A consumer’s credit report contains valuable information for companies to use when learning more about their consumers — but as a business, you’ve got to be sure that you’re requesting and using credit report compliance according to FTC regulations. Businesses that disregard guidelines in the Fair Credit Reporting Act can easily be caught and fined — and the consequences can be harsh.
Learn more about how to avoid pitfalls when obtaining and using credit data by following the tips below.
1. Know what is — and is not — considered a permissible purpose when obtaining credit reports. Section 604 of the Fair Credit Reporting Act clearly outlines the “permissible purposes” of consumer reports. According to the permissible purposes listed, a company may obtain and use a consumer credit report: for a court or grand jury subpoenas; with a consumer’s written instruction; for the extension of credit; for employment purposes; for the underwriting of insurance; for legitimate business need in connection to a business transaction initiated by the consumer; to review of consumer’s qualifications to meet the terms of an account; to determine a consumer’s eligibility for a license or other government benefit; for use by investors, servicers, or insurers in assessing the credit or prepayment risks associated with a credit obligation; and for use by state and local officials in relation to child support.
Read the entire section in full for further details related to each one of these purposes, and note that purposes like “for the creation of marketing strategies” is not listed. As recent legal action against Florida-based credit reporting company Clarity Inc. shows, obtaining credit reports for marketing purposes is illegal. Although regulations regarding obtaining consumer information through prescreened lists allow companies some flexibility in obtaining consumer credit information, note that the law clearly states that users on such list must be granted a firm offer of credit from the company.
2. Fully investigate consumer disputes. According a 2012 study on the fairness and accuracy of credit reports by the Fair Trade Commission, roughly 20% of consumers studied disputed errors on their credit reports. With this in mind, your company should be prepared to receive disputes from consumers about their credit reports — and you are legally required to investigate each dispute in full. As the legal action against Clarity also shows, failure to follow up on consumer disputes can result in fines. As Section 611 of the Fair Credit Reporting Act explains in detail, users of credit reports are to conduct a “reasonable reinvestigation” into disputes and follow up within 30 days of the dispute, free of charge to the consumer.
3. When in doubt, ask an expert. If you’re unfamiliar with the rules regarding consumer credit reports, it’s best to seek expert advice before requesting, obtaining, or using credit information at your company. By understanding the Fair Credit Reporting Act to the fullest, you’ll know how to avoid credit report pitfalls at your company. Learn more about how to safely obtain and use consumer credit information by contacting us.