The Fair Credit Reporting Act is a long and complex law that governs how credit reports may be maintained and used. Among its purposes is to ensure that credit reporting agencies "respect . . . the consumer's right to privacy."
The Act covers information collected by consumer reporting agencies such as credit bureaus, medical information companies, and tenant screening services. It limits the availability of truthful information about consumers to anyone who does not have a purpose specified in the Act. The Fair Credit Reporting Act requires companies that provide information to consumer reporting agencies to investigate disputed information. Also, users of the information for credit, insurance, or employment purposes must notify the consumer when an adverse action is taken on the basis of such reports. Further, users must identify the company that provided the report, so that the accuracy and completeness of the report may be verified or contested by the consumer.
The credit reporting industry is very valuable to the U.S. economy. It allows lenders to make better judgments about the level of risk they are taking when they make loans. This translates into better credit terms for people who are responsible and conscientious with their money, and a more vibrant economy for everyone.
By limiting who may receive accurate information about consumers, the Fair Credit Reporting Act probably prevents the benefits of credit reporting from being enjoyed even more broadly. One has to wonder who is benefitting if the idea of "privacy" allows people to disguise or avoid bad credit histories. And there are certainly more economic innovations that would have sprung up already if the credit reporting industry were allowed to make more information available to more participants in the economy.
While the sections of the Fair Credit Reporting Act that induce consumer reporting agencies to keep accurate records certainly appear laudable, they track closely to the preexisting interests of those consumer reporting companies. Placing them in federal law adds little to the credit reporting system other than to place credit bureaus in fear of lawsuits and administrative punishments when they engage in poor business practices.
The Fair Credit Reporting Act preempts most lawsuits based on the privacy torts, substituting for them lawsuits based on failure to comply with the Act. This puts the credit reporting industry in the position of obeying a static statutory legal regime, rather than one than allows room for innovation consistent with consumer protection.