Fair Credit Reporting Act (Essay Sample)

Student’s Name Professor’s Name Course Date The Fair Credit Reporting Act (FCRA) The Fair Credit Reporting Act (FCRA) is a federal government legislation that helps to guarantee that data in customer credit agency records is accurate, unbiased, and private. The legislation governs how consumer credit organizations gather, retrieve, utilize, and distribute information from individual credit history. Consumer credit reporting firms, such as financial institution, health records businesses, and credit bureaus, and tenant background services, are protected under the Act, often referred to as Title VI of the Consumer Credit Protection Act. A consumer's information is only given to an entity who uses it for the specific reasons defined in the Act. Firms that submit data to credit bureau organizations are subject to additional legal requirements, such as the responsibility to examine disputed data. Recipients of the data for lending, insurance, or recruitment reasons must also inform the client if they take unfavorable action based on the findings (El-Sharawy 90). Many requirements were introduced to this Act by the FACT Act, especially dealing with data correctness and identity fraud.  The Fair Credit Reporting Act (FCRA) History A proposed change to the initial Truth in Lending Act (TLA) sparked the very first proposal for a FCRA in Congress. Representative Zablocki proposed an adjustment to the TLA Act in 1968 that could effectively challenge CRA abuses (Alhaidary 28). The proposal was rejected at first, but Leonor Sullivan (Representative) and Senator Proxmire revived it (Alhaidary 28). Testimonials of integrity were an important part of credit reporting agencies in the 1960s, before credit rating was standardized. With credit history carrying probing facts concerning a person's character, behaviors, and wellbeing, legislators were concerned during the FCRA proceedings that people were unable to correct inaccuracies (Alhaidary 28). Many consumers were left at the mercy of CRAs who did not care to check that the information they held on their customers was correct prior to its ratification. As a result, many customers would suffer while requesting financial assistance, and many consumers would be left distraught since there was no way to alter the reports. There was also a concerning tendency among some of these organizations to use customer demographic information for ulterior objectives. Senator Proxmire introduced a bill titled A Bill to Protect Consumers Against Arbitrary or Erroneous Credit Ratings, and the Unwarranted Publication of Credit Information (Alhaidary 28). The title of the bill, according to Proxmire, summarized its purpose in entirety. The bill had three sections. The first required CRAs to develop a system that guaranteed confidentiality. Upon the collection of consumer credit information, CRAs were obligated to safeguard the data from wrongful publication as had been the case. Second, consumers were provided with the chance of correcting negative data in their credit history and being alerted when a public information entry was added to their credit history (Saba 553). Third, CRAs would have to have processes in place for eliminating redundant and old data from people's credit profiles. Whereas these provisions were somewhat adjusted in the proposed laws, they nonetheless represented the final policy's intentions. It was passed into Law in 1970 (El-Sharawy 91) to guarantee that recording operations connected to different consumers' financial activities are done in a fair and equitable way for the afflicted person, as well as to preserve the customer's reasonable expectation of privacy from credit reporting firm data requests. Purpose of the FCRA Act The goal of the FCRA is to safeguard a person from erroneous or discriminatory data about them emerging in a credit report, according to one congressional document. This declaration emphasizes the Act's need and intent. The first reason was that since the financial sector relied on truthful and reasonable credit information, faulty credit scores harmed the financial system's productivity, and discriminatory consumer credit procedures harmed public trust, which is necessary for the financial system's continuous operation (Alhaidary 28). Second, the Act established a complex system for determining and analyzing a consumer's credit scores, credit status, credit potential, integrity, and overall image. Third, it asserted that consumer credit reporting organizations had taken on a critical role in collecting and reviewing consumer financials and other data. Furthermore, the FCRA aimed to ensure that CRAs carry out their important obligations with impartiality, objectivity, and regard for the protection of privacy of individuals (Alhaidary 28). Confidentiality In advocating for the bill, Senator Proxmire insisted that Credit data must only be provided for a specified reason, such as to bolster a loan application. This data ought not be given to a noncreditor outside of the user's express permission. No one may participate in the practice of credit scoring unless processes are in place to ensure the privacy of the data acquired, according to the law. Accuracy In this section, the Senator sought to address two issues. The first is the incidence of mistaken identity where a person sharing the same name with another with a bad credit score is also affected, even when their credit score is perfect (Saba 552). The second is the desire of CRAs to add negative information from public databases. Consumer reporting organizations appear to be quite eager to document the information that a client has been charged for failing to pay, however they are not always as careful in documenting the case's outcome, especially if it is overturned, leading to incompleteness and inaccuracies that damage the consumer's credit score. To a great extent, the laws has achieved its intended purpose. For instance, coupled with other laws on consumer data protection, CRAs have the liability for any harm occurring to the consumer if the harm relates directly to their wrongful handling of the client’s credit data. The FCRA streamlined the credit and loan sector by eliminating unscrupulous industry players who had ulterior motives with the information, such as forging people’s identity to get credit from a financial institution (Saunders 18). Also, the law played a significant role in allowing consumers to correct inaccuracies in their credit scores, which gave the m the much-needed reprieve. Previously, the did not have the authority to challenge the decisions reached by CRAs, even when they are relying on inaccurate data. Criticisms of the FCRA Act Despite its good intentions, the FCRA Act also has had its criticisms. Top on the list of its weaknesses is its inability to clearly define what CRAs are. For instance, in DiGianni v. Stern, the district court decided that Stern's Department Stores, Inc. and Bloomingdale's, Inc, were not CRAs, despite sharing DiGianni’s credit information amongst themselves. The court ruled that since they did not share the information with third party entities (Saunders 20), they could not be charged under the FCRA Act. This ruling opened an avenue for department stores to share their customers’ credit information without being held...