The FCRA is a piece of legislation passed by Congress in 1972 to ensure accuracy in credit reporting, and to ensure fairness in credit reporting. It affects two groups: anyone who has a credit history, and the credit reporting agencies, like TransUnion, Experian, and Equifax.
Why does Congress care about regulating how accurately or fairly these agencies are reporting your credit history to other entities like banks or employers? Let’s look to the source – Congress included a “findings and statement of purpose” to explain why our elected politicians thought this was so important.
Here are the four main reasons Congress found for regulating this industry:
- “The banking system is dependent upon fair and accurate credit reporting. Inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods undermine the public confidence which is essential to the continued functioning of the banking system.
- An elaborate mechanism has been developed for investigating and evaluating the credit worthiness, credit standing, credit capacity, character and general reputation of consumers.
- Consumer reporting agencies have assumed a vital role in assembling and evaluating consumer credit and other information on consumers.
- There is a need to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer’s right to privacy.” 15 U.S.C. 1681.
In other words, if credit reports are not properly maintained and accurately reported…
-We risk the effective functioning of the banking system (wait, didn’t that happen in 2008 already? Subprime mortgage crisis in the banking system? I digress.);
-Your general worth as an individual is wrapped up in your credit report, at least, to financial institutions and employers and possible future dates who like to do their “due diligence” before going on a blind date (I kid. Sort of.)
-Credit reporting agencies are basically the gatekeepers of this information and they should be accountable to the consumers for screwing up that information (if they screw it up)
-Oh, and respect the consumer’s privacy. I think there’s always some lip service done to protect the bounds of each citizen’s privacy.
So basically, if you haven’t noticed, there is a complex web that has been woven in the U.S. around consumer credit reports. These data-driven pockets of information that many, many people rely on to make decisions about loans, employment, or renting a home to someone have been recognized by Congress as important enough to provide for consequences if these pockets of information contain mistakes.
Because the last thing you need is some blip on your credit report that affects all of your future dealings in home ownership, car ownership, employment, or ability to take out any kind of loan. Especially if that blip is a mistake. It shouldn’t be on your credit report in the first place.
Unfortunately, mistakes are common and prolific in the credit reporting industry, and Congress recognized this.
And Congress created a call to action! Put down your pitchforks, put out your flaming torch, because Congress, through the FCRA, requires (wait for it!)…. that consumer reporting agencies adopt “reasonable procedures.”
“It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title.” 15 U.S.C. 1681.
Wah wah. Does that leave you wanting a little more meat on the bones to chew on? In later blog posts, I’ll break down some of the FCRA’s definitions, violations, and penalties to see what kind of teeth the FCRA has to protect your credit reports.