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PIRG Identity Theft II:  SECTION II: KEY FAIR CREDIT REPORTING ACT CHANGES

EFFECTIVE 30 SEPTEMBER 1997

In 1989, U.S. PIRG first testified before Congress urging changes to the archaic 1970 Fair Credit Reporting Act. We urged Congress to address the country's number one consumer problem, errors in credit reports. That was the first skirmish in a pitched battle, that some thought would never end, against not only the credit bureaus, but the entire financial industry. Along the way, PIRG released four reports in its "Nightmare On Credit Street" series, TRW ruined the credit reports of every citizen in Norwich, Vermont (not to be out-done, Equifax followed suit in Middlesex County, Massachusetts), coalitions totaling over 20 attorneys general and the Federal Trade Commission sued the Big Three credit bureaus, and the states of Vermont, California, Maryland, and Massachusetts all enacted broad new state laws.

 Meanwhile, powerful financial interests, led by Mastercard, VISA and the big banks and department stores trumped the efforts of PIRG, Consumer Union, privacy advocates and Congressional consumer heroes led by U.S. Senator Richard Bryan (D-NV) and Kit Bond (R-MO) and U.S. Reps. Joe Kennedy (D-MA), Henry Gonzalez (D-TX) and Esteban Torres (D-CA) to enact a new federal law. These firms, responsible for many of the mistakes in credit reports, not only sought to block proposals to make them liable for their errors, but also desired sweeping exceptions to the law's privacy protection.
 
 

  • In 1992, one remedial bill was pulled from the House floor by Reps. Torres and Gonzalez because the big banks sought to preempt, or over-ride, all stronger state laws on FCRA. PIRG's reform amendment lost 203-207 when pliant House leaders allowed pro-industry forces to prevail in an outrageous roll call vote that lasted much longer than the allowable 15 minutes.
     

     

  • In 1994, after both the House and Senate had approved FCRA reform amendments, industry friend Sen. Phil Gramm (R-TX) killed the bill on the last day of the 103rd Congress. Gramm supposedly opposed the bill's modest provision granting consumers the right to obtain a credit report for $3 on request.
     

     

  • Finally, on the last day of the 104th Congress, on September 30, 1996, a Trans Union amendment that would have overturned the FTC's prohibition on target marketing from credit reports was the last item deleted from the Omnibus Consolidated Appropriations Act for Fiscal Year 1997, and the Consumer Credit Reporting Act of 1996 was signed into law (P.L. 104-208).
     

     

Following is a summary of the changes, both good and bad, that were made to the law. 

(1) MEASURES TO AVOID AND CORRECT MISTAKES IN REPORTS

Joint Error Reinvestigation Notification: The law now requires national credit bureaus to establish a joint error reinvestigation notification system to prevent the recurrence of corrected errors.

 Reinsertion of Deleted Information: The bill ensures that inaccurate or incomplete information is removed from credit reports. It prohibits the re-insertion of deleted information unless (1) the source first certifies its completeness and accuracy and (2) the credit bureau gives the consumer notice of the re-insertion.

 Duties of Furnishers: The law imposes modest new duties on banks, department stores and other "furnishers of information" to credit bureaus to avoid making errors and to participate in error re-investigations. The duty to avoid making errors is only enforceable by government agencies; that means consumers cannot sue a furnisher for making a mistake, only for failing to adequately re-investigate it. Previously, only Massachusetts and California imposed any duty on furnishers.

 Weigh Information From Consumers: It requires credit bureaus, for the first time, to weigh information from consumers against information from creditors.

 Accounts Closed By Consumer: It requires bureaus and furnishers to improve record-keeping so that accounts closed in good standing by a consumer are not mistaken for accounts terminated by a creditor for non-payment.

 Cost of Reports: The law doubles the length of time, to 60 days, following an adverse action, that any consumer can obtain a free credit report from the bureau used. It provides that indigent persons, victims of identity theft and unemployed persons can obtain a free report annually on request from any bureau. It does not provide all consumers with a free credit report on request (as only Colorado, Georgia (2 a year) Maryland, Massachusetts, New Jersey, Vermont provide). It does not lower the price of credit reports on request. Instead, it codifies consent decrees requiring any credit bureau to provide credit reports for $8, adjusted annually for inflation.

 Other Error Resolution Changes: It requires national credit bureaus to install staffed toll-free telephone numbers. It requires all credit bureaus to complete re-investigation tasks within rigorous timetables, usually 30 days. It generally requires all users of credit reports to provide adverse action notification when credit or other benefits are denied or terms are changed due to a credit report. It requires both bureaus and users to provide significantly improved consumer disclosures and rights notifications when communicating with consumers (under the old law, a company that denied credit did not need to inform the consumer that he or she has the right to a free credit report). It prohibits credit bureaus from refusing to allow creditors to show reports to consumers. It increases the so-called "large dollar" exceptions to the 7-year negative information reporting period to correct for inflation. It defines when delinquencies begin, so bureaus cannot unfairly extend the 7-year reporting period.
 
 

(2) MEASURES TO PROTECT (OR DENY) PRIVACY

Eases Pre-screening: Unfortunately, the new law codifies current agency rules that allow creditors to revoke seemingly guaranteed, "pre-approved" credit offers generated from so-called "pre-screened" lists of consumers derived from reports. The new law also expands pre-screening to allow insurance, as well as credit, uses. The new law also broadens the information that can be used in pre-screening and weakens the definition of "firm" offer of credit to the point that it is virtually meaningless.

 Provides Opt-out: As a quid pro quo for that privacy invasion, the Big Three bureaus are required to establish a joint toll-free system for consumers to opt-out of receiving such offers. These brightly colored envelopes ("Because of your excellent credit you have been selected") have been implicated in theft of identity scams.

 Unfortunately, the opt-out provisions are complex. A consumer opt-out by phone is only good for two years. If a consumer completes a signed "notice of election," his or her opt- out is good until cancelled.

 Positively, users of pre-screened lists must notify consumers of the opt-out system in any mailing generated from credit reports.

 Affiliate Sharing: The bill establishes, at the behest of the big banks, a sweeping exception to the definition of credit report. It allows holding companies to share credit reports (as well as experience information and information derived from credit or employment or insurance applications) with other affiliates, even those without permissible purposes. This provision was strongly opposed by consumer groups and the FTC. Under our worst interpretation, the provision would allow a bank to set up an unregulated credit reporting subsidiary.

 Modest provisions were added disclosing the practice and providing an opt-out. Equally modest provisions were added so that if an adverse action is taken based on affiliate shared information (only in the circumstance where a consumer initiated the application, not when the affiliate "marketed" to the consumer), the consumer is notified.

 Increased Penalties For Illegal Use: The bill makes it a felony to obtain a credit report under false pretenses and generally imposes stricter standards on credit bureaus, especially information re-sellers or super-bureaus, to prevent illegal access to reports.

 Employment Uses: In a significant change, the consent of the consumer must be obtained before using a credit report for an employment determination. Generally, any other user with a permissible purpose can obtain a credit report without the consumer's permission.

 Before taking an adverse employment action on the basis of a report, the consumer must receive a copy of the report used. 

(3) ENFORCEMENT PROVISIONS

State Attorneys General: State AGs are given authority to enforce the federal act.

 FTC Authority: Violations of the FCRA enforceable by the FTC are now subject to civil penalties of $2500 for the first offense, except that furnishers of information can only be forced to pay penalties if found in violation of an injunction. Under its full trade rule authority, which was rejected, the FTC imposes penalties of $10,000 per violation.

 Bank Agency Enforcement: No agency can conduct examinations or enforce the act against banks, savings institutions or credit unions except in the two examination cycles following a violation. This anti-consumer, anti-safety and soundness "safe harbor" was inserted by Sen. Connie Mack at the request of the Independent Bankers Association of America. The FTC does not have jurisdiction over insured financial institutions. 

Private Right of Action: The ability of a consumer to sue a credit bureau that reinserts false information in a credit report is greatly enhanced because the law significantly upgrades the duties of credit bureaus to avoid errors. Since the credit bureaus will face greater liability risk, all consumers should see an improvement in the accuracy of their reports. As above, consumers obtained only a limited private right of action against furnishers.

 Criminal Violations: Penalties for obtaining information from credit bureaus under false pretenses or for officers or employees of credit bureaus providing such information (in a "knowing and willful" manner, a very high standard) have been increased to include substantial fines or two years in jail or both. Threat of these criminal penalties should help prevent identity theft.
 
 

(4) PREEMPTION

The authority of states to enact new laws in the areas of furnisher duties, affiliate sharing, pre-screening, obsolescence periods and compliance duties (including notices, timetables, etc.) is preempted for 8 years, until 1 January 2004 (states would need to affirmatively reinstate any preempted laws). Stronger state laws on affiliate sharing (Vermont), duties of furnishers (Massachusetts and California), and obsolescence periods (New York) are grandfathered.

 Other authority is not preempted, including, for example, the rights to establish or maintain existing laws reducing the price of reports, to impose higher compliance standards on credit bureaus, to restrict the uses of credit reports (except for pre- screening and affiliate sharing) or to require consumer permission to access reports. 

(5) CREDIT REPAIR DOCTORS

The new law bill establishes in federal law protections already enacted by numerous states prohibiting many deceptive practices of so-called credit repair clinics or credit doctors. For example, credit doctors commonly teach consumers with bad credit how to apply for new social security numbers or other new identifiers. Credit doctors also promise that they can remove accurate, but negative information from reports. These practices would be prohibited.

 In particular, the bill prohibits credit doctors from collecting any fee before completing a promised service. It also grants consumers a 3-day cooling period to rescind a credit doctor contract.
 
 

NOTICE OF CONSUMER RIGHTS, AS AMENDED

Attached as Appendix D is the Federal Trade Commission's new recommended notice of consumer rights to be provided by credit bureaus. We provide it since it summarizes the FTC's view of the most important rights consumers now have.

 


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