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6500 - Consumer Protection
{{p.7197}}
FDIC RELEASE: QUESTIONS AND ANSWERS
REGARDING THE APPLICABILITY
OF THE FAIR
CREDIT REPORTING ACT TO THE OPERATIONS OF
BANKS
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:
|
|
Page
Number |
|---|
| I. |
The Financial Institution As A User Of Consumer
Reports 1-15 |
7198-7200 |
| II. |
The Financial Institution
As A Consumer Reporting Agency 16-26 |
7200-7202 |
| III.
|
Responsibilities Of A Financial Institution To Consumers When It
Is A Consumer Reporting Agency 27-35 |
7202-7203 |
| IV.
|
Disputes About Material In A Consumer Reporting Agency's File
36-41 |
7203-7204 |
| V. |
The Financial Institution As A
Purchaser Of Dealer Paper 42-43 |
7204 |
| VI.
|
Investigative Consumer Reports 44-49
|
7205
|
{{p.7198}}
| VII.
|
Responsibilities Of A Financial Institution When It Furnishes Or
Uses Consumer Reports For Employment Purposes 50-56
|
7205-7206 |
|---|
| VIII. |
Penalties, Liabilities And The Act's Effect
On State Law 57-61 |
7206-7207
|
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
{{p.7199}}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
{{p.7200}}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-
{{p.7201}}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?
No.
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;
--In connection with an extension of credit involving the
consumer (or review or collection of his account);
{{p.7202}}
--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.
33. Does the financial institution have to explain the information
in the consumer's file?
{{p.7203}}
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
{{p.7204}}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?
No. Such a transaction is a business transaction which
is generally beyond the scope of the Act.
{{p.7205}}
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?
Yes. However, if it regularly furnishes information
other than as to its own transactions or experiences with the
individual, it may become a consumer reporting agency.
§ 603(d),
§ 604
51. What is the definition of a report used for "employment
purposes"?
It means a report used for the purpose of evaluating a consumer for
employment, promotion, reassignment or retention as an employee.
§ 603(h)
{{p.7206}}
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-
{{12-31-85 p.7207}}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
[The page following this is 7209.]
* 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
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