FTC Testifies on the Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) promotes fairness, privacy, and accuracy in the consumer credit marketplace, the Federal Trade Commission testified today. "Overall, developments in the consumer credit marketplace have increased consumer choice and provided financial benefits to consumers," said Howard Beales, Director of the FTC's Bureau of Consumer Protection, in presenting testimony on the FCRA before the U.S. Senate Committee on Banking, Housing and Urban Affairs. Beales notes that the FCRA contributes to these benefits by providing a carefully balanced framework for the free, fair, and accurate flow of consumer data.

The testimony discusses the development of consumer credit markets and the national credit reporting system, and outlines the history of the FCRA. According to the testimony, the credit reporting industry developed in tandem with the burgeoning of consumer credit. Today, the credit reporting system enables credit grantors to make more expeditious and accurate credit decisions, which benefit consumers as a whole. "The modernization of credit reporting has played a key role in providing American consumers rapid access to consumer credit," Beales noted. Consumers' eligibility for low rates or favorable terms depends on a sophisticated credit scoring system that produces rapid, reliable scores based on information from a consumer report, the testimony stated.

The testimony highlights key FCRA provisions. Since its inception in 1970, the FCRA has promoted the privacy of consumer information by limiting access to the consumer credit history and payment information found in credit agency records. Consumer reports (generally referred to as credit reports) are compiled by consumer reporting agencies or credit bureaus, which, under the Act, can make the information available only to potential employers, credit grantors - such as bank card companies, department stores, and mortgage companies - and others with a "permissible purpose" as defined by the Act.

The FCRA enhances the accuracy of consumer reports through requirements that credit bureaus maintain reasonable procedures to promote accuracy, and by mechanisms to ensure that consumers can find out what is in their reports and act to correct errors. The FCRA requires users of credit reports to notify consumers when a report plays any role in an adverse action, such as denial of credit, and to tell the consumer what bureau supplied the report. Consumers can always obtain disclosure of the information in their files at credit bureaus and dispute inaccuracies.

The testimony recounts the range of Commission efforts under the FCRA, including business and consumer education, staff interpretative guidance, and key enforcement initiatives.

The FTC regards consumer education as vital to the FCRA because the statute contains self-enforcing elements, such as the right to dispute inaccurate or incomplete information.

Finally, the testimony addresses some current issues under the FCRA, such as the increased use of credit reports, the growth of credit scoring and risk-based pricing, and the role of credit reporting in fighting identity theft. According to the testimony, the consumer reporting system, and the obligations and protections of the FCRA, make it possible for creditors and other businesses to have access to timely, accurate consumer data. "The FCRA helps make possible the vitality of modern consumer credit markets. The consumer reporting industry, furnishers, and users all can rely on the uniform framework of the FCRA in what has become a complex, nationwide business of making consumer credit available to a diverse, mobile American public," the testimony noted.

The views expressed in the written testimony represent the views of the FTC. The oral presentation and responses to questions do not necessarily reflect the views of the Commission or any individual Commissioner. The Commission vote authorizing the testimony was 5-0.

Copies of the testimony are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.