Regarding the FCRA, I stand corrected - Posted by JohnBoy

Posted by JohnBoy on October 15, 1998 at 13:14:28:

Well I’ve just spent several hours reading through the entire “The Fair Credit Reporting Act”. You can visit this site if you wish to read it for yourself. Which I think everyone should. The FCRA has been changed as of 1996. They claim they have made a lot of changes for the benefit of the consumer. After reading the amended FCRA I do see some changes that could benefit the consumer better, but I noticed some things that seem to benefit the creditors more also. The site has several pages that have copies of articles and amendments that have been made regarding the FCRA. Here is the site address if you wish to read this information for your own knowledge.

I’ve made a few posts regarding what I thought was legal and what was not as to whether a person can just run a credit check on you because they claim to have a legitimate business purpose to do so. I stand to be corrected on some of these issues.

Regarding section 604. Permissible Purposes of Consumer Reports

604(a). In General. “SUBJECT to Sub-section ©”:

1.Basically what this section says is that any court having jurisdiction to issue such an order, can obtain a copy of your credit file to be presented to a grand jury if you were involved in some kind of court preceding.

  1. This says that you as the consumer can authorize the release of any information in your credit file as per your written instructions.

  2. This says that a Person can check your credit that has reason to believe;
    intends to use this information in connection with a credit transaction that involves you as the consumer, involves the extension of credit to you, or to review or collection of an account of yours, or intends to use the information in connection of employment purposes, or intends to use the information as a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation; or otherwise has a legitimate business need for the information in connection with a business transaction that is initiated by the consumer; or to review an account to determine whether the consumer continues to meet the terms of the account.

Ok, here is my understanding of this section the way I read it:
Unless your under a court order, or unless you as the consumer provide written instructions to allow it, or unless it relates to you as a consumer regarding a current credit transaction, or a credited transaction that was “INITIATED” by you as the consumer, a person cannot just check your credit file because they say they have a legitimate business purpose. (which basically means, anything in the way of a credit transaction that YOU “Initiated”, a person can check your credit without your authorization if it’s for a permissible purpose).

ALL of the above in section 604 is “SUBJECT TO SUBSECTION C”

© Furnishing reports in connection with credit or insurance transactions that are “not initiated” by the consumer.

Subsection © pertains to furnishing reports in connection with credit or insurance transactions that are “NOT INITIATED” by you as the consumer.

Basically this section says that if you did not “initiate” the credit transaction that a person must have a signed authorization by you the consumer, in order to check your credit file, or a “Firm Offer” to extend credit to you or they are limited to receive your name and address for “pre-screening” to send you an offer.

A firm offer does not mean an application to apply for credit. When a credit card company sends you an offer to apply for credit, it is an “invitation” to apply. NOT a “Firm Offer”. A “Firm Offer” would be an offer without conditions to refuse the offer. This is why you see the small print that says you “authorize” them to check your credit before they determine whether or not they will extend the credit to you.

If an employer wants to check your credit for employment purposes, they “MUST” notify you in writing and you must sign a document stating that you’ve been notified and authorized them to check your credit before they can do so. If you are turned down for employment because of anything in your credit file, they must tell you the exact reasons why you were turned down based on the information from your credit file that they turned you down for.

This section also covers “Pre-screening”. This is when a creditor subscribes to the credit bureau’s to obtain a list of names, addresses, and phone numbers on consumers that meet certain credit criteria in order for them to extend credit “offers” to you. They can NOT see your credit file. They can only have access to your name, address, and phone number. This is where most of those offers in the mail come from or the phone calls from telemarketers. If you have an unlisted phone number and always wondered how they got your number, this is one of those sources. You have a “right” to contact the credit bureau’s to have your name removed from these lists if you choose to do so. If you ever received a copy of your credit report and noticed certain inquiries that the credit bureau says other creditors don’t see, this is where those inquiries came from. Whenever a creditor subscribes to get your name from the credit bureau, they must provide you with a list of all the creditors that accessed your file for the purpose of extending an “offer” to you. That’s why you see these inquiries and the creditors that you applied for credit to, does not.

In an earlier post regarding this topic about being able to check someone’s credit without getting their written consent, John Behle mentioned that if he was looking at purchasing a mortgage or note, that he could check that persons credit history without their consent.

He is 100% correct on this. Here is why (at least the way I understand it)

When he’s looking at a mortgage or note to purchase, the consumer that signed that mortgage or note has already “Initiated” a credit transaction. This transaction was “Initiated” the day this consumer signed that mortgage or note. Under section 604 of the FCRA, it clearly states that a person can check a credit file on a consumer regarding any credit transaction that was “Initiated” by the consumer.

Now, keep in mind one thing here. When that consumer originally entered into this mortgage or note, that consumer may have or may not have had his/her credit checked by the person that created that mortgage or note. If the person that created the mortgage or note wanted to check that consumers credit “prior” to the consumer “initiating” the transaction, then that person would have had to have the consumer sign an authorization to check their credit file. According to section 604 (subsection ©), a person must have written permission to check a consumers credit file IF the consumer has not “Initiated” a credit transaction yet. OR if a person issued a “Firm Offer” on the mortgage or note to extend that credit to the consumer, then after that firm offer was signed by both parties, the person extending credit for that mortgage or note could check that persons credit without the consumers consent. Of course once you committed to a firm offer, whats the point of checking the consumers credit after the fact? Its to late to recall the mortgage or note because you gave the consumer a firm offer. In order for a firm offer to be legal regarding a real estate transaction, it must be in writing and signed by both parties. Once the offer is signed by both parties, it becomes a binding contract. So if you check the consumers credit file after the fact, its to late. Your only recourse is if the consumer defaults on the mortgage or note according to the terms and conditions of that mortgage or note.

Also, the way I understand this act to read is:

Lets say I’m offering a house to rent or sell owner financed or something. The consumer comes to me and wants to rent or buy the house. I have them fill out an application. Unless that application or unless I have the consumer sign a separate authorization to check their credit, I legally cannot check their credit file without it. This consumer has not yet “Initiated” a credit transaction with me. Until they do, I cannot just check their credit because I’m offering an invitation to apply for a rental agreement or a mortgage or note. I would either have to issue that consumer a “Firm Offer” (which has to be in writing and signed by both parties to be a legal binding contract regarding real estate) which at this point would be to late to back out, or I need a clause in my application that states by them signing this, they authorize me to check their credit file. After checking their credit file and if I determine that their credit history doesn’t meet my satisfaction, I can deny them their application.

I think this is where the law affects car dealers. A car dealership would always want to check a persons credit before they would spend their time negotiating a price. Well negotiating on a price is not a “Firm Offer”. Until you made a firm offer on a price and both parties agree to the offer, the dealership cannot just check your credit unless you authorize them to do so.

In one of my earlier posts I said a collection agency cannot just check your credit file because they are trying to collect a debt. This was incorrect. (Joe, you were right on this) If the collection agency is trying to collect on a debt that you “Initiated” they can check your credit file. IF the collection agency is trying to collect a debt from you that you “Did Not” “Initiate”, then they cannot check your credit file without a signed authorization from you. This could be a tricky thing for collection agencies. If you dispute a debt they say you owe, and you really don’t owe that debt and never “Initiated” the credit transaction that pertains to that debt, they better have some kind of proof that this debt belongs to you or that you “initiated” it before they start checking your credit file. (this is my opinion based on how I understand the law to read in the FCRA. I’m not a lawyer) Credit agencies sometimes get people crossed with the same names. If this happens and they run credit checks on the wrong person, they could get into some serious trouble.

Under the new act of 1996 they claim it has been revised and amended to protect the consumer and give them more rights to get negative information removed from their credit file that is not accurate. This will remain to be seen. But the act claims that the creditor “must” investigate your disputes now and correct any information that is not accurate. It used to be that if you disputed anything, the credit bureau would only have to accept a verbal “yes it is their debt and it is correct” and that was the end of it. Now they’re “suppose” to really investigate the dispute. They’re also suppose to provide any information that you give them to help justify your dispute to the creditor. Most people always thought they were suppose to do this anyway, but the credit bureau’s never did. They just took the word of their “Clients”.

The law also states that you have the right to have an explanation added to your file pertaining to any negative information you disputed and was found to be accurate. When a consumer asks a credit bureau about this, the credit bureau normally will tell you it has to be written in 100 words or less. (NOT QUITE ACCURATE) This is one part you can really take advantage of negative information on your credit report. You can write as many words as it takes to explain your reason for the dispute. The law on this says that the credit bureau can limit your dispute to 100 words IF THEY ASSIST YOU IN WRITING THE DISPUTE! So if after you tried everything else by disputing the negative information and it still is found to be accurate, write up a 10 page report explaining your side and demand that the credit bureau puts this on your file. The credit bureau will tell you it can only be up to 100 words or less, but the law on this clearly states that they can only limit you to 100 words if they assist you in writing it. Remember though, what ever you write, it will have to be to the point, extremely important to your dispute and not just made of a lot of repeated stuff. (something I seem to have a bad habit of doing, repeating myself. lol) When the credit bureau attempts to assist you in writing the report, everything they try to remove from it for the purpose of limiting it down to 100 words, stand your ground and demand how important that piece of information is to your dispute. The theory behind doing this is, that if you can justify with good reason the importance of all this information, the credit bureau will sometimes just delete the negative information rather than take up all the time and space to ad this to your report. (they may decide to take the easy way, just delete the darn thing:))

One last thing. Anytime you do check someone’s credit and turn them down based on information found in their file, you MUST disclose to the consumer the reason you are turning them down. You must also disclose to them their rights under the FCRA. You can read about all this in the act for your own knowledge. If you are going to check credit, or if you have any credit problems, you should read this law for your own protection and benefit.

There is so much information covered in the FCRA that it will take you some time to read and cross reference all the sub-sections that refer to each other. When you read one section and you think it may not seem fair to you on certain things, make sure you read the sub-sections that each section refers too. It might not sound as bad as it seems after cross referencing the sub-sections.

Well I’ve taken up to much space as it is. Here is the link to the government site that has the FCRA in its entirety.