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Sunday, April 26, 2009

Summary of the FCRA

Before going over every section of the FCRA, I wanted to provide a brief overview of the FCRA and why it is so important.

Your good name is one of the most valuable things you possess. Yet, according to a study conducted by the United States Public Interest Research Group, more than 79 percent of credit reports from the national credit bureaus (Experian®, TransUnion®, and Equifax®) contain either serious errors or mistakes of some kind. These errors can have a serious impact on a person’s life, as credit reports are used for everything from granting credit and setting interest rates to obtaining insurance and employment.

The Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.) is the federal legislation that regulates the credit reporting industry, including the national credit bureaus Equifax®, Experian®, and TransUnion®. The Fair Credit Reporting Act, or “FCRA,” was enacted to protect consumers from the damage that errors in their credit reports could cause. Perhaps most important to consumers, the FCRA established the mechanism used to dispute inaccuracies appearing on consumers' credit reports. Once an inaccuracy (i.e. an account that is not the person's but is showing up on his or her credit report anyway, or an account that is reported as derogatory but was never past due, etc.) is disputed to the credit bureau that is reporting the inaccuracy, the credit bureau has 30 days to perform a reasonable investigation of the disputed item. The FCRA also requires that the credit bureau relay the consumer's dispute to the company that furnished the disputed information (called the “furnisher”) who then must also reasonably investigate the dispute. Once the "investigation" is complete, the credit bureau must send an updated copy of the credit report to the consumer, showing the results of the investigation.

The credit bureaus often fail to perform the reasonable investigation required by the FCRA. When that happens, the consumer has a claim under 15 U.S.C. § 1681i. If the furnisher fails to perform a reasonable investigation, which also happens quite often, the consumer has a claim under 15 U.S.C. § 1681s-2(b).

The FCRA also requires credit bureaus to follow reasonable procedures to assure maximum possible accuracy of the credit reports they generate under 15 U.S.C. § 1681e(b). Despite this requirement, the credit bureaus often publish credit reports that contain obvious errors, such as when the credit bureaus combine the credit information of one consumer with that of another consumer who has a similar name and/or social security number.

If the credit bureau and/or furnisher negligently violate the FCRA, the consumer can recover his or her actual damages, plus attorneys' fees and expenses under 15 U.S.C. § 1681o. If the violation is willful, i.e. if it was done either intentionally or with reckless disregard, consumers can also recover punitive damages under 15 U.S.C. § 1681n.

The typical lawsuits fall under three categories:

One is the identity theft victim, who has his or her identity stolen when the imposter opens credit cards, etc. using a fraudulent name and social security number. Of course, the identity thief doesn't pay the bill, resulting in the credit card being charged off and reported onto the identity theft victim's credit report as a bad credit item. The victim learns of the fraud account(s) when he or she is denied credit and requests a credit report to learn why. The victim then disputes the fraud account(s) but because the credit bureaus and furnishers almost never go beyond simply comparing the name and social security number of the victim to the name and social security number on the account (which in identity theft cases almost always match, hence the identity theft), the fraud accounts do not get removed, thus ruining the person's credit.

Another common case is the mixed file case where the credit bureau mixes the credit files of two people with similar names and/or social security numbers. If one of these people has bad credit, it lands on the other person's credit report, ruining his or her credit. The same dispute process is used and sometimes works, but often just for a short while because, when the report is regenerated in the future, the same loose matching logic is used and the two credit files become mixed again.

The last common case is when something is just misreported by the furnisher - i.e. a credit card company reports an account as late that, in fact, was never late. If the credit bureau and/or credit card company fails to correct the error after it is disputed to the credit reporting agency, the consumer has a claim under 15 U.S.C. § 1681i.

Over the next few weeks, I will go over the above sections and others in greater detail, explaining how they work and what they mean to you, the consumer. I will also provide some examples from my real life FCRA cases as well as tips on getting errors on your credit reports corrected.

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