The Fair Credit Reporting Act (FCRA) establishes rules that govern how consumer data is collected, shared, and used in decisions about housing, employment, and credit. FCRA applies to consumer reporting agencies that compile credit reports and businesses that request those reports. This includes landlords, employers, lenders, and other businesses.
This federal law was created to make sure any consumer information used in decisions is accurate, private, and fair, setting rules for who can access credit reports and how the information must be handled.
If you are pulling consumer credit reports, you must follow requirements related to disclosure, consent, and notification, when using this information.
Why the Fair Credit Reporting Act Exists
Before the Fair Credit Reporting Act was enacted, consumers often had little visibility into the information contained in their credit files. Mistakes or inaccuracies could affect housing, loan, or credit decisions, and individuals had little recourse to correct bad data.
While FCRA is detailed, there are three keys to answering the question, what is FCRA? The main provisions include:
- Ensuring that consumer reporting agencies maintain accurate records.
- Limiting access to consumer credit checks or renter credit checks only when permission is given, and when a legitimate reason for doing so exits.
- Restricting how information can be shared.
How FCRA Applies to Rental Screening
Rental screening is one of the most common situations where the law applies. Landlords frequently review tenant background reports when evaluating applicants. A renter credit check allows you to review financial history before approving a lease. However, because these reports contain consumer data, landlords must follow the rules established under FCRA.
This means:
- Getting permission ahead of time to run reports
- Having a legitimate reason for running a report
- Using the information responsibly
Tenant Rights Under FCRA
The Fair Credit Reporting Act provides several important protections for renters:
- Notification of adverse decisions: Tenants must be informed if a rental application decision was influenced by information in a screening report.
- Right to review reports: Consumers can request access to the report used during the screening process.
- Right to dispute inaccuracies: Individuals can challenge incorrect or outdated information that appears in a report.
Landlords must also follow Fair Housing Act regulations to avoid discriminatory practices. Make sure you investigate state and local laws. Some restrict what information you can use.
How FCRA Applies to Employment and Credit Decisions
The Fair Credit Reporting Act also applies to many situations where businesses rely on consumer reports. Employers may use background reports when evaluating job applicants. Lenders use consumer reports when evaluating credit applications. Financial institutions rely on credit data to assess risk when approving loans, credit cards, or other financial products.
In all of these cases, the law requires businesses to follow specific procedures when requesting and using consumer reports.
For pre-employment screening, there is a patchwork of state and local laws you’ll also need to follow. In some locations, your ability to request a consumer credit report is limited to specific roles, and some information may not be used to make decisions.
Why Compliance Matters for Businesses
Failing to follow FCRA and other legal requirements can expose you to significant legal risk and regulatory penalties. Pulling a credit report or doing a renter credit check without permission or a reasonable purpose can result in fines of $1,000 per incident, and subsequent lawsuits.
Understanding FCRA in Today’s Screening Environment
Consumer credit reports play an important role in decisions related to housing, employment, and financial services. Understanding the FCRA, FHA, and state and local regulations is crucial to make sure you’re protected. You’ll want to check with your labor attorney to review your policies and practices to make sure you remain compliant.
Command Credit provides access to consumer credit reports and screening data that support compliant renter credit check and background screening practices, without having to sign up for a long-term subscription. You can pull reports on demand from Equifax, Experian, and TransUnion as well as tri-merge reports.
Contact Command Credit today to get started.