual's life based upon some secret
data set. The FCRA was passed as Title VI to legislation related to the Federal Deposit
Insurance Corporation and amended the Consumer Credit Protection Act. The purpose
of the FCRA was to regulate the consumer reporting industry in order to ensure that
consumer reporting agencies acted with fairness, impartiality, and respect for a
consumer's right to privacy. This was the first federal law that regulated the use of
personal information by private businesses.
Who and What the FCRA Applies To - answerBroadly speaking, there are at least four
different categories of persons or entities subject to regulation under the FCRA. First,
and most importantly, the FCRA regulates any "consumer reporting agency" ("CRA"),
which are entities that compile credit and other information on consumers for purposes
of providing a "consumer report" to third parties for a fee. The FCRA also regulates any
"users" of a consumer report provided by a CRA, as well as any "furnishers," or entities
that provide personal information to CRAs to be included in a consumer report (e.g.,
lenders and retailers). Lastly, the FCRA applies certain of its provisions to any company
that extends credit to consumers under the Red Flags Rule.
Other than companies subject to the Red Flags Rule, each type of entity regulated
under the FCRA is defined by its relationship to a "consumer report." A consumer report
under the FCRA is any written, oral, or other communication of information for purposes
of establishing an individual's eligibility for credit, insurance, employment, or for some
other business purpose, and which bears on the "credit worthiness, credit standing,
credit capacity, character, general reputation, personal characteristics, or mode of
living" of an individual. There are three components to this definition. First, the form of
communication is defined—a consumer report applies to any "written, oral, or other
communication." Second, a consumer report is defined, in part, by the purpose for
which it is used—i.e., it must be used for establishing a consumer's eligibility for credit,
insurance, employment, or for other business purposes. Third, a consumer report is
defined by the type of information it contains—i.e., it must bear on a consumer's "credit
worthiness, credit standing, credit capacity, character, general reputation, personal
characteri
Regulation of Consumer Reporting Agencies (CRAs) - answerCRAs are the most
heavily regulated entities under the FCRA. The FCRA imposes strict limits on when a
CRA may produce a consumer report. CRAs also face obligations related to the
, accuracy of consumer reports and the procedures put in place to produce a consumer
report. Additionally, CRAs must provide significant access rights to individuals.
i. Permissible Purpose (Regulation of Consumer Reporting Agencies (CRAs)) -
answerCRAs are the most heavily regulated entities under the FCRA. The FCRA
imposes strict limits on when a CRA may produce a consumer report. CRAs also face
obligations related to the accuracy of consumer reports and the procedures put in place
to produce a consumer report. Additionally, CRAs must provide significant access rights
to individuals.
i. Permissible Purpose
Perhaps the most important limitation placed on CRAs under the FCRA is that CRAs
are prohibited from supplying a consumer report unless the user of the consumer report
has a "permissible purpose." A permissible purpose under the FCRA includes the
following:
A consumer report may be produced:
(1)
To comply with a valid court order;
(2)
In accordance with the written instruction of a consumer;
(3)
In connection with a credit transaction;
(4)
For an employment purpose;
(5)
For intended use in insurance underwriting;
(6)
To determine a consumer's eligibility for a government benefit;
(7)
To assess credit or prepayment risks based upon existing credit;
(8)
In connection with a business transaction initiated by the consumer;
(9)
To review an account to determine that the consumer continues to meet the terms of
the account;
(10)
In connection with the issuance of government-sponsored, individually based travel
charge cards;
(11)
In connection with child support determinations and enforcement; and
(12)
In connection with the liquidation of a financial institution.
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