Legal and Regulatory:
Economic Growth And Regulatory Paperwork Reduction Act of 1996
Subtitle D -- Consumer Credit

Sec. 2402. Definitions.

Section 2402 adds new definitions to, and amends current definitions in, the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681 et. seq. In general, FCRA requires consumer reporting agencies (CRAs) to adopt reasonable procedures for protecting consumers from being injured by inaccurate or obsolete information contained in consumer credit reports circulated by CRAs in connection with consumer credit, employment, and insurance transactions, and requires both CRAs and their users to make certain disclosures to consumers. Under section 603(d) of FCRA (15 U.S.C. 1681a(d)), a "consumer report" is defined with certain exclusions, as information communicated by a CRA to a third party related to a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, that is used or intended to be used to determine the consumer's eligibility for consumer credit or insurance.

Among other things, section 2402 amends the definition of consumer report to exclude: (1) a report containing information solely as to transactions or experiences between the consumer and the person making the report; (2) a communication of this information that is shared among persons related by common ownership or affiliated by corporate control; and (3) any communication of other information among persons related by common ownership or affiliated by corporate control if the fact that such information may be communicated among affiliates is clearly and conspicuously disclosed to the consumer and the consumer is given the opportunity, before the communication is made, to "opt-out." In addition, section 2402 clarifies that certain communications by employment agencies are not consumer reports.

Section 2402 also defines "firm offer of credit or insurance" as any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on the consumer's credit report, to meet the specific criteria used to select the consumer for the offer (during the prescreening process). However, this definition permits a "firm offer" to further be conditioned on the following factors: (1) the consumer meeting specific criteria bearing on credit worthiness or insurability, based on the consumer's application for credit or insurance; (2) verification that the consumer continues to meet the specific criteria for credit worthiness or insurability used to select the consumer for the offer; or (3) the furnishing of collateral by the consumer. Previously, Federal Trade Commission (FTC) interpretations required a creditor to extend an unconditional offer of credit to each consumer who passed the prescreening process. See 16 C.F.R. Part 600, App.

Sec. 2403. Furnishing Consumer Reports; Use for Employment Purposes.

This section amends section 604 of FCRA (15 U.S.C. 1681b), which provides the circumstances under which a CRA may furnish a consumer report. Specifically, this section also permits a CRA to furnish a consumer report to a person it has reason to believe intends to use the information, as a potential investor or servicer or current insurer, in connection with a valuation or assessment of the credit or prepayment risks associated with an existing credit obligation. In addition, this section narrows the situations in which a CRA may furnish a consumer report for a "legitimate business need" to only those in which: (1) the report is needed in connection with a business transaction initiated by the consumer, or (2) the recipient intends to review an account to determine whether the consumer continues to meet the terms of the account. Previously, the report could have been furnished for any legitimate business need in connection with a business transaction involving the consumer.

In addition, section 2403 prohibits a person from procuring a credit report for employment purposes unless: (1) it has clearly and conspicuously disclosed in writing to the consumer, in a separate document, that his or her consumer report may be obtained for employment purposes, and (2) the consumer has provided written authorization. This section also prohibits a CRA from providing a consumer report for employment purposes unless the employer has certified to the CRA that: (1) it has provided the required disclosures and obtained the written authorization, and (2) the information in the report will not be used in violation of any applicable Federal or State equal employment opportunity law. This section also requires the CRA to furnish a summary of the consumer's rights under FCRA with the report. Finally, this section provides that, before a person takes an adverse action against a consumer based on information contained in a credit report that is used for employment purposes, the person must provide the consumer with a copy of the report and a written description of the consumer's rights under FCRA.

Sec. 2404. Use of Consumer Reports for Prescreening; Prohibition on Unauthorized or Uncertified Use of Information.

Section 2404 amends section 604 of FCRA (15 U.S.C. 1681b) to permit the use of consumer reports for prescreening under certain circumstances. Specifically, section 2404 permits CRAs to provide to third parties, in connection with a credit or insurance transaction not initiated by a consumer: (1) consumer reports, if authorized by the consumer; and (2) lists of consumer names and addresses, identifiers not unique to the consumer that are used solely as identifiers, and additional information pertaining to the consumer that does not identify the relationship of the consumer with respect to a particular creditor or other entity if: (a) the transaction consists of a firm offer of credit or insurance (as defined in section 2402 of the Regulatory Paperwork Reduction Act), and (b) the consumer has not elected to have his or her name excluded from lists of names provided by the CRA. Section 2404 also mandates that CRAs create and maintain a comprehensive system to allow consumers to "opt out" of inclusion in lists compiled for prescreening purposes. In addition, this section prohibits a person from using or obtaining a consumer report unless it is for a purpose permitted under FCRA and the purpose is one that has been certified by a prospective user of the report through a general or specific certification. Finally, the FTC is given the authority to issue guidelines with respect to the use of consumer reports in connection with prescreening for insurance transactions.

Sec. 2405. Consumer Consent Required to Furnish Consumer Report Containing Medical Information.

This section amends section 604 of FCRA (15 U.S.C. 1681b) to prohibit a CRA from furnishing a consumer report that contains medical information about a consumer for employment purposes or in connection with a credit, insurance, or direct marketing transaction, unless authorized by the consumer.

Sec. 2406. Obsolete Information and Information Contained in Consumer Reports.

This section amends section 605 of FCRA (15 U.S.C. 1681c) to: (1) increase the threshold for credit transactions ($50,000 to $150,000), life insurance ($50,000 to $150,000), and employment ($20,000 to $75,000) exempted from the prohibition on reporting obsolete information; (2) commence the 7-year period for adverse information on bad debts that may be retained on a consumer report 180-days following the commencement of the delinquency which immediately preceded the collection activity (for information added to a consumer's file 455 days after enactment); (3) require that any report containing bankruptcy information list the chapter of the bankruptcy code under which the action was filed, if available, and include any relevant withdrawal information; (4) require that a credit reporting agency report when a consumer has voluntarily closed an account; and (5) require consumer reports to indicate a consumer's dispute with information contained in the credit report.

Sec. 2407. Compliance Procedures.

Among other things, this section amends section 607 of FCRA (15 U.S.C. 1681e) to provide that a CRA may not prohibit a user of a consumer report from disclosing the contents of the report to a consumer if an adverse action has been taken by the user against the consumer based on information in the credit report. In addition, section 2407 prohibits a person from obtaining a consumer report from a CRA for purposes of reselling the report unless the person discloses to the CRA the identity of the end-user of the report and the permissible purpose (pursuant to section 604 of FCRA) for which the report is furnished to the end-user. Finally, section 2407 requires resellers of consumer reports to ensure that the report is resold only for a purpose permitted under FCRA.

Sec. 2408. Consumer Disclosures.

This section amends sections 609 and 610 (15 U.S.C. 1681g and 1681h) to require CRAs to disclose to a consumer with proper identification, upon request: (1) all information in the consumer's file except information concerning credit scores or predictors (previously, the CRA had to release "the nature and substance" of all information except medical information to the consumer); (2) the identity of every recipient of the consumer's credit report, including end-users, for non-employment purposes within the previous year, instead of only the last six months as under prior law (consumers may still obtain the names of persons who obtained copies of the report for employment purposes with the past two years); and (3) a record of all inquiries received by the CRA within the past year for credit or insurance transactions not initiated by the consumer. This disclosure also must contain a written summary of the consumer's rights under FCRA in a form to be prescribed by the FTC. These disclosures must be in writing unless otherwise authorized by the consumer. This section also requires national CRAs to maintain a toll-free number at which CRA personnel are available to the consumer during normal business hours.

Sec. 2409. Procedures in Case of the Disputed Accuracy of Any Information in a Consumer's File.

This section amends the dispute resolution procedures in section 611 of FCRA (15 U.S.C. 1681i). Among other things, section 2409 requires a CRA to: (1) reinvestigate free-of-charge information contained in a consumer's credit report that is disputed by the consumer and to complete the reinvestigation within 30 days, with, in general, a 15-day extension if the CRA obtains relevant information from the consumer during the initial 30-day period; (2) notify the furnisher of the disputed information within five business days of receiving the consumer's reinvestigation request, and provide the furnisher with all relevant information regarding the dispute; (3) provide the consumer with written notice of the result of the reinvestigation within five business days of the completion of the reinvestigation; (4) promptly delete or modify any information in the report found as a result of the reinvestigation to be inaccurate, incomplete, or unverifiable; (5) provide the consumer a free copy of his or her consumer report if the report has been revised due to the reinvestigation; (6) maintain procedures to prevent the reappearance of any information deleted as a result of the reinvestigation unless the furnisher of the information certifies its accuracy; and (7) notify the consumer in writing, within five business days, if previously deleted information is reinstated. The CRA may terminate a reinvestigation if the CRA determines that the dispute is frivolous or irrelevant, or if the consumer fails to provide sufficient information. This section also requires all CRAs that do business on a nationwide basis to implement a system through which corrections of errors in credit reports can be communicated to other CRAs.

Sec. 2410. Charges for Certain Disclosures.

This provision amends section 612 of FCRA (15 U.S.C. 1618j) to limit the fee a CRA may charge a consumer for a copy of his or her credit report to $8. The FTC may modify this amount based on inflation. Section 2410 also increases from 30 to 60 days the amount of time in which a consumer may request a free copy of his or her consumer report if an adverse decision is made based on information in the credit report. Finally, section 2410 requires CRAs to provide one free copy of a consumer's credit report per year to consumers that are unemployed but intend to apply for a job within 60 days of requesting the report, are recipients of public assistance, or have a reason to believe that the report contains inaccurate information due to fraud.

Sec. 2411. Duties of Users of Consumer Reports.

Among other things, this section amends section 615 of FCRA (15 U.S.C. 1681m) to require that a person who takes an adverse action against a consumer based on the consumer's credit report must provide (orally, electronically or in writing) the consumer with: (1) the name, address, and telephone number of the CRA that provided the report, (2) a statement that the CRA did not make the decision to take adverse action and is unable to provide reasons as to why the adverse action was taken, and (3) information on the consumer's rights to receive of free copy of his or her credit report and to dispute the accuracy or completeness of the contents of the credit report.

Section 2411 also requires users of credit reports for prescreened solicitation purposes to make certain disclosures to consumers at the time each written solicitation is made. Among other things, prescreeners must notify consumers of their right to "opt out" and that an offer of credit or insurance may be revoked if the consumer does not meet the criteria used to select the consumer for the offer or does not provide the required collateral.

Whenever an affiliate denies credit for personal, family, or household purposes (in connection with a transaction intitiated by the consumer); denies or cancels insurance or otherwise unfavorably changes any insurance terms; or denies employment or takes any unfavorable employement action, and bases the adverse action either wholly or partly because of certain information that the user obtains from its iffiliate, section 2411 requires the user to: (1) notify the affected consumer of the action; and (2) on written request from the consumer within 60 days of notification, inform the consumer of the nature of the information on which the adverse action was based.

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