Credit - Recent Amendments to the FCRA, Part 1

FACTA was adopted in December 2003 as an amendment to the FCRA. Though it was touted as consumer friendly, and not entirely without good effects, it was really nothing more than a feel-good bill that left the industry holding all the cards.

The FCRA was about to lapse. Consumer groups wanted a complete overhaul and, in particular, sought to get rid of a provision in which federal law preempted state action. This is significant, since under the pre-FACTA FCRA, federal law prohibited most types of class action lawsuits against the bureaus; certain federal rules of civil procedure made it impossible, since each party to a class action has to have incurred damage that is "measurable." (How do you measure damages for credit reporting errors, especially considering FICO and others won't release their complete scoring algorithms, i.e., step-by-step problem-solving procedures that use established and recurring computations?) Many states sought to remedy this by creating their own rules concerning class actions, but the preemption provision was kept intact with the passage of FACTA, and consumers lost big time.

Imagine if class actions were permitted on such a scale. Consumer Reports magazine estimates that 48 percent of all credit reports have errors, and I suspect that number would shrink to less than 1 percent after a class action or three.

On the upside, FACTA did include some new provisions that are useful:

� Right to dispute credit report information directly with furnishers. Consumers can file formal disputes directly with furnishers of information.
� Opt-out notification requirement. Affiliates (i.e., business partners) of the bureaus are now required to provide clear and conspicuous notices to consumers of their intention to share
� Risk-based pricing notification requirement. Creditors that engage in risk-based pricing must now provide notice to customers when they create new terms that are "materially less favorable than the most favorable terms available to a substantial proportion" of their new customers. The FTC has yet to define "materially less favorable."
� New accuracy standards for furnishers. Furnishers must now establish reasonable policies and procedures to ensure the accuracy and integrity of the information provided to credit reporting agencies. They are prohibited from providing information that they know or have "reasonable cause to believe" is inaccurate.
� New requirements for users of consumer reports. When a consumer credit report uses a substantially different address from that in the consumer's file, the bureaus are required to notify users of the reports. When notified, users are required to have in place reasonable procedures to confirm a consumer's identity. In addition, users are required to dispose of consumer report information in such a way as to preserve its security and confidentiality. The FTC has yet to define this.

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