The Fair Credit Reporting Act became federal law in 1971. According to "Guide To Personal Finance: A Lifetime Program Of Money Management," the law's purpose was "to protect consumers against the circulation of inaccurate or obsolete information" and to ensure that credit bureaus are "fair and equitable to consumers." Inaccurate information is a major problem. "The Consumer Reports Money Book" reports almost 20 percent of credit reports included inaccurate information "that could prevent an individual from getting deserved credit."
Significance
The federal Fair Credit Reporting Act gave consumers the right to fix errors on their credit reports. Prior to this law, consumers could be denied credit, employment and insurance because of the reports and they had no right to dispute the information. Consequently, credit reports could irreparably harm consumers. One provision of the Fair Credit Reporting Act required credit bureaus to investigate consumers' complaints about harmful information and remove it if it was incorrect or could not be verified.
Benefits
The federal Fair Credit Reporting Act gave consumers 15 rights, according to "Guide to Personal Finance." They include: A free copy of a credit report within 30 days if credit, employment or insurance was denied because of information in the report; the inclusion of the consumers' perspective of a dispute in the credit report; the removal of most negative information from the credit report after seven years. The most important exception was bankruptcy, which could remain on the report for 14 years (today, it's 10).
Misconception
Credit bureaus do not rate credit records although many people think they do, reports "The Money Book." The scoring is done by potential creditors that interpret credit reports based on criteria it deems important. Mortgage lenders could focus on the income and mortgage payment ratio; credit card issuers could focus on timely payment of credit card bills. Nevertheless, the federal Fair Credit Reporting Act imposes requirements on credit bureaus, not the lenders.
Changes
The federal Fair Credit Reporting Act was amended for the first time in 1996. According to ConsumersUnion.org, "the major provision of the 1996 amendments was the imposition, for the first time, of duties on companies providing information to credit bureaus, known as furnishers." "The Money Book" reports that the 1996 reform also banned employers from "snooping" on employees' credit reports unless they had written permission. Prospective employers also could no longer snoop.
More Features
The federal Fair Credit Reporting Act was amended again in 2003. ConsumersUnion.org's 10-page report on the changes was titled "Important Steps Forward at a High Cost." The changes include giving consumers the right to receive one free report from each credit bureau every year, prohibiting credit bureaus from granting credit to people who are so concerned about identity theft that they asked that their report include a "fraud alert," and requiring national credit bureaus to provide free reports "within 15 days of request by phone, Internet or mail." The words "high cost" were used because the 2003 law prohibited states from imposing tougher requirements on credit bureaus than the federal government.
References
- "The Consumer Reports Money Book;" The editors of "Consumer Reports;" 1997
- "Guide to Personal Finance: A Lifetime Program of Money Management;" Richard J.
- ConsumersUnion.org
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