Our commercial system relies on the flow of consumer information, whether for preventing fraud or making decisions about consumers seeking credit for products or services. The primary law governing these information flows is the Fair Credit Reporting Act (FCRA). But, the FCRA, which was originally passed in 1970, has become the subject of constant litigation, in part because some of its provisions are ambiguous or unclear. The result is that businesses face substantial risk and may be deterred from activities that are beneficial to the market and consumers. As of last July, the new Consumer Financial Protection Bureau (CFPB) is the single federal agency with authority to promulgate rules or formal interpretations of the FCRA. Businesses and consumers would be well served if the CFPB takes the initiative to provide guidance on some of the key interpretive issues in dispute.
The FCRA covers three primary groups: consumer reporting agencies (CRAs) which compile and sell consumer information for business decisioning, the furnishers of that information to the CRAs, and the entities that use consumer reports in making eligibility determinations. The most obvious example of how this works is the credit report, a compendium of a consumer’s past experiences in the marketplace that is used by lenders to assess consumers’ creditworthiness. There are several other types of consumer reports that may be covered by the FCRA as well, including reports used for tenant screening, insurance underwriting, and employment purposes.
The FCRA relies principally on a system of notice and choice to ensure that information in consumer reports is accurate. Consumers who are denied credit (or another benefit) or are offered less favorable terms due to information in their credit report receive notice of this fact, enabling them to obtain a free copy of their report and correct any errors in it. The FCRA also is designed to ensure consumers’ privacy by limiting the disclosure of consumer reports only to those with a “permissible purpose.”
Although the FCRA has been a remarkably effective law, in some ways it is showing its age. Amendments passed by Congress in the 1990s, and then again in the FACT Act of 2003, shored up some of the obvious shortcomings in the law. But, there remain a number of difficult interpretive issues. For example, the FCRA permits lenders to obtain consumer reports for purposes of making a “firm offer of credit” (such as the “you have been pre-approved “credit card mailings that fill our mailboxes). But, how “firm” and how specific does the offer need to be to qualify as a firm offer of credit? Or, how will the FCRA apply to new modes of communication and information exchange, such as social media and mobile devices?
The CFPB has many things on its plate. Let’s hope that at some point in the near future, it focuses on clearing up some of the ambiguities of the FCRA.