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Sunday, May 17, 2009

Finally getting to it ...

When I first started this blog, I promised to go through and explain each section of the Fair Credit Reporting Act. Its taken a while for me to start following through on that promise but here is the first installment ... finally.

The Fair Credit Reporting Act (or "FCRA" for short) is divided up into different statutes (a.k.a. sections) that all start with 15 U.S.C. 1681 (for example, 15 U.S.C. 1681a, 1681b, 1681s-2, etc.). The first section is 15 U.S.C. 1681 (with no letter). 1681 simply sets forth the findings of Congress that brought about their decision to enact the FCRA and the overall purpose of the FCRA.

1681 starts off - "(a) Accuracy and fairness of credit reporting." (emphasis in original). It is very fitting that the first word of the first section of the FCRA is "accuracy". Seems to me that means accuracy is an important part of the FCRA statutory scheme.

The next portion of subsection (a) of 1681 reads "The Congress makes the following findings:

(1) The banking system is dependent upon fair and accurate [there's that word again] 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."

In other words, Congress found that the accuracy of credit reports is crucial to the functioning of the banking system. As can be seen from the current recession, public confidence in the banking system is important for its continued functioning. Inaccurate credit reports undermine that public confidence. Thus, Congress decided that it needed to pass legislation to regulate the consumer reporting agencies and, more importantly, the accuracy of the credit reports they generate. As a result, the FCRA was born.

The next Congressional finding was as follows:

"An elaborate mechanism has been developed for investigating and evaluating the credit worthiness, credit standing, credit capacity, character, and general reputation of consumers."

This refers to the way in which potential credit grantors (and even current creditors) decide whether a consumer's business is worth the risk of lending money to the consumer. The primary basis for this decision is the consumer's credit report. Thus, if the credit report is inaccurate, the wrong decision is likely to be made. And credit reports are used in more than just decisions on whether or not to grant someone credit. Credit reports are also used by some employers when deciding whether to give someone a job and during insurance underwriting (i.e. when an insurance company determines whether to insure you and, if so, what premium to charge). Credit reports therefore affect multiple areas of consumers' lives, making their accuracy of the utmost importance.

The next finding was: "(3) Consumer reporting agencies have assumed a vital role in assembling and evaluating consumer credit and other information on consumers."

In other words, the credit bureaus decided to get into the business of credit reporting and they should therefore do it right.

The final finding was: "(4) 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."

In other words, the whole purpose of the FCRA is to regulate the consumer reporting industry.

Section (b) of 1681 reads:

(b) 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, relevance, and proper utilization of such information in accordance with the requirements of this title."

In other words, consumer reporting agencies are supposed to utilize reasonable procedures to assure the accuracy of the credit reports they create. Thus, the FCRA is not a strict liability statute but, if the credit bureaus fail to act reasonably when creating credit reports, they violate the very essence of the FCRA. Acting reasonable means either doing what a reasonable person would do under like or similar circumstances or not doing what a reasonable person would not do under like or similar circumstances.

Unfortunately, as will be discussed in subsequent postings, the consumer reporting agencies wholly and completely fail to act reasonably when it comes to the accuracy of the credit reports of consumers.

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