6500 - Consumer Protection
FINANCIAL INSTITUTIONS AND THE FAIR CREDIT REPORTING ACT
On April 25, 1971, the Fair Credit Reporting Act became effective (Public Law 91-508, Title VI of the Consumer Credit Protection Act). It is designed to insure fair and accurate reporting of information regarding consumers. It restricts the use of reports on consumers, and in certain situations requires the deletion of obsolete information. It requires notice to consumers when the use of a credit report contributes to the denial or increase in the cost of credit or insurance, or denial of employment. Disclosures must also be made when credit is denied or the cost is increased on the basis of other information from third parties, and when investigative consumer reports are used. Under the Act consumers are entitled to disclosure of the information maintained in their files by consumer reporting agencies, and procedures are provided for the correction of erroneous information. The collection, use, and referral of information on consumers for credit, insurance, employment and other purposes by financial institutions is directly affected by this Act.
Financial institutions are likely to be subject to the Act as credit grantors, purchasers of dealer paper, issuers of credit cards, and employers. In some instances, a financial institution may even be a consumer reporting agency under the Act as a result of the type of information about consumers that it provides to others. In general, the Act does not apply to commercial transactions.
This pamphlet contains the text of the Act and questions and answers explaining the Act's applicability to the operations of a financial institution. It has been prepared to inform financial institution examiners of the principal statutory requirements of the Act, and to serve as a guide for its enforcement. The pamphlet is not designed to answer all questions that might arise under the Act; rather, it is to assist financial institutions in developing a working knowledge of the Act and its requirements. The questions and answers are being distributed jointly by the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and Federal Home Loan Bank Board, and are applicable to the operations of financial institutions subject to the enforcement authority of these agencies.
The statute is unclear in some instances as to its application to financial institutions. Court decisions may ultimately construe provisions of the statute in ways contrary to the information in this pamphlet. Although copies of the pamphlet are being made available to financial institutions, the information in the pamphlet should not be relied upon without advice of counsel. Nevertheless, institutions that act in accordance with them will be regarded by examiners as acting in compliance with the Act.
The questions and answers are grouped into the following categories:
QUESTIONS AND ANSWERS *
I. The Financial Institution As A User Of Consumer Reports
1. May a financial institution obtain a consumer report from a consumer reporting agency in connection with a consumer's application for an extension of credit?
Yes. Reports may be obtained for this purpose, as well as certain other legitimate business purposes. Reports (known as "consumer reports" under the statute) may also be obtained in connection with the review or collection of an account, in connection with employment, or the underwriting of insurance. § 604 (See question 25 for a list of permissible purposes.)
2. Are new procedures required to obtain a consumer report?
Yes. The financial institution must identify itself and certify to the reporting agency (called a "consumer reporting agency" under the statute) the purposes for which the information is sought. It must also certify that the information will be used for no other purpose. § 607
3. Must certification be given each time a consumer report is requested?
No. A written blanket certification by the financial institution could cover all inquiries to a particular consumer reporting agency.
4. Does a financial institution which uses a consumer report have any new responsibilities to the consumer?
Yes. If a financial institution denies employment or if it denies credit or insurance for personal, family, or household purposes, or if it increases the cost, even partially because of information in a consumer report from a consumer reporting agency, it must make disclosures to the consumer. It must advise him orally or in writing that information in the report caused or contributed to the denial or increase in cost, and inform him of the name and address of the consumer reporting agency issuing the report. The financial institution is not required to disclose the nature of the information in the report. § 615(a) (See question 56 which deals with the denial of employment based on a consumer report.)
5. What would constitute a "denial" of credit?
If any condition is imposed, without which credit would not be extended, and it is imposed because of information in the consumer report, there is a "denial" which would require disclosures. This would include cases where a larger downpayment, a shorter maturity, a co-signer, guarantor, or additional collateral is required as a condition of extending credit. If a consumer applies, for example, for a credit card limit of $1,500, and only $1,000 is approved because of information in a consumer report, a "denial" has occurred.
6. Does a financial institution have any responsibility to the consumer when it obtains information from someone other than a consumer reporting agency?
Yes. Disclosures must be made when credit for personal, family, or household purposes is denied or the charge is increased even partially because of information obtained from someone other than a consumer reporting agency bearing upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Disclosure would not be required if the denial is based on the financial institution's own experience with the consumer, on his credit application, or on the institution's own credit policies. Where disclosures are required they must be made regardless of whether the information is obtained currently, or is already in the files. At the time credit is denied or the charge increased, the financial institution must inform the consumer orally or in writing of his right to make a written request for disclosure of the "nature" of the information. If the consumer requests this information within 60 days, the financial institution must tell him the nature of the information, orally or in writing. Note that these requirements apply only in the case of credit, and not in the case of insurance or employment where disclosures are required when a report from a consumer reporting agency is involved. § 615(b) (See question 4.)
7. What would the "nature" of the information include?
It would include information that the consumer's credit history with another financial institution is poor, his income is not what he represented it to be, he has not been employed or has not lived at the address indicated on the application for the period specified, that his debts are greater than represented, that a statement that his debts are current is inaccurate, and so on. The nature of the information should be given with enough detail to enable the consumer to question the accuracy of the information if he believes it is erroneous.
8. In disclosing the "nature" of the information, must the source be disclosed?
Although the statute does not require that the source be disclosed, it may be impossible to identify the "nature" of certain information without also revealing the source.
9. Do the requirements of disclosure by a user of information discussed in question 4 through 8 apply in the case of information about a co-maker, guarantor, or surety?
Yes. In these instances disclosures, as indicated above, should be made to the co-maker, guarantor or surety to whom the information relates.
10. Are these rules applicable when a financial institution decides not to honor an overdraft on a checking account on the basis of information from a third party?
Yes. If an overdraft is denied on the basis of information from any outside source, disclosures must be made. This is so whether or not the account ordinarily includes overdraft credit privileges (for example, "check credit"). No disclosures need to be made if the denial is based on the financial institution's general policy not to honor overdrafts.
11. Must disclosures be made when a financial institution which issues credit cards refuses to authorize a merchant to honor a credit card, or, itself, refuses to honor a credit card, because of information received from any outside source?
Yes. The issuer would have to disclose the name and address of the consumer reporting agency, or the consumer's right to know the nature of the information when it was received from someone other than a consumer reporting agency. In the latter instance, where a merchant is involved, it would appear that he would need to make disclosures on the issuer's behalf, since the consumer must receive notice of his right "at the time such adverse action is communicated to the consumer." However, if the information does not bear upon the customer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living (for example, if the information is simply that the card is lost, stolen or being used in an unauthorized manner), or if the information is not obtained from an outside source, disclosures would not be required.
12. Do these requirements for disclosure by users of information apply to business or commercial transactions?
No. The "user" requirements of disclosure apply only in the case of credit or insurance for personal, family, or household purposes, or in connection with employment. In other words, in the case of credit, they are applicable to the general type of consumer credit transactions covered by Regulation Z, but do not include agricultural credit.
13. Must a financial institution make any disclosure to the consumer when it denies credit or increases the charges solely on the basis of its prior transactions or experiences with the consumer, or on the basis of unverified information furnished by the consumer on his application?
No. There is no responsibility of disclosure in these circumstances. However, if credit is denied or the cost increased because of information obtained from third parties in the process of verifying information on the application, then disclosures must be made. § 603(d)(3)(A)
14. If one department or branch of a financial institution obtains information on the consumer from some other department or branch of the same financial institution as to its prior transactions or experiences, and denies credit or increases the charge based on this information, must disclosure be made?
No. Disclosures are required only when information is obtained from an outside source. However, disclosures must be made if the department or branch transmitting the information relays information obtained from third parties outside the financial institution, and the institution either denies or increases the cost of credit based upon the information.
15. What are some actions that a financial institution should consider taking to insure that it can comply with the requirements imposed on a user of consumer reports?
First, file the appropriate certification mentioned in question 2 with each consumer reporting agency whose services are expected to be used. Retain a file copy. Instruct employees that consumer reports may be obtained only for the purposes specified in the Act and certification. Develop procedures for making required disclosures to consumers when credit, insurance, or employment is denied, or when the cost of credit or insurance is increased, based on information obtained from outside sources. Record all inquiries to reporting agencies or others, as well as the information obtained through those inquires, so that accurate disclosure can be made to consumers.
Forms may be useful to advise the consumer of the name and address of the consumer reporting agency (when a consumer report is involved), or to advise him of his rights to request the nature of the information when other outside sources are involved.
II. The Financial Institution As A Consumer Reporting Agency
16. Is it possible that a financial institution could be a consumer reporting agency?
Yes. If the financial institution regularly passes on information in its files about a consumer, other than information solely as to its transactions or experiences with the consumer, it may be considered a consumer reporting agency. A consumer reporting agency is any entity which, for monetary fees, dues, or on a cooperative non-profit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports. § 603(d), (f)
17. Does this apply to the regular exchange of information between correspondent financial institutions, or between a holding company and its subsidiaries, or between subsidiaries of the holding company?
Yes. However, a branch or department of a financial institution may furnish information to another branch or department of that financial institution without becoming a consumer reporting agency.
18. What information may a financial institution give to third parties in response to inquiries about a consumer, without becoming a consumer reporting agency?
The financial institution may relate information solely as to its transactions or experiences with the consumer. For example, the financial institution may disclose that the consumer had a history of delinquency, or was current, and could give other information as to the status of any loans or deposits with it. To assure that it does not become a consumer reporting agency, it should not regularly give out information contained in credit applications bearing on the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. In addition it should not regularly give out information obtained in reports from consumer reporting agencies, or any other information obtained from third parties. For example, a financial institution which obtained information as a "user" may become a consumer reporting agency if it subsequently conveys the information to another financial institution.
19. Does a financial institution become a consumer reporting agency by transmitting information obtained from outside sources to another party involved in the same transaction?
No. The financial institution would not become a consumer reporting agency since it is a joint user of the same information with the other party involved in the same transac- tion. For example, a financial institution does not become a consumer reporting agency by transmitting such information to an insurer or guarantor (as in the case of FHA, VA, private insurers or insured student loan programs), or to a participating financial institution in connection with the same transaction, or to a collection agency in connection with its efforts to collect on the transaction. Furthermore, the procurement and transmission of a consumer report to FHA, VA, or other similar insuring or guaranteeing entity is for determining whether the entity will issue its insurance or guaranty to the holder of an obligation and not whether it will issue insurance to the consumer involved.
20. If a financial institution regularly obtains information for its customers about the sufficiency of funds to cover checks on drawee banks and gives the information to such customers does it become a consumer reporting agency?
21. If a financial institution becomes a consumer reporting agency are there any restrictions on the type of information which may be furnished?
Yes. Certain obsolete information may not be furnished by a consumer reporting agency. The Act defines obsolete information to include information about the following:
--Bankruptcies which antedate the report by more than 14 years;
--Suits and judgments, paid tax liens, and accounts placed for collection or charged to profit and loss which antedate the report by more than 7 years;
--Arrests, indictments, or convictions of crime which antedate the report by more than 7 years; and
--Any adverse information which antedates the report by more than 7 years.
Refer to § 605 of the Act for information as to when the time periods begin to run.
22. Are there any situations in which these restrictions on obsolete information do not apply?
Yes. They do not apply in connection with a credit transaction expected to involve $50,000 or more in principal, or the underwriting of insurance which is expected to involve a face amount of $50,000 or more. They also do not apply to information for employment at an annual salary of $20,000 or more. § 605(b).
23. Must a financial institution which is a consumer reporting agency remove this obsolete information from its own files after the 7- and 14-year periods, although it wishes to use the information solely for its own use?
No. It need not remove the information from its files. However, by not removing it, the financial institution may be exposed to civil liability in the event that prohibited information is negligently released. § 617
24. What are the responsibilities of a financial institution which regularly furnishes information other than as to its own transactions and experiences with a consumer and thus becomes a consumer reporting agency?
It must maintain procedures to assure that the obsolete information specified in the Act is not released, except where permitted as indicated in question 22. Procedures should be maintained to assure that the information is given only for the permissible purposes listed in § 604 of the Act. Reasonable procedures are necessary to assure maximum possible accuracy of the information in any consumer report. Certifications must be obtained from all users of the information that it will be used only for authorized purposes. The identity of new users must be verified. A consumer reporting agency may not furnish a consumer report to any person if it has reasonable grounds for believing that the report will not be used for an authorized purpose. § 604, § 605, § 607
In addition, a consumer reporting agency has other responsibilities to consumers as discussed in Section III of these questions and answers.
25. What are the authorized purposes for which consumer reports can be furnished?
Reports may be furnished only in the following circumstances:
--In response to a court order;
--In accordance with the written instructions of the consumer to whom it relates;
--For employment purposes;
--In connection with the underwriting of insurance;
--In connection with a determination of the consumer's eligibility for a license or other benefit granted by a governmental instrumentality in which the determination of an applicant's financial responsibility or status is required by law; or
--For any other legitimate business need in connection with a business transaction involving the consumer (for example, on a consumer who wishes to establish a checking account in the financial institution, or a builder checking the financial condition of a prospective buyer). § 604
26. Are there any other situations in which a consumer reporting agency may furnish information?
Yes. It may also furnish identifying information to a governmental agency for other purposes, limited to the consumer's name, address, employment and former addresses and places of employment. § 608
III. Responsibilities Of A Financial Institution To Consumers When It Is A Consumer Reporting Agency.
27. Does a financial institution that is a consumer reporting agency have responsibilities to consumers with respect to the information it has on file?
Yes. Upon the request and proper identification of any consumer, the financial institution must disclose to him the "nature and substance" of all information, except medical, that it has in its files. In addition, it must disclose the sources of the information, except in the case of investigative consumer reports as noted in question 49. The financial institution must also disclose the recipients of any consumer report within six months preceding the request (two years in the case of reports furnished for employment purposes). Accordingly, a financial institution which is a consumer reporting agency should keep a dated record of each recipient of information about a consumer, even when the inquiry is oral. § 609
28. Must the consumer make a specific request for disclosure of sources and recipients of reports?
No. A consumer's general request about information in his file requires disclosure of the nature and substance of the information and sources and recipients.
29. Are there any limitations on when disclosures must be made to consumers?
Yes. Disclosure need be made only during normal business hours and only on reasonable notice by the consumer. § 610(a)
30. Can the consumer require that disclosure be made either in person or by telephone?
Yes. Disclosures must be made to him if he appears in person and furnishes proper identification. Disclosures must also be made by telephone if the consumer makes a written request for telephone disclosure and properly identifies himself. In making disclosures by telephone, the financial institution can require that any toll charge must be borne by the consumer. § 610(b)
31. If the consumer asks for disclosure in person, can he be accompanied by another party?
Yes. He can be accompanied by one other person of his choosing, who must furnish reasonable identification. The consumer may be required to furnish a written statement granting permission to the financial institution to discuss the customer's file in that person's presence. § 610(d)
32. How must disclosures be made to the consumer?
Disclosures may be made either in writing or orally. If given orally, the consumer or his representative should be given reasonable opportunity to make notations of the information being disclosed.
Yes. It must provide trained personnel to explain any information furnished to the consumer. § 610(c)
34. What is the meaning of the consumer's "file"?
It means all of the information on that consumer (bearing on his credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living) recorded and retained by the financial institution, regardless of how the information is stored. Any financial institution which is a consumer reporting agency under the Act should maintain a central file of information on the consumer, or be capable of collecting all the information it might have on the consumer in its various departments or branches for disclosure to the consumer. § 603(g)
35. Can the financial institution charge the consumer for making disclosures to him in connection with his file?
Yes, depending on the time when the consumer requests information about his file. If he makes the request either within 30 days after receiving notice that a user of a consumer report has denied or increased the charge for credit or insurance (or denied employment) on the basis of the report, or within 30 days of notification from a debt collection agency affiliated with the financial institution that the consumer's credit rating may be, or has been, adversely affected, the information must be furnished free of charge. However, the financial institution may impose a reasonable charge for making disclosures to the consumer if the request is not made within the 30-day time limit, and the charge is indicated to the consumer prior to making disclosures. § 612
IV. Disputes About Material In A Consumer Reporting Agency's File
36. What must a financial institution which is a consumer reporting agency do when a consumer questions the completeness or accuracy of an item of information in his file?
The financial institution must, within a reasonable period of time, reinvestigate and record the current status of the questioned information, unless it has reasonable grounds to believe that the dispute is frivolous or irrelevant. The Act provides that the presence of information in the consumer's file contradicting his contention does not, in and of itself, constitute reasonable grounds for believing the dispute is frivolous or irrelevant. § 611(a)
37. What must the financial institution do if reinvestigation indicates that the information was inaccurate, or if it can no longer be verified?
The information must be promptly deleted from the file. § 611(a)
38. What if reinvestigation appears to confirm the information?
If reinvestigation does not resolve the dispute with the consumer, he is entitled to file a brief statement setting forth the nature of the dispute. This statement may be limited to 100 words, if the financial institution provides the consumer with assistance in writing a clear summary of the dispute. Unless there are reasonable grounds to believe that the dispute is frivolous or irrelevant, all subsequent consumer reports containing the information in question must clearly note that it is disputed by the consumer, and provide either the consumer's statement or a clear and accurate codification of summary of it. § 611(b), (c)
39. Is there any requirement that the financial institution notify past recipients of reports on the consumer in the event disputed information is deleted or a statement or notification of the dispute is filed by the consumer?
Yes. The consumer may request that a financial institution which is a consumer reporting agency provide prior recipients with notification that the information has been deleted, or a copy of the statement, codification or summary of the dispute. It must be given to any person specifically designated by the consumer who has received a consumer report containing the disputed information within the preceding two years for employment purposes, or within the preceding six months for any other purpose. § 611(d)
40. Must the financial institution disclose the consumer's right to request this notification to prior recipients?
Yes. The financial institution must orally or in writing clearly and conspicuously disclose to the consumer his right to make the request. The disclosure must be made at, or prior to, the time the information is deleted or the consumer's statement regarding the disputed information is received. § 611(d)
41. May a financial institution charge the consumer for furnishing notification of deleted or disputed material to prior recipients of his report?
Yes, depending on the time when the consumer makes the request, whether the financial institution normally charges users of reports for furnishing them, and whether the material is found to be inaccurate or can no longer be verified. If the consumer makes the request either within 30 days after he receives notice that a user of a report has denied or increased the charge for credit or insurance (or denied employment) on the basis of the report, or within 30 days of notification from a debt collection agency affiliated with the financial institution that the consumer's credit rating may be, or has been, adversely affected, the information must be furnished free of charge. If the request is received after 30 days, a charge may be made for furnishing notification to prior recipients. The amount must be indicated to the consumer prior to furnishing the information and it may not exceed the charge that the financial institution would impose on each designated recipient for a consumer report. If the financial institution makes no such charge, then it may not charge the consumer for furnishing information about the dispute to prior recipients. In any event, the statute prohibits the imposition of any charge for notifying prior recipients of the deletion of information which is found to be inaccurate or which can no longer be verified. § 612
V. The Financial Institution As A Purchaser Of Dealer Paper
42. Does a financial institution which regularly purchases dealer paper have specific responsibilities with regard to those transactions?
Yes, if the financial institution wishes to avoid becoming a consumer reporting agency. When a dealer calls the financial institution before credit is extended to inquire whether the institution will either extend credit directly to his customer or purchase the retail contract, and the financial institution denies the credit or increases the cost, even partially because of information from outside sources, the dealer and the financial institution must each make certain disclosures to the consumer to keep the financial institution from being considered a consumer reporting agency.
Whenever such a request is made, the dealer must advise the consumer of the name and address of the financial institution. If the financial institution denies credit or increases its cost, it must follow the normal procedures of a user of information from outside sources. If the financial institution's decision was based on a report from a consumer reporting agency, it must give the consumer the name and address of the agency. If its decision was based on information from a third party, which is not a consumer reporting agency, the financial institution must disclose to the consumer his right to make a written request to the financial institution within 60 days for disclosure of the nature of the information.
If the decision to deny credit or increase its cost is based on the financial institution's prior experience with the consumer or its general credit policy (for example, size of downpayment or maturity required) it would not need to make any disclosure to the consumer. However, a denial requiring disclosures occurs when any condition is imposed on the dealer contract on the basis of information from any outside source. This may include increasing the discount or dealer reserve or taking the paper with recourse. It may also include requiring a larger downpayment, shorter maturity, a co-signer or guarantor. § 603(d)(3)(C), § 615
43. If, subsequent to an extension of credit to a consumer, a financial institution sells the consumer's obligation to a third party (including a collection agency), and furnishes information on the consumer which was obtained from outside sources to the third party in connection with that sale, does the financial institution become a consumer reporting agency?
VI. Investigative Consumer Reports
44. What is an "investigative consumer report"?
This would be a consumer report compiled from personal interviews with neighbors, friends, associates, or others as to the consumer's character, general reputation, personal characteristics, or mode of living. § 603(e)
45. What are the responsibilities of a financial institution as a user of an investigative consumer report?
When such a report is requested from a consumer reporting agency, the financial institution must mail or deliver written notice to the consumer within three days that an investigative report including information as to his character, general reputation, personal characteristics, and mode of living may be made. He must also be informed that he may make a written request for the "nature and scope" of the investigation. If the consumer makes a written request within a reasonable period of time, the financial institution must make a complete and accurate disclosure of the "nature and scope" of the investigation. One way to do this (although not required by the law) would be to furnish the consumer a copy of any questionnaires to be used in the investigation. Within 5 days after the consumer's request (or 5 days after the time the report was first requested by the financial institution, whichever is later) these disclosures must be made in writing by mailing them or otherwise delivering them to the consumer. § 603(e), § 606, § 609(a)(2)
46. Are disclosures required in all instances when investigative consumer reports are used?
No. They are not applicable when the report is to be used for employment purposes and the consumer has not specifically applied for the position. § 606(a)(2) In addition, they are not required if the financial institution conducts an investigation for its own purposes, using its own employees.
47. What if a financial institution denies credit, insurance or employment or increases the charge for credit or insurance based upon information in an investigative consumer report?
The financial institution must make the "user" disclosures described in Section I.
48. Are special requirements imposed on a financial institution that is a consumer reporting agency if it prepares an investigative consumer report for a third party?
Yes. Adverse information (other than public record information) in such a report cannot be included in a subsequent consumer report unless verified in the process of making the subsequent report, or unless received, within the three months preceding the date the subsequent report is furnished. § 614
49. If a consumer requests disclosure of information in his file, must the financial institution disclose the nature and substance of the information contained in the investigative consumer report?
Yes. However, the source of information acquired solely for use in preparing an investigative consumer report and actually used for no other purpose, need not be disclosed. § 609(a)(2)
VII. Responsibilities Of A Financial Institution When It Furnishes Or Uses Consumer Reports For Employment Purposes
50. Can a financial institution give out information on a consumer in response to an inquiry about the consumer for employment purposes?
51. What is the definition of a report used for "employment purposes"?
52. Do the restrictions on furnishing obsolete information apply to information furnished by a financial institution for employment purposes if it is a consumer reporting agency?
Yes, except where the information is to be used in connection with the employment of an individual at an annual salary which equals, or which may reasonably be expected to equal, $20,000 or more. In that case, the restrictions on obsolete information do not apply. § 605(b)
53. Are there special requirements if a financial institution, which is a consumer reporting agency, furnishes a report for employment purposes which contains matters of public record (such as liens, judgments, pending law suits, arrests, convictions, etc.) which are likely to have an adverse effect on the consumer's ability to obtain employment?
Yes. At the time the information is reported to the user, the financial institution must notify the consumer of the fact that public record information is being reported, together with the name and address of the person to whom such information is being reported.
As an alternative, the financial institution need not make these disclosures if it maintains strict procedures designed to insure that, whenever public record information which is likely to have an adverse effect on a consumer's ability to obtain employment is reported, it is complete and up-to-date. The statute provides that items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments shall be considered up-to-date if the institution reports the current public record status of the item at the time the report is reported. § 613
54. In evaluating a potential employee, may a financial institution obtain a consumer report from a consumer reporting agency or other informaton from present or former employers?
Yes. However, financial institutions insured by the Federal Deposit Insurance Corporation should not rely entirely upon a consumer report to obtain information as to whether an individual has been convicted of a crime involving dishonesty or breach of trust to meet the statutory requirements in Section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829). Information relating to such crimes is relevant to meeting the requirements of Section 19 regardless of when the conviction occurred, whereas such information, if older than 7 years, will probably not be contained in a report from a consumer reporting agency, unless the report is to be used in connection with employment at an annual salary of $20,000 or more.
55. Must the consumer be notifed if the report takes the form of an investigative consumer report?
Generally yes, if the financial institution requests from a consumer reporting agency. However, notification would not be required if the report is obtained in connection with employment, promotion, or reassignment for which the consumer has not specifically applied. Otherwise, he must be notified of the request for an investigative report within 3 days of the request, and the financial institution must otherwise comply with § 606, as outlined in questions 45, 46 and 47.
56. Does the financial institution have any responsibilities to the prospective employee if employment is denied on the basis of a consumer report?
Yes. If employment is denied, even partially on the basis of information in a consumer report from a consumer reporting agency, the individual must be given the name and address of the consumer reporting agency making the report. However, if employment is denied because of information from a source other than a consumer reporting agency, no disclosures are necessary. § 615
VIII. Penalties, Liabilities And The Act's Effect On State Law
57. What are the civil liabilities for failing to comply with the Act?
The Act provides civil liabilities for either willfully or negligently failing to comply with the requirements of the Act. The liabilities apply to financial institutions as users of consumer reports and as consumer reporting agencies where they are acting in that ca- pacity. In the case of negligent noncompliance, a financial institution may be liable to the consumer for any actual damages sustained by the consumer, court costs and reasonable attorney's fees. If the failure to comply is willful, a financial institution may also be liable to the consumer for punitive damages. § 616, § 617
58. Is there any protection where a financial institution which is a "user" has made a good faith attempt to comply?
Yes. A user of information will not be held liable if he shows by a preponderance of evidence that at the time of an alleged violation he maintained reasonable procedures to assure compliance. § 606(c), § 615(c)
59. What is the statute of limitations on civil liability?
Any action must be brought within two years from the date on which the liability arises, except in certain situations where there has been a material and willful misrepresentation, in which case the action may be brought within two years after discovery by the consumer of the misrepresentation. § 618
60. Are there any criminal penalties?
Yes. The Act provides for a fine of not more than $5,000 or imprisonment of not more than one year, or both, in the case of any person who willfully and knowingly obtains information from a consumer reporting agency under false pretenses. The same criminal penalty can be imposed upon any officer or employee of a financial institution which is a consumer reporting agency who willfully and knowingly provides information from a financial institution's files about a consumer to a person not authorized to receive it. § 619, § 620
61. What effect does the Act have upon State law?
This Act does not annul, alter, affect, or exempt any person subject to the provisions of this Act from complying with the laws of any State with respect to the collection, distribution, or use of any information on consumers, except to the extent that those laws are inconsistent with any provisions of this Act, and then only to the extent of the inconsistency. § 622
* Answers should be read in the context of the surrounding questions and answers, which, in many cases, are structured to relate to each other. Go back to Text