Preventing Discrimatory Lending: The Fair Credit Reporting Act of 1970

Businesses and creditors have for years kept information about the people who use their business, using this information to determine whether to continue offering an individual services. Until the advent of modern technology making it easier to reliably send information across long distances, these records were usually only used internally or in specific locations.

However, beginning in the eighteenth and nineteenth centuries, businesses began sharing these records with each other on a much larger scale, which is the basis for the modern credit report.

As is often the case, with no oversight banks, mortgage lenders, and other creditors were quick to abuse this system. They began storing all sorts of personal information in credit reports, including race, gender, religion, and sexual preference. Worse, the lenders would then use this information to deny or approve a loan.

To help address this problem, the Fair Credit Reporting Act was passed in 1970. Since then, the law has been changed many times, but its premise, to regulate the credit reporting industry, remains the same.

What is the Fair Credit Reporting Act?

The Fair Credit Reporting Act helps to regulate both credit reporting agencies, as well as who can provide information to these agencies.

There are three main credit reporting agencies, Equifax, TransUnion, and Experian. These agencies compile information about how a person uses their credit lines, including tracking payment history.

Regulating the Credit Reporting Agencies

As part of the Fair Credit Reporting Act, these agencies are required to ensure that there is a way for consumers to address errors on their credit report and that these errors are removed in a timely manner. They are also not allowed to keep information indefinitely and in most cases can only cover the last 7 years, although bankruptcies can be kept on a credit report for up to 10 years.

Only recently, consumers were given the right to see a copy of their credit report for free and purchase a copy for a fair price.

While a big part of the Fair Credit Reporting Act is aimed at regulating credit reporting agencies, it also deals with who can report information to these agencies and what type of information can be added to a credit report.

Regulating the Companies that Add Information to Credit Reports

As part of the Fair Credit Reporting Act, agencies that report information to credit reporting agencies must:

• Make an Effort to provide accurate and current information
• Investigate consumer disputes and fix errors in a timely fashion
• Report to consumers, both before and after, that they have added something negative to their credit report

The Fair Credit Reporting Act, a Step in the Right Direction

The Fair Credit Reporting Act also puts limits on who can report information to credit reporting agencies, which is usually limited to banks, credit unions, and other creditors. It also put regulations on how credit reports can be used for background checks by employers.

While the Fair Credit Reporting Act took steps to help make the credit reporting industry more transparent and less discriminatory, it still has a long way to go and it would require a number of other laws to bring the credit industry under better control.