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What is the Fair Credit Opportunity Act? |
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While Americans are strongly urged to live within their means, the Federal Government acknowledges that some companies try to take advantage of people in financial distress. Congress passed two protections to guard against predatory credit card practices: the Fair Credit Reporting Act and the Equal Credit Opportunity Act.
The Equal Credit Opportunity Act was enacted in 1974. Its purpose is to protect consumers from discrimination. Under this Act, creditors are prohibited from denying credit to consumers based on the consumer’s race, national origin, religion, marital status, sex, or age (provided the credit applicant is not a minor who is unable to enter into a credit contract). So if you want to apply for a Discover card, for example, you have as good a chance as anyone, no matter what you look like or what God you pray to.
If a creditor fails to comply with the Equal Credit Opportunity Act, they can be held liable for civil and punitive damages through individual lawsuits or class actions.
The Fair Credit Reporting Act is a bit more involved. Passed in 1970, the act intends to regulate how consumer-reporting agencies collect, disseminate and use your credit data. One type of consumer reporting agency is a credit bureau. There are three main credit bureaus in the United States: TransUnion, Equifax and Experian. They maintain databases of consumer credit information and report that information whenever you apply for that Discover card you want. The credit bureaus are responsible for adhering to the directives laid out in the Fair Credit Reporting Act. There are three main directives:
- The credit bureau must provide consumers with any personal information they plan to keep. The bureau must attempt to verify the information’s accuracy if it is disputed by a consumer.
- If the bureau removes negative information because of a consumer’s dispute, the information may not be reinserted into the file without notifying the consumer in writing.
- There is a limit to how long credit reporting agencies may retain negative consumer information. The usual time limit for late payments and judgments is seven years. For bankruptcies, it’s ten years.
The Fair Credit Reporting Act also applies to entities that use consumer credit information like insurance companies or employers. Under the act, consumer credit information users must:
- Notify the consumer when information in their credit report causes adverse action, e.g., being turned down for insurance coverage or denial of employment.
- Identify the credit-reporting agency that induced the negative action.
After being denied credit, insurance coverage, employment, or experiencing any other adverse action as a result of information contained in their credit report, the Fair Credit Reporting Act allows the consumer to receive a free copy of their credit report, giving them the opportunity to verify or dispute negative information contained in it.
An amendment to the Fair Credit Reporting Act was passed in 2003. Known as the Fair and Accurate Credit Transactions Act, the amendment entitles consumers to one free credit report per year, regardless of whether they’ve been denied credit. This amendment ensures that you have the ability to monitor your credit for free to prevent identity theft, avoid costly credit rejections and keep those Discover card interest rates low. | | | | |
