Fair Credit Reporting Act: Overview, definition, and example
What is the Fair Credit Reporting Act (FCRA)?
The Fair Credit Reporting Act (FCRA) is a U.S. federal law enacted in 1970 that governs how consumer credit information is collected, used, and shared. It regulates credit reporting agencies and sets rules for businesses, employers, lenders, and others who use consumer credit reports. The FCRA is designed to ensure that individuals' credit data is handled fairly, accurately, and with respect to privacy.
Why is the Fair Credit Reporting Act important?
The FCRA is important because it protects consumers from inaccurate, outdated, or unfair credit reporting practices. It gives individuals the right to access their credit reports, dispute errors, and know when their credit information is being used—especially when it impacts major decisions like loan approvals, employment, housing, or insurance. For businesses, complying with the FCRA is essential to avoid legal liability and to ensure that they handle sensitive consumer data responsibly and lawfully.
Understanding the Fair Credit Reporting Act through an example
Suppose an employer wants to run a background check on a job applicant that includes reviewing their credit history. Under the FCRA, the employer must first get the applicant’s written consent and provide a clear disclosure explaining the purpose. If the employer decides not to hire the applicant based on the report, they must notify the individual and provide a copy of the report, along with information about their rights to dispute any errors.
Example of how the Fair Credit Reporting Act may be referenced in a contract
Here’s how a reference to the FCRA may appear in a background check authorization form:
"The undersigned authorizes the Company to obtain a consumer report and/or investigative consumer report as defined under the Fair Credit Reporting Act (FCRA), and acknowledges receipt of the Summary of Rights under the FCRA."
Conclusion
The Fair Credit Reporting Act is a cornerstone of consumer protection law in the U.S., ensuring that credit and background information is collected and used fairly. It provides individuals with rights to transparency and accuracy in their credit files and imposes obligations on companies that rely on such information. Businesses and employers must understand and comply with the FCRA to protect consumer rights and avoid regulatory penalties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.