US Senate Bill Targets Credit Checks and FCRA Reform
May 1, 2014
US Senators Brian Schatz (HI) and Sherrod Brown (OH) introduced legislation on April 9, 2014 calling for credit reform. The bill, as introduced, would require significant changes for credit furnishers and consumer reporting agencies (CRAs). The Senators and bill supporters are calling the proposed legislation the “Stop Errors in Credit Use and Reporting”, or SECURE Act of 2014. The bill has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.
Credit reporting agencies are beholden to both the Dodd Frank Act and the Fair Credit Reporting Act (FCRA). Based on the press releases that announced the introduction of the bill, supporters say that consumers need tighter rules for ensuring that credit reports are accurate. The stated purpose of the bill is, “To enhance the accuracy of credit reporting, provide greater rights to consumers who dispute errors in their credit reports, and for other purposes.” It’s the “other purposes” part that makes me nervous.
Most of us who deal with the FCRA on a daily basis would probably recognize that there are parts of the existing law that could use some clarification. But the language in the bill further muddies the water by referring to “credit reports” and “consumer reports” interchangeably, creating confusion as to whether some provisions are intended to apply only to credit reports, or the much broader class of consumer reports which could include pre-employment background reports, investigative reports or tenant screens.
Bill sponsors and advocates need to keep in mind that the FCRA, while hardly perfect, already provides numerous protections for consumers. The FCRA requires consumer consent, permissible purpose, adverse action notifications, and includes a dispute process to correct errors. CRAs are required to have reasonable procedures in place to ensure maximum possible accuracy. If you wonder whether the current law has teeth, just ask the trial bar—plenty of plaintiffs out there are taking advantage of the statutory damage provisions, attorney’s fees and punitive damages currently allowed in cases involving alleged FCRA violations. In case you haven’t been keeping up with current events, employers and CRA’s have been getting hit pretty hard, paying millions in fees and settlements for alleged FCRA violations.
The Consumers Union endorsed the legislation and spelled out why it thinks that the legislation is needed in its report: Errors & Gotchas: How Credit Report Errors and Unreliable Credit Scores Hurt Consumers. The title of the report might tip you off as to their position. The last thing consumers or businesses need are more “gotchas.” I am all for clarity, and I am not opposed to cleaning up the existing law. But before we overhaul a law that has been effective and vigorously enforced for over 40 years, let’s get the stakeholders together to have a conversation. That includes all consumer reporting agencies affected—not just the “big three” credit bureaus.
This bill, as written, has the potential to reach well beyond credit protections. Lawmakers and supporters of this bill need to be aware of some of the unintended consequences this legislation might bring to other businesses—service providers like tenant screeners and employment background screening providers—before moving ahead.
Here are the Bill highlights:
Stated Purpose: To enhance the accuracy of credit reporting, provide greater rights to consumers who dispute errors in their credit reports and other purposes. The bill amends the Fair Credit Reporting Act (FCRA) (15 U.S.C. 1681 et seq.).
Section 1: Title.
This Act may be cited as the “Stop Errors in Credit Use and Reporting Act” or “SECURE Act.”
Section 2: Legal Recourse for Consumers
Section 2(a): Injunctive relief: This section allows consumers to seek injunctive relief when they sue for a violation of 616 and 617 of the FCRA.
Section 2(b): Enforcement by the Federal Trade Commission: This section lowers the standard that the Federal Trade Commission (FTC) must meet to impose a civil penalty for a violation of the FCRA from “knowing” to “negligent, willful, or knowing” violations. This increases the burden for providers or consumer reports and would enable the FTC to bring more enforcement actions in more cases.
Section 3: Increased Requirements for Consumer Reporting Agencies and Furnishers of Information
Section 3(a): Consideration of documentation provided by Consumers regarding the dispute: This section amends the FCRA to say that “all relevant information” includes all documentation provided by the consumer. The section requires that data furnishers review and consider all documentation provided by consumers with their notice of a dispute.
Section 3(b): Gathering and Reporting Information on disputes: This section directs the Consumer Financial Protection Bureau (CFPB) to prescribe rules for gathering information on disputes and to provide reports on disputes received by consumer reporting agencies.
Section 3(c): Accuracy Compliance Procedures: Section 607 of the FCRA requires CRA’s to follow “reasonable procedures” to assure “maximum possible accuracy.” This section directs the CFPB to develop a rule establishing the procedures that a CRA must follow to assure maximum possible accuracy of all consumer reports furnished by the CRA.
The section also directs the CFPB to consider requiring matching of the following: first and last name, date of birth, and all 9 digits of the consumer’s social security number and “any other information”.
Section 3(d): Allowing reinvestigation of previously submitted disputes: This section says a dispute is not frivolous for being substantially the same as a previous dispute if it includes new or additional information that is relevant to the reinvestigation.
Section 3(e): Disclosures to consumers: This section requires that when a CRA discloses information to a consumer about who has requested a consumer report, the CRA must include the name of the person (including the trade name), the address and telephone number, and the permissible purpose of pulling the consumer report.
Second, this section ensures that when a consumer asks for his or her credit score, the CRA discloses a score that is as relevant to the consumer as possible. Third, this section allows consumers to request a free credit score from a credit reporting agency along with their annual free credit report.
Section 3(f): Notification Requirements: The section changes existing law giving CRAs 14 days to automatically disclose to the consumer the information provided to the lender in the event of an adverse action or an offer of credit at less favorable terms. This section directs the CFPB to establish rules define how this information should be disclosed.
This replaces the current system where a consumer can request a free copy of his or her credit report within 60 days after an adverse action or offer of credit at less favorable terms.
This section also modifies a provision of the FCRA that requires data furnishers to provide notice to a consumer if the data furnisher reports negative information to a CRA. Under the current provision, after providing notice once, the data furnisher does not need to provide further notice if it submits additional negative information with respect to the same transaction, extension of credit, account, or customer. This section requires the data furnisher to provide notice of additional negative information with respect to the same customer, so long as it does not relate to the same transaction, extension of credit, or account that was previously notified to the consumer.
Section 4: Regulatory Reform
This section directs the CFPB to establish a registry of CRAs, organized by classification of CRA. All CRAs will be required to register within a specified time frame.
Section 5: Study of a Public Credit Reporting System
This section directs the Comptroller General of the United States to conduct a study of public credit reporting systems, to evaluate the feasibility of creating a public credit reporting system in the United States, and to assess the consumer benefits and costs that might result from such a system. This study would be published not later than 18 months after enactment.
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