[Code of Federal Regulations] [Title 16, Volume 1] [Revised as of January 1, 2003] From the U.S. Government Printing Office via GPO Access [CITE: 16CFR600.2] [Page 488-515] TITLE 16--COMMERCIAL PRACTICES CHAPTER I--FEDERAL TRADE COMMISSION PART 600--STATEMENTS OF GENERAL POLICY OR INTERPRETATIONS--Table of Contents Sec. 600.2 Legal effect. (a) The interpretations in the Commentary are not trade regulation rules or regulations, and, as provided in Sec. 1.73 of the Commission's rules, they do not have the force or effect of statutory provisions. (b) The regulations of the Commission relating to the administration of the Fair Credit Reporting Act are found in subpart H of 16 CFR part 1 (Secs. 1.71-1.73). Appendix to Part 600--Commentary on the Fair Credit Reporting Act Introduction 1. Official status. This Commentary contains interpretations of the Federal Trade Commission (Commission) of the Fair Credit Reporting Act (FCRA). It is a guideline intended to clarify how the Commission will construe the FCRA in light of Congressional intent as reflected in the statute and its legislative history. The Commentary does not have the force or effect of regulations or statutory provisions, and its contents may be revised and updated as the Commission considers necessary or appropriate. 2. Status of previous interpretations. The Commentary primarily addresses issues discussed in the Commission's earlier formal interpretations of the FCRA (16 CFR 600.1-600.8), which are hereby superseded, in the staff's manual entitled ``Compliance With the Fair Credit Reporting Act'' (the current edition of which was published in May 1973, and revised in January 1977 and March 1979), and in informal staff opinion letters responding to public requests for interpretations, and it also reflects the results of the Commission's FCRA enforcement program. It is intended to synthesize the Commission's views and give clear advice on important issues. The Commentary sets forth some interpretations that differ from those previously expressed by the Commission or its staff, and is intended to supersede all prior formal Commission interpretations, informal staff opinion letters, and the staff manual cited above. 3. Statutory references. Reference to several different provisions of the FCRA is frequently required in order to make a complete analysis of an issue. For various sections and subsections of the FCRA, the Commentary discusses the most important and common overlapping references under the heading ``Relation to other (sub)sections.'' 4. Issuance of staff interpretations. The Commission will revise and update the Commentary as it deems necessary, based on the staff's experience in responding to public inquiries about, and enforcing, the FCRA. The Commission welcomes input from interested industry and consumer groups and other public parties on the Commentary and on issues discussed in it. Staff will continue to respond to requests for informal staff interpretations. In proposing revisions of the Commentary, staff will consider and, where appropriate, recommend that the Commentary incorporate issues raised in correspondence [[Page 489]] and other public contacts, as well as in connection with the Commission's enforcement efforts. Therefore, a party may raise an issue for inclusion in future editions of the Commentary without making any formal submission or request to that effect. However, requests for formal Commission interpretations of the FCRA may also still be made pursuant to the procedures set forth in the Commission's Rules (16 CFR 1.73). 5. Commentary citations to FCRA. The Commentary should be used in conjunction with the text of the statute. In some cases, the Commentary includes an abbreviated description of the statute, rather than the full text, as a preamble to discussion of issues pertaining to various sections and subsections. These summary statements of the law should not be used as a substitute for the statutory text. Section 601--Short Title ``This title may be cited as the Fair Credit Reporting Act.'' The Fair Credit Reporting Act (FCRA) is title VI of the Consumer Credit Protection Act, which also includes other Federal statutes relating to consumer credit, such as the Truth in Lending Act (title I), the Equal Credit Opportunity Act (Title VII), and the Fair Debt Collection Practices Act (title VIII). Section 602--Findings and Purpose Section 602 recites the Congressional findings regarding the significant role of consumer reporting agencies in the nation's financial system, and states that the basic purpose of the FCRA is to require consumer reporting agencies to adopt reasonable procedures for providing information to credit grantors, insurers, employers and others in a manner that is fair and equitable to the consumer with regard to confidentiality, accuracy, and the proper use of such information. Section 603--Definitions and Rules of Construction Section 603(a) states that ``definitions and rules of construction set forth in this section are applicable for the purposes of this title.'' Section 603(b) defines person to mean ``any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency or other entity.'' 1. Relation to Other Sections Certain ``persons'' must comply with the Act. The term consumer reporting agency is defined in section 603(f) to include certain ``persons.'' Section 619 subjects any ``person'' who knowingly and willfully obtains information from a consumer reporting agency on a consumer under false pretenses to criminal sanctions. Requirements relating to report users apply to ``persons.'' Section 606 imposes disclosure obligations on ``persons'' who obtain investigative reports or cause them to be prepared. Section 615(c) uses the term person to denote those subject to disclosure obligations under sections 615(a) and 615(b). 2. Examples The term ``person'' includes universities, creditors, collection agencies, insurance companies, private investigators, and employers. Section 603(c) defines the term consumer to mean ``an individual.'' 1. Relation to Other Sections The term ``consumer'' denotes an individual entitled to the Act's protections. Consumer reports, as defined in section 603(d), are reports about consumers. A ``consumer'' is entitled to obtain disclosures under section 609 from consumer reporting agencies and to take certain steps that require such agencies to follow procedures in section 611, concerning disputes about the completeness or accuracy of items of information in the consumer's file. Disclosures required under section 606 by one procuring an investigative report must be made to the ``consumer'' on whom the report is sought. Notifications required by section 615 must be provided to ``consumers.'' A ``consumer'' is the party entitled to sue for willful noncompliance (section 616) or negligent noncompliance (section 617) with the Act's requirements. 2. General The definition includes only a natural person. It does not include artificial entities (e.g., partnerships, corporations, trusts, estates, cooperatives, associations) or entities created by statute (e.g., governments, governmental subdivisions or agencies). Section 603(d) defines consumer report to mean ``any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (1) credit or insurance to be used primarily for personal, family, or household purposes, or (2) employment purposes, or (3) other purposes authorized under Section 604'' (with three specific exclusions). 1. Relation to ``Consumer Reporting Agency'' To be a ``consumer report,'' the information must be furnished by a ``consumer reporting agency'' as that term is defined in [[Page 490]] section 603(f). Conversely, the term ``consumer reporting agency'' is restricted to persons that regularly engage in assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing ``consumer reports'' to third parties. In other words, the terms ``consumer reporting agency'' in section 603(f) and ``consumer report'' in section 603 (d)) are mutually dependent and must therefore be construed together. For example, information is not a ``consumer report'' if the person furnishing the information is clearly not a ``consumer reporting agency'' (e.g., if the person furnishing the information does not regularly furnish such information for monetary fees or on a cooperative nonprofit basis). 2. Relation to the Applicability of the Act If a report is not a ``consumer report,'' then the Act does not usually apply to it.\1\ For example, because a commercial credit report is not a report on a consumer, it is not a ``consumer report''. Therefore, the user need not notify the subject of the name and address of the credit bureau when taking adverse action, and the provider need not omit ``obsolete'' information, as would be required if the FCRA applied. --------------------------------------------------------------------------- \1\ However, a creditor denying a consumer's application based on a report from a ``third party'' must give the disclosure required by section 615(b). --------------------------------------------------------------------------- 3. Report Concerning a ``Consumer's'' Attributes and History A. General. A ``consumer report'' is a report on a ``consumer'' to be used for certain purposes involving that ``consumer.'' B. Artificial entities. Reports about corporations, associations, and other collective entities are not consumer reports, and the Act does not apply to them. C. Reports on businesses for business purposes. Reports used to determine the eligibility of a business, rather than a consumer, for certain purposes, are not consumer reports and the FCRA does not apply to them, even if they contain information on individuals, because Congress did not intend for the FCRA to apply to reports used for commercial purposes (see 116 Cong. Rec. 36572 (1970) (Conf. Report on H.R. 15073)). 4. ``(C)redit Worthiness, Credit Standing, Credit Capacity, Character, General Reputation, Personal Characteristics, or Mode of Living * * *'' A. General. To be a ``consumer report,'' the information must bear on at least one of the seven characteristics listed in this definition. B. Credit guides. Credit guides are listings, furnished by credit bureaus to credit grantors, that rate how well consumers pay their bills. Such guides are a series of ``consumer reports,'' because they contain information which is used for the purpose of serving as a factor in establishing the consumers' eligibility for credit. However, if they are coded (by identification such as social security number, driver's license number, or bank account number) so that the consumer's identity is not disclosed, they are not ``consumer reports'' until decoded. (See discussion of uncoded credit guides under section 604(3)(A), item 8 infra.) C. Motor vehicle reports. Motor vehicle reports are distributed by state motor vehicle departments, generally to insurance companies upon request, and usually reveal a consumer's entire driving record, including arrests for driving offenses. Such reports are consumer reports when they are sold by a Department of Motor Vehicles for insurance underwriting purposes and contain information bearing on the consumer's ``personal characteristics,'' such as arrest information. The Act's legislative history indicates Congress intended the Act to cover mutually beneficial exchanges of information between commercial enterprises rather than between governmental entities. Accordingly, these reports are not consumer reports when provided to other governmental authorities involved in licensing or law enforcement activities. (See discussion titled ``State Departments of Motor Vehicles,'' under section 603(f), item 10 infra.) D. Consumer lists. A list of the names of creditworthy individuals, or of individuals on whom credit bureaus have derogatory information, is a series of ``consumer reports'' because the information bears on credit worthiness. E. Public record information. A report solely of public record information is not a ``consumer report'' unless that information is provided by a consumer reporting agency, is collected or used for the purposes identified in section 603(d), and bears on at least one of the seven characteristics listed in the definition. Public record information relating to records of arrest, or the institution or disposition of civil or criminal proceedings, bears on one or more of these characteristics. F. Name and address. A report limited solely to the consumer's name and address alone, with no connotations as to credit worthiness or other characteristics, does not constitute a ``consumer report,'' if it does not bear on any of the seven factors. G. Rental characteristics. Reports about rental characteristics (e.g., consumers' evictions, rental payment histories, treatment of premises) are consumer reports, because they relate to character, general reputation, personal characteristics, or mode of living. [[Page 491]] 5. ``(U)sed or Expected to Be Used or Collected in Whole or in Part for the Purpose of Serving as a Factor in Establishing the Consumer's Eligibility * * *'' A. Law enforcement bulletins. Bulletins that are limited to a series of descriptions, sometimes accompanied by photographs, of individuals who are being sought by law enforcement authorities for alleged crimes are not a series of ``consumer reports'' because they have not been collected for use in evaluating consumers for credit, insurance, employment or other consumer purposes, and it cannot reasonably be anticipated they will be used for such purposes. B. Directories. Telephone directories and city directories, to the extent they only provide information regarding name, address and phone number, marital status, home ownership, and number of children, are not ``consumer reports,'' because the information is not used or expected to be used in evaluating consumers for credit, insurance, employment or other purposes and does not reflect on credit standing, credit worthiness, or any of the other factors. A list of names of individuals with checking accounts is not a series of consumer reports because the information does not bear on credit worthiness or any of the other factors. A trade directory, such as a list of all insurance agents licensed to do business in a state, is not a series of consumer reports because it is commercial information that would be used for commercial purposes. C. Use of prior consumer report in preparation. A report that would not otherwise be a consumer report may be a consumer report, notwithstanding the purpose for which it is furnished, if it includes a prior consumer report or information from consumer report files, because it would contain some information ``collected in whole or in part'' for consumer reporting purposes. For example, an insurance claims report would be a consumer report if a consumer report (or information from a consumer report) were used to prepare it. (See discussion, infra, in item 6-C under this subsection.) D. Use of reports for purposes not anticipated by the reporting party. The question arises whether a report that is not otherwise a consumer report is subject to the FCRA because the recipient subsequently uses the report for a permissible purpose. If the reporting party's procedures are such that it neither knows of nor should reasonably anticipate such use, the report is not a consumer report. If a reporting party has taken reasonable steps to insure that the report is not used for such a purpose, and if it neither knows of, nor can reasonably anticipate such use, the report should not be deemed a consumer report by virtue of uses beyond the reporting party's control. A reporting party might establish that it does not reasonably anticipate such use of the report by requiring the recipient to certify that the report will not be used for one of the purposes listed in section 604. (Such procedure may be compared to the requirement in section 607(a), discussed infra, that consumer reporting agencies furnishing consumer reports require that prospective users certify the purposes for which the information is sought and certify that the information will be used for no other purpose.) For example, a claims reporting service could use such a certification to avoid having its insurance claims reports deemed ``consumer reports'' if the report recipient/insurer were to use the report later for ``underwriting purposes'' under section 604(3)(C), such as terminating insurance coverage or raising the premium. 6. ``(E)stablishing the Consumer's Eligibility for (1) Credit or Insurance to Be Used Primarily for Personal, Family or Household Purposes, or (2) Employment Purposes, or (3) Other Purposes Authorized Under Section 60[hairsp]4'' A. Relation to section 604. Because section 603(d)(3) refers to ``purposes authorized under section 604'' (often described as ``permissible purposes'' of consumer reports), some of which overlap purposes enumerated in section 603 (e.g., 603(d)(1) and 603(d)(2)), sections 603 and 604 must be construed together, to determine what are ``consumer reports'' and ``permissible purposes'' under the two sections. See discussion infra, under section 604. B. Commercial credit or insurance. A report on a consumer for credit or insurance in connection with a business operated by the consumer is not a ``consumer report,'' and the Act does not apply to it. C. Insurance claims reports. (It is assumed that information in prior consumer reports is not used in claims reports. See discussion, [hairsp]supra, in item 5-C under this subsection.) Reports provided to insurers by claims investigation services solely to determine the validity of insurance claims are not consumer reports, because section 604(3)(C) specifically sets forth only underwriting (not claims) as an insurance-related purpose, and section 603(d)(1) deals specifically with eligibility for insurance and no other insurance-related purposes. To construe section 604(3)(E) as including reports furnished in connection with insurance claims would be to disregard the specific language of sections 604(3)(C) and 603(d)(1). D. Scope of employment purpose. A report that is used or is expected to be used or collected in whole or in part in connection with establishing an employee's eligibility for ``promotion, reassignment or retention,'' as well as to evaluate a job applicant, is a consumer report because sections 603(d)(2) and 604(3)(B) use the term ``employment purposes,'' which section 603(h) defines to include these situations. [[Page 492]] E. Bad check lists. A report indicating that an individual has issued bad checks, provided by printed list or otherwise, to a business for use in determining whether to accept consumers' checks tendered in transactions primarily for personal, family or household purposes, is a consumer report. The information furnished bears on consumers' character, general reputation and personal characteristics, and it is used or expected to be used in connection with business transactions involving consumers. F. Tenant screening reports. A report used to determine whether to rent a residence to a consumer is a consumer report, because it is used for a business transaction that the consumer wishes to enter into for personal, family or household purposes. 7. Exclusions From the Definition of ``Consumer Report'' A. ``(Any) reports containing information solely as to transactions or experiences between the consumer and the person making the report;''- -(1) Examples of Sources. The exemption applies to reports limited to transactions or experiences between the consumer and the entity making the report (e.g., retail stores, hospitals, present or former employers, banks, mortgage servicing companies, credit unions, or universities). (2) Information beyond the reporting entity's own transactions or experiences with the consumer. The exemption does not apply to reports by these entities of information beyond their own transactions or experiences with the consumer. An example is a creditor's or an insurance company's report of the reasons it cancelled credit or insurance, based on information from an outside source. (3) Opinions Concerning Transactions or Experiences The exemption applies to reports that are not limited to the facts, but also include opinions (e.g., use of the term ``slow pay'' to describe a consumer's transactions with a creditor), as long as the facts underlying the opinions involve only transactions or experiences between the consumer and the reporting entity. B. ``(A)ny authorization or approval of a specific extension of credit directly or indirectly by the issuer of a credit card or similar device;''--(1) General. The exemption applies to a credit or debit card issuer's written, oral, or electronic communication of its decision whether or not to authorize a charge, in response to a request from a merchant or other party that the consumer has asked to honor the card. C. ``(A)ny report in which a person who has been requested by a third party to make a specific extension of credit directly or indirectly to the consumer conveys his decision with respect to such request, if the third party advises the consumer of the name and address of the person to whom the request was made and such person makes the disclosures to the consumer required under section 615.''--(1) General. The exemption covers retailers' attempts to obtain credit for their individual customers from an outside source (such as a bank or a finance company). The communication by the financial institution of its decision whether to extend credit is not a ``consumer report'' if the retailer informs the customer of the name and address of the financial institution to which the application or contract is offered and the financial institution makes the disclosures required by section 615 of the Act. Such disclosures must be made only when there is a denial of, or increase in the charge for, credit or insurance. (See discussion of section 615, item 10, infra.) (2) Information included in the exemption. The exemption is not limited to a simple ``yes'' or ``no'' response, but includes the information constituting the basis for the credit denial, because it applies to ``any report.'' (3) How third party creditors can insure that the exemption applies. Creditors, who are requested by dealers or merchants to make such specific extensions of credit, can assure that communication of their decision to the dealer or merchant will be exempt under this section from the term ``consumer report,'' by having written agreements that require such parties to inform the consumer of the creditor's name and address and by complying with any applicable provisions of section 615. Section 603(e) defines ``investigative consumer report'' as ``a consumer report or portion thereof in which information on a consumer's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information. However, such information shall not include specific factual information on a consumer's credit record obtained directly from a creditor of the consumer or from a consumer reporting agency when such information was obtained directly from a creditor of the consumer or from the consumer.'' 1. Relation to Other Sections The term investigative consumer report denotes a subset of ``consumer report'' for which the Act imposes additional requirements on recipients and consumer reporting agencies. Persons procuring ``investigative consumer reports'' must make certain disclosures to the consumers who are the subjects of the reports, as required by section [[Page 493]] 606. Consumer reporting agencies must comply with section 614, when furnishing ``investigative consumer reports'' containing adverse information that is not a matter of public record. Consumer reporting agencies making disclosure to consumers pursuant to section 609 are not required to disclose ``sources of information acquired solely for use in preparing an investigative consumer report and actually used for no other purpose.'' 2. General An ``investigative consumer report'' is a type of ``consumer report'' that contains information that is both related to a consumer's character, general reputation, personal characteristics or mode of living and obtained by personal interviews with the consumer's neighbors, friends, associates or others. 3. Types of Sources Interviewed A report consisting of information from any third party concerning the subject's character (reputation, etc.) may be an investigative consumer report because the phrase ``obtained through personal interviews * * * with others'' includes any source that is a third party interviewee. A report containing interview information obtained solely from the subject is not an ``investigative consumer report.'' 4. Telephone Interviews A consumer report that contains information on a consumer's ``character, general reputation, personal characteristics or mode of living'' obtained through telephone interviews with third parties is an ``investigative consumer report,'' because ``personal interviews'' includes interviews conducted by telephone as well as in person. 5. Identity of Interviewer A consumer report is an ``investigative consumer report'' if personal interviews are used to obtain information reported on a consumer's ``character, general reputation, personal characteristics or mode of living,'' regardless of who conducted the interview. 6. Noninvestigative Information in ``Investigative Consumer Reports'' An ``investigative consumer report'' may also contain noninvestigative information, because the definition includes reports, a ``portion'' of which are investigative reports. 7. Exclusions From ``Investigative Consumer Reports'' A report that consists solely of information gathered from observation by one who drives by the consumer's residence is not an ``investigative consumer report,'' because it contains no information from ``personal interviews.'' Section 603(f) defines ``consumer reporting agency'' as ``any person which, for monetary fees, dues, or on a cooperative nonprofit 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.'' 1. Relation to Other Sections A. Duties imposed on ``consumer reporting agencies.'' The Act imposes a number of duties on ``consumer reporting agencies.'' They must have permissible purposes to furnish consumer reports (section 604), avoid furnishing obsolete adverse information in certain consumer reports (sections 605, 607(a)), adopt reasonable procedures to assure privacy (section 604, 607(a)), and accuracy (section 607(b)) of consumer reports, provide only limited disclosures to governmental agencies (section 608), provide consumers certain disclosures upon request (sections 609 and 610) at no cost or for a reasonable charge (section 612), follow certain procedures if a consumer disputes the completeness or accuracy of any item of information contained in his file (section 611), and follow certain procedures in reporting public record information for employment purposes or when reporting adverse information other than public record information in investigative consumer reports (sections 613, 614). B. Relation to ``consumer reports.'' The term consumer reporting agency, as defined in section 603(f), includes certain persons who assemble or evaluate information on individuals for the purpose of furnishing ``consumer reports'' to third parties. Conversely, section 603(d) defines the term consumer report to mean the communication of certain information by a ``consumer reporting agency.'' In other words, the terms ``consumer report'' in section 603(d) and ``consumer reporting agency'' as defined in section 603(f) are defined in a mutually dependent manner and must therefore be construed together. For example, a party is not a ``consumer reporting agency'' if it provides only information that is excepted from the definition of ``consumer report'' under section 603(d), such as reports limited to the party's own transactions or experiences with a consumer, or credit information on organizations. 2. Isolated Reports Parties that do not ``regularly'' engage in assembling or evaluating information for the purpose of furnishing consumer reports to third parties are not consumer reporting [[Page 494]] agencies. For example, a creditor that furnished information on a consumer to a governmental entity in connection with one of its investigations, would not ``regularly'' be making such disclosure for a fee or on a cooperative nonprofit basis, and therefore would not become a consumer reporting agency, even if the information exceeded the creditor's transactions or experiences with the consumer. 3. Provision of Credit Report to Report Subject A consumer report user does not become a consumer reporting agency by regularly giving a copy of the report, or otherwise disclosing it, to the consumer who is the subject of the report, because it is not disclosing the information to a ``third party.'' 4. Employment Agency An employment agency that routinely obtains information on job applicants from their former employers and furnishes the information to prospective employers is a consumer reporting agency. 5. Information Compiled for Insurance Underwriting A business that compiles claim payment histories on individuals from insurers and furnishes them to insurance companies for use in underwriting decisions concerning those individuals is a consumer reporting agency. 6. Private Investigators and Detective Agencies Private investigators and detective agencies that regularly obtain consumer reports and furnish them to clients may thereby become consumer reporting agencies. 7. Collection Agencies and Creditors Collection agencies and creditors become consumer reporting agencies if they regularly furnish information beyond their transactions or experiences with consumers to third parties for use in connection with consumers' transactions. 8. Joint Users of Consumer Reports Entities that share consumer reports with others that are jointly involved in decisions for which there are permissible purposes to obtain the reports may be ``joint users'' rather than consumer reporting agencies. For example, if a lender forwards consumer reports to governmental agencies administering loan guarantee programs (or to other prospective loan insurers or guarantors), or to other parties whose approval is needed before it grants credit, or to another creditor for use in considering a consumer's loan application at the consumer's request, the lender does not become a consumer reporting agency by virtue of such action. An agent or employee that obtains consumer reports does not become a consumer reporting agency by sharing such reports with its principal or employer in connection with the purposes for which the reports were initially obtained. 9. Loan Exchanges Loan exchanges, which are generally owned and operated on a cooperative basis by consumer finance companies, constitute a mechanism whereby each member furnishes the exchange information concerning the full identity and loan amount of each of its borrowers, and receives information from the exchange concerning the number and types of outstanding loans for each of its applicants. A loan exchange or any other exchange that regularly collects information bearing on decisions to grant consumers credit or insurance for personal, family or household purposes, or employment, is a ``consumer reporting agency.'' 10. State Departments of Motor Vehicles State motor vehicle departments are ``consumer reporting agencies'' if they regularly furnish motor vehicle reports containing information bearing on the consumer's ``personal characteristics,'' such as arrest information, to insurance companies for insurance underwriting purposes. (See discussion of [hairsp]motor vehicle reports under section 603(d), item 4c supra.) 11. Federal Agencies The Office of Personnel Management collects and files data concerning current and potential employees of the Federal Government and transmits that information to other government agencies for employment purposes. Because Congress did not intend that the FCRA apply to the Office of Personnel Management and similar federal agencies (see 116 Cong. Rec. 36576 (1970) (remarks of Rep. Brown)), no such agency is a ``consumer reporting agency.'' 12. Credit Application Information A creditor that provides information from a consumer's application to a credit bureau, for verification as part of the creditor's evaluation process that includes obtaining a report on the consumer from that credit bureau, does not thereby become a ``consumer reporting agency,'' because the creditor does not provide the information for ``fees, dues, or on a cooperative nonprofit basis,'' but rather pays the bureau to verify the information when it provides a consumer report on the applicant. Section 603(g) defines file, when used in connection with information on any consumer, to mean ``all of the information on [[Page 495]] that consumer recorded and retained by a consumer reporting agency regardless of how the information is stored.'' 1. Relation to Other Sections Consumer reporting agencies are required to make disclosures of all information in their ``files'' to consumers upon request (section 609) and to follow reinvestigation procedures if the consumer disputes the completeness or accuracy of any item of information contained in his ``file'' (section 611). 2. General The term file denotes all information on the consumer that is recorded and retained by a consumer reporting agency that might be furnished, or has been furnished, in a consumer report on that consumer. 3. Audit Trail The term ``file'' does not include an ``audit trail'' (a list of changes made by a consumer reporting agency to a consumer's credit history record, maintained to detect fraudulent changes to that record), because such information is not furnished in consumer reports or used as a basis for preparing them. 4. Other Information The term ``file'' does not include information in billing records or in the consumer relations folder that a consumer reporting agency opens on a consumer who obtains disclosures or files a dispute, if the information has not been used in a consumer report and would not be used in preparing one. Section 603(h) defines employment purposes to mean ``a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.'' 1. Relation to Other Sections The term employment purposes is used as part of the definition of ``consumer reports'' (section 603(d)(2)) and as a permissible purpose for the furnishing of consumer reports (section 604(3)(B)). Where an investigative consumer report is to be used for ``employment purposes'' for which a consumer has not specifically applied, section 606(a)(2) provides that the notice otherwise required by section 606(a)(1) need not be sent. When a consumer reporting agency furnishes public record information in reports ``for employment purposes,'' it must follow the procedure set out in section 613. 2. Security Clearances A report in connection with security clearances of a government contractor's employees would be for ``employment purposes'' under this section. Section 603(i) defines medical information to mean ``information or records obtained, with the consent of the individual to whom it relates, from licensed physicians or medical practitioners, hospitals, clinics, or other medical or medically related facilities.'' 1. Relation to Other Sections Under section 609(a)(1), a consumer reporting agency must, upon the consumer's request and proper identification, disclose the nature and substance of all information in its files on the consumer, except ``medical information.'' 2. Information From Non-medical Sources Information from non-medical sources such as employers, is not ``medical information.'' Section 604--Permissible Purposes of Reports ``A consumer reporting agency may furnish a consumer report under the following circumstances and no other: * * *'' 1. Relation to Section 603 Sections 603(d)(3) and 604 must be construed together to determine what are ``permissible purposes,'' because section 603(d)(3) refers to ``purposes authorized under section 604'' (often described as ``permissible purposes'' of consumer reports), and some purposes are enumerated in section 603 (e.g., sections 603(d)(1) and 603(d)(2)). Subsections of sections 603 and 604 that specifically set forth ``permissible purposes'' relating to credit, insurance and employment, are the only subsections that cover ``permissible purposes'' relating to those three areas. Section 604(3)(E), a general subsection, is limited to purposes not otherwise addressed in section 604(3) (A)-(D). A. Credit. Sections 603(d)(1)--which defines ``consumer report'' to include certain reports for the purpose of serving as a factor in establishing the consumer's eligibility for credit or insurance primarily for personal, family, or household purposes--and 604(3)(A) must be read together as fully describing permissible purposes involving credit for obtaining consumer reports. Accordingly, section 604(3)(A) permits the furnishing of a consumer report for use in connection with a credit transaction involving the consumer, primarily for personal, family or household purposes, and involving the extension of credit to, or review or collection of an account of, the consumer. B. Insurance. Sections 603(d)(1) and 604(3)(C) must be read together as describing the only permissible insurance purposes for obtaining consumer reports. Accordingly, section 604(3)(C) permits the furnishing of a consumer report, provided it is for use in connection with the underwriting of insurance [[Page 496]] involving the consumer, primarily for personal, family, or household purposes. C. Employment. Employment is covered exclusively by sections 603(d)(2) and 604(3)(B), and by section 603(h) (which defines ``employment purposes''). Therefore, ``permissible purposes'' relating to employment include reports used for evaluating a consumer ``for employment, promotion, reassignment or retention as an employee.'' D. Other purposes. ``Other purposes'' are referred to in section 603(d)(3) and covered by section 604(3)(E), as well as sections 604(1), 604(2) and 604(3)(D) (which contain specific purposes not involving credit, insurance, employment). Permissible purposes relating to section 604(3)(E) are limited to transactions that consumers enter into primarily for personal, family or household purposes (excluding credit, insurance or employment, which are specifically covered by other subsections discussed above). The FCRA does not cover reports furnished for transactions that consumers enter into primarily in connection with businesses they operate (e.g., a consumer's rental of equipment for use in his retail store). 2. Relation to Other Sections A. Section 607(a). Section 607(a) requires consumer reporting agencies to keep information confidential by furnishing consumer reports only for purposes listed under section 604, and to follow specified, reasonable procedures to achieve this end. Section 619 provides criminal sanctions against any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses. B. Section 608. Section 608 allows ``consumer reporting agencies'' to furnish governmental agencies specified identifying information concerning consumers, notwithstanding the limitations of section 604. Section 604(1)--A consumer reporting agency may furnish a consumer report ``in response to the order of a court having jurisdiction to issue such an order.'' 1. Subpoena A subpoena, including a grand jury subpoena, is not an ``order of a court'' unless signed by a judge. 2. Internal Revenue Service Summons An I.R.S. summons is an exception to the requirement that an order be signed by a judge before it constitutes an ``order of a court'' under this section, because a 1976 revision to Federal statutes (26 U.S.C. 7609) specifically requires a consumer reporting agency to furnish a consumer report in response to an I.R.S. summons upon receipt of the designated I.R.S. certificate that the consumer has not filed a timely motion to quash the summons. Section 604(2)--A consumer reporting agency may furnish a consumer report ``in accordance with the written instructions of the consumer to whom it relates.'' 1. No Other Permissible Purpose Needed If the report subject furnishes written authorization for a report, that creates a permissible purpose for furnishing the report. 2. Refusal to Furnish Report The consumer reporting agency may refuse to furnish the report because the statute is permissive, not mandatory. (Requirements that consumer reporting agencies make disclosure to consumers (as contrasted with furnishing reports to users) are discussed under sections 609 and 610, infra.) Section 604(3)(A)--A consumer reporting agency may issue a consumer report to ``a person which it has reason to believe * * * intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer;'' 1. Reports Sought in Connection with the ``Review or Collection of an Account'' A. Reports for collection. A collection agency has a permissible purpose under this section to receive a consumer report on a consumer for use in attempting to collect that consumer's debt, regardless of whether that debt is assigned or referred for collection. Similarly, a detective agency or private investigator, attempting to collect a debt owed by a consumer, would have a permissible purpose to obtain a consumer report on that individual for use in collecting that debt. An attorney may obtain a consumer report under this section on a consumer for use in connection with a decision whether to sue that individual to collect a credit account. B. Unsolicited reports. A consumer reporting agency may not send an unsolicited consumer report to the recipient of a previous report on the same consumer, because the recipient will not necessarily have a permissible purpose to receive the unsolicited report. \2\ For example, the recipient may have rejected the consumer's application or ceased to do business with the consumer. (See also discussion in section 607, item 2G, infra.) --------------------------------------------------------------------------- \2\ Of course a consumer reporting agency must furnish notifications required by section 611(d), upon the consumer's requests, to prior recipients of reports containing disputed information that is deleted or that is the subject of a dispute statement under section 611(b). --------------------------------------------------------------------------- [[Page 497]] 2. Judgment Creditors A judgment creditor has a permissible purpose to receive a consumer report on the judgment debtor for use in connection with collection of the judgment debt, because it is in the same position as any creditor attempting to collect a debt from a consumer who is the subject of a consumer report. 3. Child Support Debts A district attorney's office or other child support agency may obtain a consumer report in connection with enforcement of the report subject's child support obligation, established by court (or quasi- judicial administrative) orders, since the agency is acting as or on behalf of the judgment creditor, and is, in effect, collecting a debt. However, a consumer reporting agency may not furnish consumer reports to child support agencies seeking to establish paternity or the duty to pay child support. 4. Tax Obligations A tax collection agency has no general permissible purpose to obtain a consumer report to collect delinquent tax accounts, because this subsection applies only to collection of ``credit'' accounts. However, if a tax collection agency acquired a tax lien having the same effect as a judgment or obtained a judgment, it would be a judgment creditor and would have a permissible purpose for obtaining a consumer report on the consumer who owed the tax. Similarly, if a consumer taxpayer entered an agreement with a tax collection agency to pay taxes according to some timetable, that agreement would create a debtor-creditor relationship, thereby giving the agency a permissible purpose to obtain a consumer report on that consumer. 5. Information on an Applicant's Spouse A. Permissible purpose. A creditor may request any information concerning an applicant's spouse if that spouse will be permitted to use the account or will be contractually liable upon the account, or the applicant is relying on the spouse's income as a basis for repayment of the credit requested. A creditor may request any information concerning an applicant's spouse if (1) the state law doctrine of necessaries applies to the transaction, or (2) the applicant resides in a community property state, or (3) the property upon which the applicant is relying as a basis for repayment of the credit requested is located in such a state, or (4) the applicant is acting as the agent of the nonapplicant spouse. B. Lack of permissible purpose. If the creditor receives information clearly indicating that the applicant is not acting as the agent of the nonapplicant spouse, and that the applicant is relying only on separate property to repay the credit extended, and that the state law doctrine of necessaries does not apply to the transaction and that the applicant does not reside in a community property state, the creditor does not have a permissible purpose for obtaining a report on a nonapplicant spouse. A permissible purpose for making a consumer report on a nonapplicant spouse can never exist under the FCRA, where Regulation B, issued under the Equal Credit Opportunity Act (12 CFR 202), prohibits the creditor from requesting information on such spouse. There is no permissible purpose to obtain a consumer report on a nonapplicant former spouse or on a nonapplicant spouse who has legally separated or otherwise indicated an intent to legally disassociate with the marriage. (This does not preclude reporting a prior joint credit account of former spouses for which the spouse that is the subject of the report is still contractually liable. See discussion in section 607, item 3-D infra.) 6. Prescreening Prescreening means the process whereby a consumer reporting agency compiles or edits a list of consumers who meet specific criteria and provides this list to the client or a third party (such as a mailing service) on behalf of the client for use in soliciting these consumers for the client's products or services. The process may also include demographic or other analysis of the consumers on the list (e.g., use of census tract data reflecting real estate values) by the consumer reporting agency or by a third party employed for that purpose (by either the agency or its client) before the list is provided to the consumer reporting agency's client. In such situations, the client's creditworthiness criteria may be provided only to the consumer reporting agency and not to the third party performing the demographic analysis. The consumer reporting agency that performs a ``prescreening'' service may furnish a client with several different lists of consumers who meet different sets of creditworthiness criteria supplied by the client, who intends to make different credit offers (e.g., various credit limits) to consumers who meet the different criteria. A prescreened list constitutes a series of consumer reports, because the list conveys the information that each consumer named meets certain criteria for creditworthiness. Prescreening is permissible under the FCRA if the client agrees in advance that each consumer whose name is on the list after prescreening will receive an offer of credit. In these circumstances, a permissible purpose for the prescreening service exists under this section, because of the client's present intent to grant credit to all consumers on the final list, with the result that the information is used ``in connection with a credit transaction involving the consumer on whom [[Page 498]] the information is to be furnished and involving the extension of credit to * * * the consumer.'' 7. Seller of Property Extending Credit A seller of property has a permissible purpose under this subsection to obtain a consumer report on a prospective purchaser to whom he is planning to extend credit. 8. Uncoded Credit Guides A consumer reporting agency may not furnish an uncoded credit guide, because the recipient does not have a permissible purpose to obtain a consumer report on each consumer listed. (As discussed under section 603(d), item 4 [hairsp]supra, credit guides are listings that credit bureaus furnish to credit grantors, rating how consumers pay their bills. Such guides are a series of ``consumer reports'' on the ``consumers'' listed therein, unless coded so that the consumer's identity is not disclosed.) 9. Liability for Bad Checks A party attempting to recover the amount due on a bad check is attempting to collect a debt and, therefore, has a permissible purpose to obtain a consumer report on the consumer who wrote it, and on any other consumer who is liable for the amount of that check under applicable state law. Section 604(3)(B)--A consumer reporting agency may issue a consumer report to ``a person which it has reason to believe * * * intends to use the information for employment purposes;'' 1. Current Employees An employer may obtain a consumer report on a current employee in connection with an investigation of the disappearance of money from employment premises, because ``retention as an employee'' is included in the definition of ``employment purposes'' (section 603(h)). 2. Consumer Reports on Applicants and Non-applicants An employer may obtain a consumer report for use in evaluating the subject's application for employment but may not obtain a consumer report to evaluate the application of a consumer who is not the subject of the report. 3. Grand Jurors The fact that grand jurors are usually paid a stipend for their service does not provide a district attorney's office a permissible purpose for obtaining consumer reports on them, because such service is a duty, not ``employment.'' Section 604(3)(C)--A consumer reporting agency may issue a consumer report to ``a person which it has reason to believe * * * intends to use the information in connection with the underwriting of insurance involving the consumer;'' 1. Underwriting An insurer may obtain a consumer report to decide whether or not to issue a policy to the consumer, the amount and terms of coverage, the duration of the policy, the rates or fees charged, or whether or not to renew or cancel a policy, because these are all ``underwriting'' decisions. 2. Claims An insurer may not obtain a consumer report for the purpose of evaluating a claim (to ascertain its validity or otherwise determine what action should be taken), because permissible purposes relating to insurance are limited by this section to ``underwriting'' purposes. Section 604(3)(D)--A consumer reporting agency may issue a consumer report to ``a person which it has reason to believe * * * intends to use the information in connection with a determination of the consumer's eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant's financial responsibility or status * * *'' 1. Appropriate recipient Any party charged by law (including a rule or regulation having the force of law) with responsibility for assessing the consumer's eligibility for the benefit (not only the agency directly responsible for administering the benefit) has a permissible purpose to receive a consumer report. For example, a district attorney's office or social services bureau, required by law to consider a consumer's financial status in determining whether that consumer qualifies for welfare benefits, has a permissible purpose to obtain a report on the consumer for that purpose. Similarly, consumer reporting agencies may furnish consumer reports to townships on consumers whose financial status the townships are required by law to consider in determining the consumers' eligibility for assistance, or to professional boards (e.g., bar examiners) required by law to consider such information on applicants for admission to practice. 2. Inappropriate Recipient Parties not charged with the responsibility of determining a consumer's eligibility for a license or other benefit, for example, a party competing for an FCC radio station construction permit, would not have a permissible purpose to obtain a consumer report on that consumer. [[Page 499]] 3. Initial or Continuing Benefit The permissible purpose includes the determination of a consumer's continuing eligibility for a benefit, as well as the evaluation of a consumer's initial application for a benefit. If the governmental body has reason to believe a particular consumer's eligibility is in doubt, or wishes to conduct random checks to confirm eligibility, it has a permissible purpose to receive a consumer report. Section 604(3)(E)--A consumer reporting agency may issue a consumer report to ``a person which it has reason to believe * * * otherwise has a legitimate business need for the information in connection with a business transaction involving the consumer.'' 1. Relation to Other Subsections of Section 604(3) The issue of whether credit, employment, or insurance provides a permissible purpose is determined exclusively by reference to subsection (A), (B), or (C), respectively. 2. Commercial Transactions The term business transaction in this section means a business transaction with a consumer primarily for personal, family, or household purposes. Business transactions that involve purely commercial purposes are not covered by the FCRA. 3. ``Legitimate Business Need'' Under this subsection, a party has a permissible purpose to obtain a consumer report on a consumer for use in connection with some action the consumer takes from which he or she might expect to receive a benefit that is not more specifically covered by subsections (A), (B), or (C). For example, a consumer report may be obtained on a consumer who applies to rent an apartment, offers to pay for goods with a check, applies for a checking account or similar service, seeks to be included in a computer dating service, or who has sought and received over-payments of government benefits that he has refused to return. 4. Litigation The possibility that a party may be involved in litigation involving a consumer does not provide a permissible purpose for that party to receive a consumer report on such consumer under this subsection, because litigation is not a ``business transaction'' involving the consumer. Therefore, potential plaintiffs may not always obtain reports on potential defendants to determine whether they are worth suing. The transaction that gives rise to the litigation may or may not provide a permissible purpose. A party seeking to sue on a credit account would have a permissible purpose under section 604(3)(A). (That section also permits judgment creditors and lien creditors to obtain consumer reports on judgment debtors or individuals whose property is subject to the lien creditor's lien.) If that transaction is a business transaction involving the consumer, there is a permissible purpose. If the litigation arises from a tort, there is no permissible purpose. Similarly, a consumer report may not be obtained solely for use in discrediting a witness at trial or for locating a witness. This section does not permit consumer reporting agencies to furnish consumer reports for the purpose of locating a person suspected of committing a crime. (As stated in the discussion of section 608 infra (item 2), section 608 permits the furnishing of specified, limited identifying information to governmental agencies, notwithstanding the provisions of section 604.) 5. Impermissible Purposes A consumer reporting agency may not furnish a consumer report to satisfy a requester's curiosity, or for use by a news reporter in preparing a newspaper or magazine article. 6. Agents A. General. An agent \3\ of a party with a ``permissible purpose'' may obtain a consumer report on behalf of his principal, where he is involved in the decision that gives rise to the permissible purpose. Such involvement may include the agent's making a decision (or taking action) for the principal, or assisting the principal in making the decision (e.g., by evaluating information). In these circumstances, the agent is acting on behalf of the principal. In some cases, the agent and principal are referred to as ``joint users.'' See discussion in section 603(f), supra (item 8). --------------------------------------------------------------------------- \3\ Of course agents and principals are bound by the Act. --------------------------------------------------------------------------- B. Real estate agent. A real estate agent may obtain a consumer report on behalf of a seller, to evaluate the eligibility as a prospective purchaser of a subject who has expressed an interest in purchasing property from the seller. C. Private detective agency. A private detective agency may obtain a consumer report as agent for its client while investigating a report subject that is a client's prospective employee, or in connection with advising a client concerning a business transaction with the report subject or in attempting to collect a debt owed its client by the subject of the report. In these circumstances, the detective agency is acting on behalf of its client. D. Rental clearance agency. A rental clearance agency that obtains consumer reports to assist owners of residential properties in [[Page 500]] screening consumers as tenants, has a permissible purpose to obtain the reports, if it uses them in applying the landlord's criteria to approve or disapprove the subjects as tenant applicants. Similarly, an apartment manager investigating applicants for apartment rentals by a landlord may obtain consumer reports on these applicants. E. Attorney. An attorney collecting a debt for a creditor client, including a party suing on a debt or collecting on behalf of a judgment creditor or lien creditor, has a permissible purpose to obtain a consumer report on the debtor to the same extent as the client. Section 604--General 1. Furnishing of Consumer Reports to Other Consumer Reporting Agencies A consumer reporting agency may furnish a consumer report to another consumer reporting agency for it to furnish pursuant to a subscriber's request. In these circumstances, one consumer reporting agency is acting on behalf of another. 2. Consumer's Permission not Needed When permissible purposes exist, parties may obtain, and consumer reporting agencies may furnish, consumer reports without the consumers' permission or over their objection. Similarly, parties may furnish information concerning their transactions with consumers to consumer reporting agencies and others, and consumer reporting agencies may gather information, without consumers' permission. 3. User's Disclosure of Report to Subject Consumer The FCRA does not prohibit a consumer report user from giving a copy of the report, or othervise disclosing it, to the consumer who is the subject of the report. Section 605--Obsolete Information ``(a) Except as authorized under subsection (b), no consumer reporting agency may make any consumer report containing any of the following items of information * * *: (b) The provisions of subsection (a) are not applicable in the case of any consumer credit report to be used in connection with-- (1) a credit transaction involving, or which may reasonably be expected to involve, a principal amount of $50,000 or more; (2) the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $50,000 or more; or (3) the employment of any individual at an annual salary which eguals, or which may reasonably be expected to egual $20,000, or more.'' 1. General Section 605(a) provides that most adverse information more than seven years old may not be reported, except in certain circumstances set out in section 605(b). With respect to delinquent accounts, accounts placed for collection, and accounts charged to profit and loss, there are many dates that could be deemed to commence seven year reporting periods. The discussion in subsections (a)(2), (a)(4), and (a)(6) is intended to set forth a clear, workable rule that effectuates Congressional intent. 2. Favorable Information The Act imposes no time restriction on reporting of information that is not adverse. 3. Retention of Information in Files Consumer reporting agencies may retain obsolete adverse information and furnish it in reports for purposes that are exempt under subsection (b) (e.g., credit for a principal amount of $50,000 or more). 4. Use of Shorter Periods The section does not require consumer reporting agencies to report adverse information for the time periods set forth, but only prohibits them from reporting adverse items beyond those time periods. 5. Inapplicability to Users The section does not limit creditors or others from using adverse information that would be ``obsolete'' under its terms, because it applies only to reporting by consumer reporting agencies. Similarly, this section does not bar a creditor's reporting such adverse obsolete information concerning its transactions or experiences with a consumer, because the report would not constitute a consumer report. 6. Indicating the Existence of Nonspecified, Obsolete Information A consumer reporting agency may not furnish a consumer report indicating the existence of obsolete adverse information, even if no specific item is reported. For example, a consumer reporting agency may not communicate the existence of a debt older than seven years by reporting that a credit grantor cannot locate a debtor whose debt was charged off ten years ago. 7. Operative Dates The times or dates set forth in this section, which relate to the occurrence of events involving adverse information, determine whether the item is obsolete. The date that the consumer reporting agency acquired the adverse information is irrelevant to how long that information may be reported. Section 605(a)(1)--``Cases under title 11 of the United States Code or under the Bankruptcy Act that, from the date of entry of [[Page 501]] the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.'' 1. Relation to Other Subsections The reporting of suits and judgments is governed by subsection (a)(2), the reporting of accounts placed for collection or charged to profit and loss is governed by subsection (a)(4), and the reporting of other delinquent accounts is governed by subsection (a)(6). Any such item, even if discharged in bankruptcy, may be reported separately for the applicable seven year period, while the existence of the bankruptcy filing may be reported for ten years. 2. Wage Earner Plans Wage earner plans may be reported for ten years, because they are covered by Title 11 of the United States Code. 3. Date for Filing A voluntary bankruptcy petition may be reported for ten years from the date that it is filed, because the filing of the petition constitutes the entry of an ``order for relief'' under this subsection, just like a filing under the Bankruptcy Act (11 U.S.C. 301). Section 605(a)(2)--``Suits and judgments which, from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.'' 1. Operative Date For a suit, the term date of entry means the date the suit was initiated. A protracted suit may be reported for more than seven years from the date it was entered, if the governing statute of limitations has not expired. For a judgment, the term ``date of entry'' means the date the judgment was rendered. 2. Paid Judgments Paid judgments cannot be reported for more than seven years after the judgment was entered, because payment of the judgment eliminates any ``governing statute of limitations'' under this subsection that might otherwise lengthen the period. Section 605(a)(3)--``Paid tax liens which, from date of payment, antedate the report by more than seven years.'' 1. Unpaid Liens If a tax lien (or other lien) remains unsatisfied, it may be reported as long as it remains filed against the consumer, without limitation, because this subsection addresses only paid tax liens. Section 605(a)(4)--``Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.'' 1. Placement for Collection The term placed for collection means internal collection activity by the creditor, as well as placement with an outside collector, whichever occurs first. Sending of the initial past due notices does not constitute placement for collection. Placement for collection occurs when dunning notices or other collection efforts are initiated. The reporting period is not extended by assignment to another entity for further collection, or by a partial or full payment of the account. However, where a borrower brings his delinquent account to date and returns to his regular payment schedule, and later defaults again, a consumer reporting agency may disregard any collection activity with respect to the first delinquency and measure the reporting period from the date the account was placed for collection as a result of the borrower's ultimate default. A consumer's repayment agreement with a collection agency can be treated as a new account that has its own seven year period. 2. Charge to Profit and Loss The term charged to profit and loss means action taken by the creditor to write off the account, and the applicable time period is measured from that event. If an account that was charged off is later paid in part or paid in full by the consumer, the reporting period of seven years from the charge-off is not extended by this subsequent payment. 3. Reporting of a Delinquent Account That is Later Placed for Collection or Charged to Profit and Loss The fact that an account has been placed for collection or charged to profit and loss may be reported for seven years from the date that either of those events occurs, regardless of the date the account became delinquent. The fact of delinquency may also be reported for seven years from the date the account became delinquent. Section 605(a)(5)--``Records of arrest, indictment, or conviction of crime which, from date of disposition, release, or parole, antedate the report by more than seven years.'' 1. Records The term records means any information a consumer reporting agency has in its files relating to arrest, indictment or conviction of a crime. 2. Computation of Time Period The seven year reporting period runs from the date of disposition, release or parole, as applicable. For example, if charges are dismissed at or before trial, or the consumer is acquitted, the date of such dismissal or acquittal is the date of disposition. If the consumer is convicted of a crime and sentenced [[Page 502]] to confinement, the date of release or placement on parole controls. (Confinement, whether continuing or resulting from revocation of parole, may be reported until seven years after the confinement is terminated.) The sentencing date controls for a convicted consumer whose sentence does not include confinement. The fact that information concerning the arrest, indictment, or conviction of crime is obtained by the reporting agency at a later date from a more recent source (such as a newspaper or interview) does not serve to extend this reporting period. Section 605(a)(6)--``Any other adverse item of information which antedates the report by more than seven years.'' 1. Relation to Other Subsections This section applies to all adverse information that is not covered by section 605(a) (1)-(5). For example, a delinquent account that has neither been placed for collection, nor charged to profit and loss, may be reported for seven years from the date of the last regularly scheduled payment. (Accounts placed for collection or charged to profit and loss may be reported for the time periods stated in section 605(a)(4).) 2. Non Tax Liens Liens (other than paid tax liens) may be reported as long as they remain filed against the consumer or the consumer's property, and remain effective (under any applicable statute of limitations). (See discussion under section 605(a)(3), [hairsp]supra.) Section 606--Disclosure of Investigative Consumer Reports ``(a) A person may not procure or cause to be prepared an investigative consumer report on any consumer unless-- (1) it is clearly and accurately disclosed to the consumer that an investigative consumer report including information as to his character, general reputation, personal characteristics, and mode of living, whichever are applicable, may be made, and such disclosure (A) is made in a writing mailed, or otherwise delivered, to the consumer, not later than three days after the date on which the report was first requested, and (B) includes a statement informing the consumer of his right to request the additional disclosures provided for under subsection (b) of this section; or (2) the report is to be used for employment purposes for which the consumer has not specifically applied. (b) Any person who procures or causes to be prepared an investigative consumer report on any consumer shall, upon written request made by the consumer within a reasonable period of time after receipt by him of the disclosure required by subsection (a)(1), make a complete and accurate disclosure of the nature and scope of the investigation requested. This disclosure shall be made in a writing mailed, or otherwise delivered, to the consumer not later than five days after the date on which the request for such disclosure was received from the consumer or such report was first requested, whichever is the later. (c) No person may be held liable for any violation of subsection (a) or (b) of this section if he shows by a preponderance of the evidence that at the time of the violation he maintained reasonable procedures to assure compliance with subsection (a) or (b).'' 1. Relation to Other Sections The term investigative consumer report is defined at section 603(e) to mean a consumer report, all or a portion of which contains information obtained through personal interviews (in person or by telephone) with persons other than the subject, which information relates to the subject's character, general reputation, personal characteristics or mode of living. 2. Inapplicability to Consumer Reporting Agencies The section applies only to report users, not consumer reporting agencies. The FCRA does not require consumer reporting agencies to inform consumers that information will be gathered or that reports will be furnished concerning them. 3. Inapplicability to Noninvestigative Consumer Reports The section does not apply to noninvestigative reports. 4. Exemptions An employer who orders investigative consumer reports on a current employee who has not applied for a job change need not notify the employee, because the term ``employment purposes'' is defined to include ``promotion, reassignment or retention'' and subsection (b) provides that the disclosure requirements do not apply to ``employment purposes for which the consumer has not specifically applied.'' 5. Form and Delivery of Notice The notice must be in writing and delivered to the consumer. The user may include the disclosure in an application for employment, insurance, or credit, if it is clear and conspicuous and not obscured by other language. A user may send the required notice via first class mail. The notice must be mailed or otherwise delivered to the consumer not later than three days after the report was first requested. [[Page 503]] 6. Content of Notice of Right to Disclosure The notice must clearly and accurately disclose that an ``investigative consumer report'' including information as to the consumer's character, general reputation, personal characteristics and mode of living (whichever are applicable), may be made. The disclosure must also state that an investigative consumer report involves personal interviews with sources such as neighbors, friends, or associates. The notice may include any additional, accurate information about the report, such as the types of interviews that will be conducted. The notice must include a statement informing the consumer of the right to request complete and accurate disclosure of the nature and scope of the investigation. 7. Content of Disclosure of Report When the consumer requests disclosure of the ``nature and scope'' of the investigation, such disclosure must include a complete and accurate description of the types of questions asked, the number and types of persons interviewed, and the name and address of the investigating agency. The user need not disclose the names of sources of information, nor must it provide the consumer with a copy of the report. A report user that provides the consumer with a blank copy of the standardized form used to transmit the report from the agency to the user complies with the requirement that it disclose the ``nature'' of the investigation. Section 607--Compliance Procedures ``(a) Every consumer reporting agency shall maintain reasonable procedures designed to avoid violations of section 605 and to limit the furnishing of consumer reports to the purposes listed under section 60[hairsp]4. These procedures shall require that prospective users of the information identify themselves, certify the purposes for which the information is sought, and certify that the information will be used for no other purpose. Every consumer reporting agency shall make a reasonable effort to verify the identity of a new prospective user and the uses certified by such prospective user prior to furnishing such user a consumer report. No consumer reporting agency may furnish a consumer report to any person if it has reasonable grounds for believing that the consumer report will not be used for a purpose listed in Section 604. (b) Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.'' 1. Procedures to Avoid Reporting Obsolete Information A. General. A consumer reporting agency should establish procedures with its sources of adverse information that will avoid the risk of reporting obsolete information. For example, the agency should either require a creditor to supply the date an account was placed for collection or charged off, or the agency should use a conservative date for such placement or charge off (such as the date of the last regularly scheduled payment), to be sure of complying with the statute. B. Retention of obsolete information for reporting in excepted circumstances. If a consumer reporting agency retains adverse information in its files that is ``obsolete'' under section 605(a) (e.g., information about a satisfied judgment that is more than seven years old), so that it may be reported for use in transactions described by section 605(b) (i.e., applications for credit or life insurance for $50,000 or more, or employment at an annual salary of $20,000 or more), it must have procedural safeguards to avoid reporting the information except in those situations. The procedure should require that such obsolete information be released only after an internal decision that its release will not violate section 605. 2. Procedures to Avoid Reporting for Impermissible Purposes A. Verification. A consumer reporting agency should have a system to verify that it is dealing with a legitimate business having a ``permissible purpose'' for the information reported. What constitutes adequate verification will vary with the circumstances. If the consumer reporting agency is not familiar with the user, appropriate procedures might require an on-site visit to the user's place of business, or a check of the user's references. B. Required certification by user. A consumer reporting agency should adopt procedures that require prospective report users to identify themselves, certify the purpose for which the information is sought, and certify that the information will be used for no other purpose. A consumer reporting agency should determine initially that users have permissible purposes and ascertain what those purposes are. It should obtain a specific, written certification that the recipient will obtain reports for those purposes and no others. The user's certification that the report will be used for no other purposes should expressly prohibit the user from sharing the report or providing it to anyone else, other than the subject of the report or to a joint user having the same purpose. A consumer reporting agency should refuse to provide reports to those refusing to provide such certification. [[Page 504]] C. Blanket or individual certification. Once the consumer reporting agency obtains a certification from a user (e.g., a creditor) that typically has a permissible purpose for receiving a consumer report, stating that it will use those reports only for specified permissible purposes (e.g., for credit or employment purposes), a certification of purpose need not be furnished for each individual report obtained, provided there is no reason to believe the user may be violating its certification. However, in furnishing reports to users that typically could have both permissible and impermissible purposes for ordering consumer reports (e.g., attorneys and detective agencies), the consumer reporting agency must require the user to provide a separate certification each time it requests a consumer report. D. Procedures to avoid recipients' abuse of certification. When doubt arises concerning any user's compliance with its contractual certification, a consumer reporting agency must take steps to insure compliance, such as requiring a separate, advance certification for each report it furnishes that user, or auditing that user to verify that it is obtaining reports only for permissible purposes. A consumer reporting agency must cease furnishing consumer reports to users who repeatedly request consumer reports for impermissible purposes. E. Unauthorized access. A consumer reporting agency should take several other steps when doubt arises concerning whether a user is obtaining reports for a permissible purpose from a computerized system. If it appears that a third party, not a subscriber, has obtained unauthorized access to the system, the consumer reporting agency should take appropriate steps such as altering authorized users' means of access, such as codes and passwords, and making random checks to ensure that future reports are obtained only for permissible purposes. If a subscriber has inadvertently sought reports for impermissible purposes or its employee has obtained reports without a permissible purpose, it would be appropriate for the consumer reporting agency to alter the subscriber's means of access, and require an individual written certification of the permissible purpose for each report requested or randomly verify such purposes. A consumer reporting agency should refuse to furnish any further reports to a user that repeatedly violates certifications. F. Use of computerized systems. A consumer reporting agency may furnish consumer reports to users via terminals, provided the consumer reporting agency has taken the necessary steps to ensure that the users have a permissible purpose to receive the reports. (The agency would have to record the identity of consumer report recipients for each consumer, to be able to make any disclosures required under section 609(a)(3) or section 611(d)). G. Activity reports. If a consumer reporting agency provides ``activity reports'' on all customers who have open-end accounts with a credit grantor, it must make certain that the credit grantor always notifies the agency when accounts are closed and paid in full, to avoid furnishing reports on former customers or other customers for whom the credit grantor lacks a permissible purpose. (See also discussion in section 604(3)(A), item 1, supra.) 3. Reasonable Procedures to Assure Maximum Possible Accuracy A. General. The section does not require error free consumer reports. If a consumer reporting agency accurately transcribes, stores and communicates consumer information received from a source that it reasonably believes to be reputable, and which is credible on its face, the agency does not violate this section simply by reporting an item of information that turns out to be inaccurate. However, when a consumer reporting agency learns or should reasonably be aware of errors in its reports that may indicate systematic problems (by virtue of information from consumers, report users, from periodic review of its reporting system, or otherwise) it must review its procedures for assuring accuracy. Examples of errors that would require such review are the issuance of a consumer report pertaining entirely to a consumer other than the one on whom a report was requested, and the issuance of a consumer report containing information on two or more consumers (e.g., information that was mixed in the file) in response to a request for a report on only one of those consumers. B. Required steps to improve accuracy. If the agency's review of its procedures reveals, or the agency should reasonably be aware of, steps it can take to improve the accuracy of its reports at a reasonable cost, it must take any such steps. It should correct inaccuracies that come to its attention. A consumer reporting agency must also adopt reasonable procedures to eliminate systematic errors that it knows about, or should reasonably be aware of, resulting from procedures followed by its sources of information. For example, if a particular credit grantor has often furnished a significant amount of erroneous consumer account information, the agency must require the creditor to revise its procedures to correct whatever problems cause the errors or stop reporting information from that creditor. C. Use of automatic data processing equipment. Consumer reporting agencies that use automatic data processing equipment (particularly for long distance transmission of information) should have reasonable procedures to assure that the data is accurately [[Page 505]] converted into a machine-readable format and not distorted by machine malfunction or transmission failure. Reasonable security procedures must be adopted to minimize the possibility that computerized consumer information will be stolen or altered by either authorized or unauthorized users of the information system. D. Reliability of sources. Whether a consumer reporting agency may rely on the accuracy of information from a source depends on the circumstances. This section does not hold a consumer reporting agency responsible where an item of information that it receives from a source that it reasonably believes to be reputable appears credible on its face, and is transcribed, stored and communicated as provided by that source. Requirements are more stringent where the information furnished appears implausible or inconsistent, or where procedures for furnishing it seem likely to result in inaccuracies, or where the consumer reporting agency has had numerous problems regarding information from a particular source. E. Undesignated information in credit transactions. Undesignated information means all credit history information in a married (or formerly married) consumer's file, which was not reported to the consumer reporting agency with a designation indicating that the information relates to either the consumer's joint or individual credit experience. The question arises what is meant by reasonable procedures under this section for treatment of credit history in the file of only one (present or former) spouse (usually the husband) that has not been designated by the procedure in Regulation B, 12 CFR 202.10, which implements the Equal Credit Opportunity Act. (This situation exists only for certain credit history file information compiled before June 1, 1977, and certain accounts opened before that date.) A consumer reporting agency may report information solely in the file of spouse A, when spouse B applies for a separate extension of credit, only if such information relates to accounts for which spouse B was either a user or was contractually liable, or the report recipient has a permissible purpose for a report on spouse A. A consumer reporting agency may not supply all undesignated information from the file of a consumer's spouse in response to a request for a report on the consumer, because some or all of that information may not relate to both spouses. Consumer reporting agencies must honor without charge the request of a married or formerly married individual that undesignated information (that appears only in the files of the individual's present or former spouse) be segregated--i.e., placed in a separate file that is accessible under that individual's name. This procedure insures greater accuracy and protection of the privacy of spouses than does the automatic reporting of undesignated information. F. Reporting of credit obligation--(1) Past due accounts. A consumer reporting agency must employ reasonable procedures to keep its file current on past due accounts (e.g., by requiring its creditors to notify the credit bureau when a previously past due account has been paid or discharged in bankruptcy), but its failure to show such activity in particular instances, despite the maintenance of reasonable procedures to keep files current, does not violate this section. For example, a consumer reporting agency that reports accurately in 1985 that as of 1983 the consumer owed a retail store money, without mentioning that the consumer eventually paid the debt, does not violate this section if it was not informed by the store or the consumer of the later payment. (2) Significant, verified information. A consumer reporting agency must report significant, verified information it possesses about an item. For instance, a consumer reporting agency may continue to report a paid account that was previously delinquent, but should also report that the account has been paid. Similarly, a consumer reporting agency may include delinquencies on debts discharged in bankruptcy in consumer reports, but must accurately note the status of the debt (e.g., discharged, voluntarily repaid). Finally, if a reported bankruptcy has been dismissed, that fact should be reported. (3) Guarantor obligations. Personal guarantees for obligations incurred by others (including a corporation) may be included in a consumer report on the individual who is the guarantor. The report should accurately reflect the individual's involvement (e.g., as guarantor of the corporate debt). 4. Effect of Criminal Sanctions Notwithstanding the fact that section 619 provides criminal sanctions against persons who knowingly and willfully obtain information on a consumer from a consumer reporting agency under false pretenses, a consumer reporting agency must follow reasonable procedures to limit the furnishing of reports to those with permissible purposes. 5. Disclosure of Credit Denial When reporting that a consumer was denied a benefit (such as credit), a consumer reporting agency need not report the reasons for the denial. 6. Content of Report A consumer report need not be tailored to the user's needs. It may contain any information that is complete, accurate, and not obsolete on the consumer who is the subject of the report. A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy [[Page 506]] itself), as long as it reports a zero balance due to reflect the fact that the consumer is no longer liable for the discharged debt. A consumer report may include a list of recipients of reports on the consumer who is the subject of the report. 7. Completeness of Reports Consumer reporting agencies are not required to include all existing derogatory or favorable information about a consumer in their reports. (See, however, discussion in section 611, item 14, infra, concerning conveying consumer dispute statements.) However, a consumer reporting agency may not mislead its subscribers as to the completeness of its reports by deleting nonderogatory information and not disclosing its policy of making such deletions. 8. User Notice of Adverse Action Based on a Consumer Report A consumer reporting agency need not require users of its consumer reports to provide any notice to consumers against whom adverse action is taken based on a consumer report. The FCRA imposes such notice requirements directly on users, under the circumstances set out in section 615. Section 608--Disclosures to Governmental Agencies ``Notwithstanding the provisions of section 604, a consumer reporting agency may furnish identifying information respecting any consumer limited to his name, address, former addresses, places of employment, or former places of employment, to a governmental agency.'' 1. Permissible Purpose Necessary for Additional Information A consumer reporting agency may furnish limited identifying information concerning a consumer to a governmental agency (e.g., an agency seeking a fugitive from justice) even if that agency does not have a ``permissible purpose'' under section 604 to receive a consumer report. However, a governmental agency must have a permissible purpose in order to obtain information beyond what is authorized by this section. 2. Entities Covered by Section The term governmental agency includes federal, state, county and municipal agencies, and grand juries. Only governmental agencies may obtain disclosures of identifying information under this section. Section 609--Disclosures to Consumers ``(a) Every consumer reporting agency shall, upon request and proper identification of any consumer, clearly and accurately disclose to the consumer: (1) The nature and substance of all information (except medical information) in its files on the consumer at the time of the request. (2) The sources of the information; except that the sources of information acquired solely for use in preparing an investigative consumer report and actually used for no other purpose need not be disclosed: Provided, That in the event an action is brought under this title, such sources shall be available to the plaintiff under appropriate discovery procedures in the court in which the action is brought. (3) The recipients of any consumer report on the consumer which it has furnished (A) for employment purposes within the two-year period preceding the request, and (B) for any other purpose within the six-month period preceding the request. (b) The requirements of subsection (a) respecting the disclosure of sources of information and the recipients of consumer reports do not apply to information received or consumer reports furnished prior to the effective date of this title except to the extent that the matter involved is contained in the files of the consumer reporting agency on that date.'' 1. Relation to Other Sections This section states what consumer reporting agencies must disclose to consumers, upon request and proper identification. Section 610 sets forth the conditions under which those disclosures must be made, and section 612 sets forth the circumstances under which consumer reporting agencies may charge for making such disclosures. The term ``file'' as used in section 609(a)(1) is defined in section 603(g). The term ``investigative consumer report,'' which is used in section 609(a)(2), is defined in section 603(e). The term medical information, which is used in section 609(a)(1), is defined in section 603(i). 2. Proper Identification A consumer reporting agency must take reasonable steps to verify the identity of an individual seeking disclosure under this section. 3. Manner of ``Proper Identification'' If a consumer provides sufficient identifying information, the consumer reporting agency cannot insist that the consumer execute a ``request for interview'' form, or provide the items listed on it, as a prerequisite to disclosure. However, the agency may use a form to identify consumers requesting disclosure if it does not use the form to inhibit disclosure, or to obtain any waiver of the consumers' rights. A consumer reporting agency may provide disclosure by telephone without a written request, if the consumer is [[Page 507]] properly identified, but may insist on a written request before providing such disclosure. 4. Power of Attorney A consumer reporting agency may disclose a consumer's file to a third party authorized by the consumer's written power of attorney to obtain the disclosure, if the third party presents adequate identification and fulfills other applicable conditions of disclosure. However, the agency may also disclose the information directly to the consumer. 5. Nature of Disclosure Required A consumer reporting agency must disclose the nature and substance of all items in the consumer's file, no matter how or where they are stored (e.g., in other offices of the consumer reporting agency). The consumer reporting agency must have personnel trained to explain to the consumer any information furnished in accordance with the Act. Particularly when the file includes coded information that would be meaningless to the consumer, the agency's personnel must assist the consumer to understand the disclosures. Any summary must not mischaracterize the nature of any item of information in the file. The consumer reporting agency is not required to provide a copy of the file, or any other written disclosure, or to read the file verbatim to the consumer or to permit the consumer to examine any information in its files. A consumer reporting agency may choose to usually comply with the FCRA in writing, by providing a copy of the file to the consumer or otherwise. 6. Medical Information Medical information includes information obtained with the consumer's consent from physicians and medical facilities, but does not include comments on a consumer's health by non-medical personnel. A consumer reporting agency is not required to disclose medical information in its files to consumers, but may do so. Alternatively, a consumer reporting agency may inform consumers that there is medical information in the files concerning them and supply the name of the doctor or other source of the information. Consumer reporting agencies may also disclose such information to a physician of the consumer's choice, upon the consumer's written instructions pursuant to section 604(2). 7. Ancillary Information. A consumer reporting agency is not required to disclose information consisting of an audit trail of changes it makes in the consumer's file, billing records, or the contents of a consumer relations folder, if the information is not from consumer reports and will not be used in preparing future consumer reports. Such data is not included in the term ``information in the files'' which must be disclosed to the consumer pursuant to this section. A consumer reporting agency must disclose claims report information only if it has appeared in consumer reports. 8. Information on Other Consumers The consumer has no right to information in the consumer reporting agency's files on other individuals, because the disclosure must be limited to information ``on the consumer.'' However, all information in the files of the consumer making the request must be disclosed, including information about another individual that relates to the consumer (e.g., concerning that individual's dealings with the subject of the consumer report). 9. Disclosure of Sources of Information Consumer reporting agencies must disclose the sources of information, except for sources of information acquired solely for use in preparing an investigative consumer report and actually used for no other purpose. When it has used information from another consumer reporting agency, the other agency should be reported as a source. 10. Disclosure of Recipients of Consumer Reports Consumer reporting agencies must maintain records of recipients of prior consumer reports sufficient to enable them to meet the FCRA's requirements that they disclose the identity of recipients of prior consumer reports. A consumer reporting agency that furnishes a consumer report directly to a report user at the request of another consumer reporting agency must disclose the identity of the user that was the ultimate recipient of the report, not the other agency that acted as an intermediary in procuring the report. 11. Disclosure of Recipients of Prescreened Lists A consumer reporting agency must furnish to a consumer requesting file disclosure the identity of recipients of any prescreened lists that contained the consumer's name wh en submitted to creditors (or other users) by the consumer reporting agency. 12. Risk Scores. A consumer reporting agency is not required to disclose a risk score (or other numerical evaluation, however named) that is provided to the agency's client (based on an analysis of data on the consumer) but not retained by the agency. Such a score is not information ``in (the agency's) files at the time of the request'' by the consumer for file disclosure. [[Page 508]] Section 610--Conditions of Disclosure ``(a) A consumer reporting agency shall make the disclosures required under section 609 during normal business hours and on reasonable notice. (b) The disclosures required under section 609 shall be made to the consumer-- (1) in person if he appears in person and furnishes proper identification; or (2) by telephone if he has made a written request, with proper identification, for telephone disclosure and the toll charge, if any, for the telephone call is prepaid by or charged directly to the consumer. (c) Any consumer reporting agency shall provide trained personnel to explain to the consumer any information furnished to him pursuant to section 609. (d) The consumer shall be permitted to be accompanied by one other person of his choosing, who shall furnish reasonable identification. A consumer reporting agency may require the consumer to furnish a written statement granting permission to the consumer reporting agency to discuss the consumer's file in such person's presence. (e) Except as provided in section 616 and 617, no consumer may bring any action or proceeding in the nature of defamation, invasion of privacy, or negligence with respect to the reporting of information against any consumer reporting agency, any user of information or any person who furnishes information to a consumer reporting agency, based on information disclosed pursuant to section 609, 610, or 615, except as to false information furnished with malice or willful intent to injure such consumers.'' 1. Time of Disclosure A consumer reporting agency must make disclosures during normal business hours, upon reasonable notice. However, the consumer reporting agency may waive reasonable notice, and the consumer may agree to disclosure outside of normal business hours. A consumer reporting agency may make in-person disclosure to consumers who have made appointments ahead of other consumers, because the disclosures are only required to be made ``on reasonable notice.'' 2. Extra Conditions Prohibited A consumer reporting agency may not add conditions not set out in the FCRA as a prerequisite to the required disclosure. 3. Manner of Disclosure A consumer reporting agency may, with the consumer's actual or implied consent, meet its disclosure obligations by mail, in lieu of the in-person or telephone disclosures specified in the statute. 4. Disclosure in the Presence of Third Parties When the consumer requests disclosure in a third party's presence, the consumer reporting agency may require that a consumer sign an authorization before such disclosure is made. The consumer may choose the third party to accompany him or her for the disclosure. 5. Expense of Telephone Calls A consumer reporting agency is not required to pay the telephone charge for a telephone interview with a consumer obtaining disclosure. 6. Qualified Defamation Privilege The privilege extended by subsection 610(e) does not apply to an action brought by a consumer if the action is based on information not disclosed pursuant to sections 609, 610 or 615. A disclosure to a consumer's representative (e.g., based on the consumer's power of attorney) constitutes ``information disclosed pursuant to section 609'' and is thus covered by this privilege. Section 611--Procedure in Case of Disputed Accuracy ``(a) If the completeness or accuracy of any item of information contained in his file is disputed by a consumer, and such dispute is directly conveyed to the consumer reporting agency by the consumer, the consumer reporting agency shall within a reasonable period of time reinvestigate and record the current status of that information unless it has reasonable grounds to believe that the dispute by the consumer is frivolous or irrelevant. If after such reinvestigation such information is found to be inaccurate or can no longer be verified, the consumer reporting agency shall promptly delete such information. The presence of contradictory information in the consumer's file does not in and of itself constitute reasonable grounds for believing the dispute is frivolous or irrelevant. (b) If the reinvestigation does not resolve the dispute, the consumer may file a brief statement setting forth the nature of the dispute. The consumer reporting agency may limit such statements to not more than one hundred words if it provides the consumer with assistance in writing a clear summary of the dispute. (c) Whenever a statement of a dispute is filed, unless there is reasonable grounds to believe that it is frivolous or irrelevant, the consumer reporting agency shall, in any subsequent consumer report containing the information in question, clearly note that it is disputed by the consumer and provide either the consumer's statement or a clear and accurate codification or summary thereof. [[Page 509]] (d) Following any deletion of information which is found to be inaccurate or whose accuracy can no longer be verified or any notation as to disputed information, the consumer reporting agency shall, at the request of the consumer, furnish notification that the item has been deleted or the statement, codification or summary pursuant to subsection (b) or (c) to any person specifically designated by the consumer who has within two years prior thereto received a consumer report for employment purposes, or within six months prior thereto received a consumer report for any other purpose, which contained the deleted or disputed information. The consumer reporting agency shall clearly and conspicuously disclose to the consumer his rights to make such a request. Such disclosure shall be made at or prior to the time the information is deleted or the consumer's statement regarding the disputed information is received.'' 1. Relation to Other Sections This section sets forth procedures consumer reporting agencies must follow if a consumer conveys a dispute of the completeness or accuracy of any item of information in the consumer's file to the consumer reporting agency. Section 609 provides for disclosures by consumer reporting agencies to consumers, and section 610 sets forth conditions of disclosure. Section 612 permits a consumer reporting agency to impose charges for certain disclosures, including the furnishing of certain information to recipients of prior reports, as provided by section 611(d). 2. Proper Reinvestigation A consumer reporting agency conducting a reinvestigation must make a good faith effort to determine the accuracy of the disputed item or items. At a minimum, it must check with the original sources or other reliable sources of the disputed information and inform them of the nature of the consumer's dispute. In reinvestigating and attempting to verify a disputed credit transaction, a consumer reporting agency may rely on the accuracy of a creditor's ledger sheets and need not require the creditor to produce documentation such as the actual signed sales slips. Depending on the nature of the dispute, reinvestigation and verification may require more than asking the original source of the disputed information the same question and receiving the same answer. If the original source is contacted for reinvestigation, the consumer reporting agency should at least explain to the source that the original statement has been disputed, state the consumer's position, and then ask whether the source would confirm the information, qualify it, or accept the consumer's explanation. 3. Complaint of Insufficient File, or Lack of File The FCRA does not require a consumer reporting agency to add new items of information to its file. A consumer reporting agency is not required to create new files on consumers for whom it has no file, nor is it required to add new lines of information about new accounts not reflected in an existing file, because the section permits the consumer to dispute only the completeness or accuracy of particular items of information in the file. If a consumer reporting agency chooses to add lines of information at the consumer's request, it may charge a fee for doing so. 4. Explanation of Extenuating Circumstances A consumer reporting agency has no duty to reinvestigate, or take any other action under this section, if a consumer merely provides a reason for a failure to pay a debt (e.g., sudden illness or layoff), and does not challenge the accuracy or completeness of the item of information in the file relating to a debt. Most creditors are aware that a variety of circumstances may render consumers unable to repay credit obligations. Although a consumer reporting agency is not required to accept a consumer dispute statement that does not challenge the accuracy or completeness of an item in the consumer's file, it may accept such a statement and may charge a fee for doing so. 5. Reinvestigation of a Debt A consumer reporting agency must reinvestigate if a consumer conveys to it a dispute concerning the validity or status of a debt, such as whether the debt was owed by the consumer, or whether the debt had subsequently been paid. For example, if a consumer alleges that a judgment reflected in the file as unpaid has been satisfied, or notifies a consumer reporting agency that a past due obligation reflected in the file as unpaid was subsequently paid, the consumer reporting agency must reinvestigate the matter. If a file reflects a debt discharged in bankruptcy without reflecting subsequent reaffirmation and payment of that debt, a consumer may require that the item be reinvestigated. 6. Status of a Debt The consumer reporting agency must, upon reinvestigation, ``record the current status'' of the disputed item. This requires inclusion of any information relating to a change in status of an ongoing matter (e.g., that a credit account had been closed, that a debt shown as past due had subsequently been paid or discharged in bankruptcy, or that a debt shown as discharged in bankruptcy was later reaffirmed and/or paid). [[Page 510]] 7. Dispute Conveyed to Party Other Than the Consumer Reporting Agency A consumer reporting agency is required to take action under this section only if the consumer directly communicates a dispute to it. It is not required to respond to a dispute of information that the consumer merely conveys to others (e.g., to a source of information). (But see, however, discussion in section 607, item 3A, of consumer reporting agencies' duties to correct errors that come to their attention.) 8. Dispute Conveyed to the Consumer Reporting Agency by a Party Other Than the Consumer A consumer reporting agency need not reinvestigate a dispute about a consumer's file raised by any third party, because the obligation under the section arises only where an ``item of information in his file is disputed by the consumer.'' 9. Consumer Disclosures and Adverse Action Not Prerequisites to Reinvestigation Duty A consumer reporting agency's obligation to reinvestigate disputed items is not contingent upon the consumer's having been denied a benefit or having asserted any rights under the FCRA other than disputing items of information. 10. Reasonable Period of Time A consumer reporting agency is required to reinvestigate and record the current status of disputed information within a reasonable period of time after the consumer conveys the dispute to it. Although consumer reporting agencies are able to reinvestigate most disputes within 30 days, a ``reasonable time'' for a particular reinvestigation may be shorter or longer depending on the circumstances of the dispute. For example, where the consumer provides documentary evidence (e.g., a certified copy of a court record to show that a judgment has been paid) when submitting the dispute, the creditor may require a shorter time to reinvestigate. On the other hand, where the dispute is more complicated than normal (e.g., the consumer alleges in good faith that a creditor has falsified its report of the consumer's account history because of a personal grudge), the ``reasonable time'' needed to conduct the reinvestigation may be longer. 11. Frivolous or Irrelevant The mere presence of contradictory information in the file does not provide the consumer reporting agency ``reasonable grounds to believe that the dispute by the consumer is frivolous or irrelevant.'' A consumer reporting agency must assume a consumer's dispute is bona fide, unless there is evidence to the contrary. Such evidence may constitute receipt of letters from consumers disputing all information in their files without providing any allegations concerning the specific items in the files, or of several letters in similar format that indicate that a particular third party (e.g., a ``credit repair'' operator) is counselling consumers to dispute all items in their files, regardless of whether the information is known to be accurate. The agency is not required to repeat a reinvestigation that it has previously conducted simply because the consumer reiterates a dispute about the same item of information, unless the consumer provides additional evidence that the item is inaccurate or incomplete, or alleges changed circumstances. 12. Deletion of Accurate Information That has not Been Disputed The consumer reporting agency is not required to delete accurate information that could not be verified upon reinvestigation, if it has not been ``disputed by a consumer.'' For example, if a creditor deletes adverse information from its files with the result that information could not be reverified if disputed, it is still permissible for a consumer reporting agency to report it (subject to the obsolescence provisions of section 605) until it is disputed. 13. Consumer Dispute Statements on Multiple Items A consumer who disputes multiple items of information in his file may submit a one hundred word statement as to each disputed item. 14. Conveying Dispute Statements to Recipients of Subsequent Reports. A consumer reporting agency may not merely tell the recipient of a subsequent report containing disputed information that the consumer's statement is on file but will be provided only if requested, because subsection (c) requires the agency to provide either the statement or ``a clear and accurate codification or summary thereof.'' Section 612--Charges for Certain Disclosures ``A consumer reporting agency shall make all disclosures pursuant to section 609 and furnish all consumer reports pursuant to section 611(d) without charge to the consumer if, within thirty days after receipt by such consumer of a notification pursuant to section 615 or notification from a debt collection agency affiliated with such consumer reporting agency stating that the consumer's credit rating may be or has been adversely affected, the consumer makes a request under section 609 or 611(d). Otherwise, the consumer reporting agency may impose a reasonable charge on the consumer for [[Page 511]] making disclosure to such consumer pursuant to section 609, the charge for which shall be indicated to the consumer prior to making disclosure; and for furnishing notifications, statements, summaries, or codifications to persons designated by the consumer pursuant to section 611(d), the charge for which shall be indicated to the consumer prior to furnishing such information and shall not exceed the charge that the consumer reporting agency would impose on each designated recipient for a consumer report except that no charge may be made for notifying such persons of the deletion of information which is found to be inaccurate or which can no longer be verified.'' 1. Irrelevance of Subsequent Grant of Credit or Reason for Denial A consumer denied credit because of a consumer report from a consumer reporting agency has the right to a free disclosure from that agency within 30 days of receipt of the section 615(a) notice, even if credit was subsequently granted or the basis of the denial was that the references supplied by the consumer are too few or too new to appear in the credit file. 2. Charge for Reinvestigation Prohibited This section does not permit consumer reporting agencies to charge for making the reinvestigation or following other procedures required by section 611 (a)-(c). 3. Permissible Charges for Services Requested by Consumers A consumer reporting agency may charge fees for creating files on consumers at their request, or for other services not required by the FCRA that are requested by consumers. Section 613--Public Record Information for Employment Purposes ``A consumer reporting agency which furnishes a consumer report for employment purposes and which for that purpose compiles and reports items of information on consumers which are matters of public record and are likely to have an adverse effect upon a consumer's ability to obtain employment shall-- (1) at the time such public record information is reported to the user of such consumer report, notify the consumer of the fact that public record information is being reported by the consumer reporting agency, together with the name and address of the person to whom such information is being reported; or (2) maintain 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. For purposes of this paragraph, items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments shall be considered up to date if the current public record status of the item at the time of the report is reported.'' 1. Relation to Other Sections A consumer reporting agency that complies with section 613(1) must also follow reasonable procedures to assure maximum possible accuracy, as required by section 607(b). 2. Alternate Methods of Compliance A consumer reporting agency that furnishes public record information for employment purposes must comply with either subsection (1) or (2), but need not comply with both. 3. Information From Another Consumer Reporting Agency If a consumer reporting agency uses information or reports from other consumer reporting agencies in a report for employment purposes, it must comply with this section. 4. Method of Providing Notice A consumer reporting agency may use first class mail to provide the notice required by subsection (1). 5. Waiver The procedures required by this section cannot be waived by the consumer to whom the report relates. Section 614--Restrictions on Investigative Consumer Reports ``Whenever a consumer reporting agency prepares an investigative consumer report, no adverse information in the consumer report (other than information which is a matter of public record) may be included in a subsequent consumer report unless such adverse information has been verified in the process of making such subsequent consumer report, or the adverse information was received within the three-month period preceding the date the subsequent report is furnished.'' Section 615--Requirements on Users of Consumer Reports (a) Whenever credit or insurance for personal, family, or household purposes, or employment involving a consumer is denied or the charge for such credit or insurance is increased either wholly or partly because of information contained in a consumer report from a consumer reporting agency, the user of the consumer report shall so advise the consumer against whom such adverse action has been taken and supply the name and address of the consumer reporting agency making the report. [[Page 512]] (b) Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly because of information obtained from a person 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, the user of such information shall, within a reasonable period of time, upon the consumer's written request for the reasons for such adverse action received within 60 days after learning of such adverse action, disclose the nature of the information to the consumer. The user of such information shall clearly and accurately disclose to the consumer his right to make such written request at the time such adverse action is communicated to the consumer. (c) No person shall be held liable for any violation of this section if he shows by a preponderance of the evidence that at the time of the alleged violation he maintained reasonable procedures to assure compliance with the provisions of subsections (a) and (b).'' 1. Relation to Other Sections and Regulation B Sections 606 and 615 are the only two sections that require users of reports to make disclosures to consumers. Section 606 applies only to users of ``investigative consumer reports.'' Creditors should not confuse compliance with section 615(a), which only requires disclosure of the name and address of the consumer reporting agency, and compliance with the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq. and Regulation B, 12 C.F.R. 202, which require disclosure of the reasons for adverse action. Compliance with section 615(a), therefore, does not constitute compliance with Regulation B. 2. Limited Scope of Requirements The section does not require that creditors disclose their credit criteria or standards or that employees furnish copies of personnel files to former employees. The section does not require that the user provide any kind of advance notification to consumers before a consumer report is obtained. (See section 606 regarding notice of investigative consumer reports.) 3. Method of Disclosure The disclosures required by this section need not be made in writing. However, users will have evidence that they have taken reasonable steps to comply with this section if they provide written disclosures and retain copies for at least two years, the applicable statute of limitations for most civil liability actions under the FCRA. 4. Adverse Action Based on Direct Information This section does not require that a user send any notice to a consumer concerning adverse action regarding that consumer that is based neither on information from a consumer reporting agency nor on information from a third party. For example, no disclosures are required concerning adverse action based on information provided by the consumer in an application or based on past experience in direct transactions with the consumer. 5. Creditors Using ``Prescreened'' Mailing Lists A creditor is not required to provide notices regarding consumer reporting agencies that prepare mailing lists by ``prescreening'' because they do not involve consumer requests for credit and credit has not been denied to consumers whose names are deleted from a list furnished to the agency for use in this procedure. See discussion of ``prescreening,'' under section 604(3)(A), item 6, supra. 6. Applicability to Users of Motor Vehicle Reports An insurer that refuses to issue a policy, or charges a higher than normal premium, based on a motor vehicle report is required to comply with subsection(a). 7. Securities and Insurance Transactions A consumer report user that denies credit to a consumer in connection with a securities transaction must provide the required notice, because the denial is of ``credit * * * for personal purposes,'' unless the consumer engages in such transactions as a business. 8. Denial o[hairsp]f Employment An employer must provide the notice required by subsection (a) to an individual who has applied for employment and has been rejected based on a consumer report. However, an employer is not required to send a notice when it decides not to offer a position to an individual who has not applied for it, because in this case employment is not ``denied.'' (See discussion in section 606, item 4, supra.) 9. Adverse Action Involving Credit A creditor must provide the required notice when it denies the consumer's request for credit (including a rejection based on a scoring system, where a credit report received less than the maximum number of points possible and caused the application to receive an insufficient score), denies the consumer's request for increased credit, grants credit in an amount less than the consumer requested, or raises the charge for credit. [[Page 513]] 10. Adverse Action Not Involving Credit, Insurance or Employment The Act does not require that a report user provide any notice to consumers when taking adverse action not relating to credit, insurance or employment. For example, a landlord who refuses to rent an apartment to a consumer based on credit or other information in a consumer report need not provide the notice. Similarly, a party that uses credit or other information in a consumer report as a basis for refusing to accept payment by check need not comply with this section. Checks have historically been treated as cash items, and thus such refusal does not involve a denial of credit, insurance or employment. 11. Adverse Action Based on Non-derogatory Adverse Information A party taking adverse action concerning credit or insurance or denying employment, ``wholly or partly because of information contained in a consumer report,'' must provide the required notice, even if the information is not derogatory. For example, the user must give the notice if the denial is based wholly or partly on the absence of a file or on the fact that the file contained insufficient references. 12. Name and Address of the Consumer Reporting Agency The ``section 615(a)'' notice must include the consumer reporting agency's street address, not just a post office box address. 13. Agency To Be Identified The consumer report user should provide the name and address of the consumer reporting agency from which it obtained the consumer report, even if that agency obtained all or part of the report from another agency. 14. Denial Based Partly on a Consumer Report A ``section 615(a)'' notice must be sent even if the adverse action is based only partly on a consumer report. 15. Denial of Credit Based on Information From ``Third Parties'' Subsection (b) imposes requirements on a creditor when it denies (or increases the charge for) credit for personal, family or household purposes involving a consumer, based on information from a ``third party'' source, which means a source other than the consumer reporting agency, the creditor's own files, or the consumer's application (e.g., creditor, employer, landlord, or the public record). Where a creditor denies a consumer's application based on information obtained directly from another lender, even if the lender's name was furnished to the creditor by a consumer reporting agency, the creditor must give a ``third party'' disclosure. 16. Substance of Required ``Third Party'' Disclosures When the adverse action is communicated to the consumer, the creditor must clearly and accurately disclose to the consumer his or her right to make a written request for the disclosure of the nature of the third party information that led to the adverse action. Upon timely receipt of such a request, however, the creditor need disclose only the nature of the information that led to the adverse action (e.g., history of late rent payments or bad checks); it need not identify the source that provided the information or the criteria that led to the adverse action. A creditor may comply with subsection (b) by providing a statement of the nature of the third party information that led to the denial when it notifies the consumer of the denial. A statement of principal, specific reasons for adverse action based on third party information that is sufficient to comply with the requirements of the Equal Credit Opportunity Act (e.g., ``unable to verify employment'') is sufficient to constitute disclosure of the ``nature of the information'' under subsection (b). Section 616--Civil Liability for Willful Noncompliance Section 616 permits consumers who sue and prove willful noncompliance with the Act to recover actual damages, punitive damages, and the costs of the action, together with reasonable attorney's fees. Section 617--Civil Liability for Negligent Noncompliance Section 617 permits consumers who sue and prove negligent noncompliance with the Act to recover actual damages and the costs of the action, together with reasonable attorney's fees. Section 618--Jurisdiction of Courts; Limitation of Actions Section 618 provides that any action brought under section 616 or section 617 may be brought in any United States district court or other court of competent jurisdiction. Such suit must be brought within two years from the date on which liability arises, unless a defendant has materially and willfully misrepresented information the Act requires to be disclosed, and the information misrepresented is material to establishment of the defendant's liability. In that event, the action must be brought within two years after the individual discovers the misrepresentation. [[Page 514]] Section 619--Obtaining Information Under False Pretense Section 619 provides criminal sanctions against any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses. 1. Relation to Other Sections The presence of this provision does not excuse a consumer reporting agency's failure to follow reasonable procedures, as required by section 607(a), to limit the furnishing of consumer reports to the purposes listed under section 604. Section 620--Unauthorized Disclosures by Officers or Employees Section 620 provides criminal sanctions against any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency's file to a person not authorized to receive it. Section 621--Administrative Enforcement This section gives the Federal Trade Commission authority to enforce the Act with respect to consumer reporting agencies, users of reports, and all others, except to the extent that it gives enforcement jurisdiction specifically to some other agency. Those excepted from the Commission's enforcement jurisdiction include certain financial institutions regulated by Federal agencies or boards, Federal credit unions, common carriers subject to acts to regulate commerce, air carriers, and parties subject to the Packers and Stockyards Act, 1921. 1. General The Commission can use its cease-and-desist power and other procedural, investigative and enforcement powers which it has under the FTC Act to secure compliance, irrespective of commerce or any other jurisdictional tests in the FTC Act. 2. Geographic Coverage The Commission's authority encompasses the United States, the District of Columbia, the Commonwealth of Puerto Rico, and all United States territories but does not extend to activities outside those areas. 3. Status of Commission Commentary and Staff Interpretations The FCRA does not give any Federal agency authority to promulgate rules having the force and effect, of statutory provisions. The Commission has issued this Commentary, superseding the eight formal Interpretations of the Act (16 CFR 600.1-600.8), previously issued pursuant to Sec. 1.73 of the Commission's Rules, 16 CFR 1.73. The Commentary does not constitute substantive rules and does not have the force or effect of statutory provisions. It constitutes guidelines to clarify the Act that are advisory in nature and represent the Commission's views as to what particular provisions of the Act mean. Staff opinion letters constitute staff interpretations of the Act's provisions, but do not have the force or effect of statutory provisions and, as provided in Sec. 1.72 of the Commission's Rules, 16 CFR 1.72, do not bind the Commission. Section 622--Relation to State Laws ``This title does not annul, alter, affect, or exempt any person subject to the provisions of this title 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 provision of this title, and then only to the extent of the inconsistency.'' 1. Basic Rule State law is pre-empted by the FCRA only when compliance with inconsistent State law would result in violation of the FCRA. 2. Examples of Statutes that are not Pre-empted A State law requirement that an employer provide notice to a consumer before ordering a consumer report, or that a consumer reporting agency must provide the consumer with a written copy of his file, would not be pre-empted, because a party that complies with such provisions would not violate the FCRA. 3. Examples of Statutes that are Pre-empted A State law authorizing grand juries to compel consumer reporting agencies to provide consumer reports, by means of subpoenas signed by a court clerk, is pre-empted by the FCRA's requirement that such reports be furnished only pursuant to an ``order of the court'' signed by a judge (section 604(1)), or furnished for other purposes not applicable to grand jury subpoenas (section 604 (2)-(3)), and by section 607(a). A State statute requiring automatic disclosure of a deletion or dispute statement to every person who has previously received a consumer report containing the disputed information, regardless of whether the consumer designates such persons to receive this disclosure, is pre-empted by section 604 of the FCRA, which permits disclosure only for specified, permissible purposes and by section 607(a), which requires consumer reporting agencies to limit the furnishing of consumer reports to purposes listed under section 604. Absent a specific designation by the consumer, the consumer reporting agency has no reason to believe all past recipients would have a [[Page 515]] present, permissible purpose to receive the reports. 4. Statute Providing Access for Enforcement Purposes A State ``little FCRA'' that permits State officials access to a consumer reporting agency's files for the purpose of enforcing that statute just as Federal agencies are permitted access to such files under the FCRA, is not pre-empted by the FCRA. (Information collection requirements in this appendix were approved by the Office of Management and Budget under control number 3084-0091) [55 FR 18808, May 4, 1990, as amended at 57 FR 4935, Feb. 11, 1992; 60 FR 45660, Sept. 1, 1995]