Creditworthiness plays a critical role in the world of financial transactions. It signifies a consumer’s ability to obtain loans, mortgages, or other financial services and benefits. A lower credit score, on the contrary, may deprive a consumer of such opportunities.
In such an intricate landscape of credit reporting, one regulation that ensures that businesses maintain fair and accurate reports of consumer creditworthiness is the Fair Credit Reporting Act (FCRA).
Businesses that fail to maintain fair and accurate credit reports are subject to heavy fines and penalties. Read on to learn about the aspects that constitute a violation under FCRA and the respective penalties.
What is the Fair Credit Reporting Act (FCRA)?
The Fair Credit Reporting Act was enacted in 1970 to regulate credit reporting agencies (CRAs). These agencies collect consumer credit or financial transaction information from various sources to create a credit report. These reports are then obtained by investigating entities, employers, banks, financial institutions, and lenders. The reports are used for various purposes, including but not limited to legal investigation, loan sanction, background checks, and mortgage screening.
The act received a comprehensive list of amendments in 2003 by the 108th Congress under the Fair and Accurate Credit Transactions Act (FACTA). The amendments introduced many new provisions to the act and improved rights for consumers and identity theft victims. One critical right that FCRA provides consumers is the right to dispute or file a complaint against violation.
Learn More About FCRA Consumer Rights Here
Who Enforces the FCRA?
The Dodd-Frank Act transferred most of the rulemaking responsibilities added to this Act by the FACTA and the Credit CARD Act to the Consumer Financial Protection Bureau (CFPB). However, the Federal Trade Commission (FTC) is authorized to enforce compliance with the FCRA.
This enforcement extends to consumer reporting agencies and all other entities subject to the FCRA, except when specific enforcement responsibilities are assigned to other government agencies in specific circumstances. Therefore, apart from the FTC, other government agencies such as federal banking agencies and the Securities and Exchange Commission are also responsible for enforcing FCRA compliance under specific circumstances.
Types of FCRA Violations & Penalties for Non-Compliance
If any person intentionally fails to comply with the requirements of the FCRA, they can be held liable to the affected consumer. The damages may include actual losses incurred by the consumer, punitive damages determined by the court, and the costs and reasonable attorney’s fees for successful legal actions. The FCRA discusses different types of violations and their respective penalties and fines. Let’s take a brief look at those violations.
Civil Liability for Willful Non-Compliance
Provisions and penalties for willful non-compliance are provided under section § 616. [15 U.S.C. § 1681n]. The section is further divided into subsections that separately discuss civil liabilities for non-compliance with the customer and with the consumer reporting agency. Civil penalties for non-compliance with the provisions of the FCRA are as below.
In General
Any person who willfully fails to comply with any requirement specified under this law concerning a consumer is accountable to that consumer for a sum comprising:
- A - The actual damages suffered by the consumer due to the failure, or damages ranging from not less than $100 to not more than $1,000; or
B - In the instance of a natural person being liable for obtaining a consumer report under false pretenses or knowingly without a permissible purpose, the greater of actual damages sustained by the consumer or $1,000.
- Punitive damages determined by the court; and
- In the event of a successful legal action to enforce any liability under this law, the costs incurred during the action, along with reasonable attorney's fees, as decided by the court.
Knowing Non-Compliance
In the case of obtaining a consumer’s report from a consumer reporting agency under false pretenses or knowingly obtaining it without any permissible purpose shall be liable to the consumer reporting agency for actual damages sustained by the consumer reporting agency or $ 1,000, whichever is greater.
In case of an unsuccessful pleading, motion, or other paper that was filed in bad faith or for the purpose of harassment, the court shall award a reasonable attorney’s fee to the prevailing party.
Civil Penalty for Negligent Non-Compliance
Provisions and penalties for negligent violations are provided under section § 617. [15 U.S.C. § 1681o]. Any person who demonstrates negligence by failing to comply with any requirement established under this law concerning a consumer is responsible to the consumer for an amount comprising:
- Any actual damages incurred by the consumer due to the failure; and
- In the event of a successful legal action to enforce any liability, the costs associated with the action, as well as reasonable attorney's fees determined by the court.
In case of an unsuccessful pleading, motion, or other document that was filed in bad faith or for the purpose of harassment, the court shall award the prevailing party the reasonable attorney’s fee.
False Pretenses
The law deters fraudulent activities and cases done knowingly under false pretenses. The FCRA penalizes anyone who obtains consumer information from the CRA under false pretenses. As specified under the United States Code, the conduct is punishable by a fine, imprisonment for up to 2 years, or both.
Unauthorized Disclosure
Under section § 620. [15 U.S.C. § 1681r] of the FCRA, any officer or employee of the consumer reporting agency who knowingly or willfully provides consumer’s information from the agency’s files to any person not authorized to access the information shall be fined or imprisoned for not more than 2 years or both.
Administrative Enforcement
If there is a known violation that constitutes a pattern or practice of violations under this law, the Federal Trade Commission (FTC) has the authority to initiate a civil action in a U.S. district court against any individual or entity that breaches this law. In such legal proceedings, the party in violation may be subject to a civil penalty of up to $2,500 per violation.
Jurisdiction of Courts and Limitation of Actions
Legal action to enforce liability can be brought in any competent US district court. However, the action shall be filed no later than:
- 2 years after the discovery by the plaintiff of the violation forming the basis of such liability; or
- 5 years after the date on which the violation that is the basis for such liability occurs.
Best Practices to Avoid the FCRA Penalties
Non-compliance with the FCRA leads to not only severe legal consequences but also reputational damage and loss of consumer trust. Here are some of the best practices that businesses may consider to avoid FCRA violations and penalties.
Staff Training
As part of the FCRA provisions, it is critical for organizations to train employees about the FCRA obligations and violations. Regular sessions should be conducted to educate employees on how to handle consumer information, especially sensitive data.
Create Robust Security Policies
Create and establish robust data security policies and controls to protect consumer information. Sensitive data masking, encryption, and robust access controls are some of the crucial elements of a good data security posture.
Consent Acquisition Management Process
Establish smooth consent acquisition and management processes. Ensure transparency by notifying the consumer about the purpose of collection via the consent notice.
Define Permissible Purposes for Using Consumer Reports
Clearly define and establish the “permissible purposes” for accessing and using consumer credit reports. Also, educate the personnel about the exceptions and limitations provided under the FCRA regarding permissible purposes.
Mechanism for Handling Consumer Rights
Establish and streamline the process of handling consumer rights. Timely resolution of consumer rights enables compliance and demonstrates fair and accurate reporting.
Conclusion
Compliance with FCRA is a legal requirement and a strategic step towards ensuring fair and accurate handling of consumer information, ultimately leading to enhanced consumer trust. Securiti PrivacyOps, an integrated module of the Data Command Center, leverages sensitive data intelligence and AI automation to simplify privacy obligations. Request a demo to learn more about PrivacyOps.
