Many people are aware that the Federal government has passed at least one law to protect consumers in the credit arena. Sometimes mistaken for the Fair Credit Opportunity Act or the Equal Credit Reporting Act, in actuality, these are two separate laws: the Fair Credit Reporting Act and the Equal Credit Opportunity Act.
The Fair Credit Reporting Act was passed in 1970, to regulate how consumer credit information is collected, disseminated and used by consumer reporting agencies. 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 a consumer applies for credit. 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 the information about them contained in the bureau’s files and 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 provided the report on which the adverse action was based.
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 and is known as the Fair and Accurate Credit Transactions Act. This entitles consumers to one free credit report per year, regardless of whether they’ve been denied credit. The Fair Credit Reporting Act was put in place to protect consumers and to allow them to recover from incidents having a negative effect on their credit ratings.
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 color, 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).
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.
