Do you have customers who, but for a mistaken entry on their credit report, would otherwise qualify for a mortgage? Recognizing the importance of the credit reporting system, and its potential for error, Congress, in 1970, enacted the Fair Credit Reporting Act (Title 15, United States Code, Section 1681 et seq). Among its purposes was to require credit reporting agencies to adopt procedures to meet the needs of commerce for accurate credit information, while recognizing the consumer’s need for confidentiality and relevancy. Though the Act has many provisions, there are a handful of sections which are especially useful to a typical borrower.
If a consumer is denied credit because of information contained in a credit report, the lender must notify him of the credit agency which generated the report (section 1681m). Upon request of the consumer, every credit reporting agency shall provide a credit report identifying all information in the file, the source of the information, and anyone who ordered a credit report on the borrower within the preceding six months. The agencies must also disclose the dates, payees, and amounts of any checks upon which any adverse credit characterization of the consumer is based (section 1681g). If the borrower requests the credit report within 30 days after being denied credit, the credit reporting agency must provide the report without charge (section 1681j).
Perhaps the most significant feature of the Fair Credit Reporting Act is section 1681i which allows a borrower to dispute the completeness or accuracy of any information contained in the credit file. The borrower needs to make the dispute known to the credit agency. It is strongly suggested that this notice be given in writing. The agency must then, within a reasonable period of time, reinvestigate the adverse information. If the information is found to be inaccurate or can no longer be verified, the credit agency must delete the disputed information (section 1681i(a)).
Following the deletion, the credit company must furnish notification of the deletion to any person designated by the borrower who has obtained a credit report on the creditor for employment purposes during the previous two years, and anyone who obtained a credit report for any other reason during the previous six months (section 1681i(d)). The reports must be furnished at no charge to the consumer (section 1681j).
If the reinvestigation does not resolve the dispute, the consumer may file a statement, not exceeding 100 words, identifying the nature of the dispute (section 1681i(b). This statement must then be added to the borrower’s credit file and be contained in all subsequent credit reports ordered.
In the event a consumer credit reporting agency fails to honor any of the requirements imposed by the Act, it is liable to the consumer for actual damages, costs of enforcement (including attorney fees), and punitive damages, if the agency’s failure is found to have been willful.
Armed with knowledge of the above, the conscientious borrower should be able to correct any inaccurate credit information which may creep into his or her credit file. This may be all you or your investor needs to approve a loan.