April 25, 2007
CREDIT SCORES AND CREDIT REPORTS
By: Daniel Duffy, Principal Analyst
You asked if federal law preempts a state's ability to require credit reporting agencies to include a consumer' credit score in the free annual credit report.
This office is not authorized to render legal opinions and this report should not be considered as one.
It does not appear that the state can require credit reporting agencies to include a credit score in the free annual report. The basic rule under the federal Fair Credit Reporting Act (FCRA) is that it does not preempt state laws unless they are inconsistent with the federal law and then, only to the extent of the inconsistency. But despite the general rule, there are certain specific areas under FCRA in which federal law preempts state laws.
The Fair and Accurate Credit Transactions Act of 2003 (FACTA) amends FCRA. The amendments include provisions entitling consumers to (1) free annual credit reports from each of the three nationwide credit reporting agencies (Equifax, Experian, and TransUnion) and certain other specialty credit reporting agencies and (2) their credit scores for a “fair and reasonable fee.” At the same time, FACTA extended and established preemptions about credit reports and credit scores.
RIGHTS TO FREE ANNUAL CREDIT REPORTS
FACTA gives a consumer the right to a free credit report annually from the three major credit reporting agencies and nationwide specialty credit reporting agencies. The duty applies only if the request is made using the centralized system the act establishes. In practice, free credit reports may be obtained from one or all of the three main credit reporting agencies from a website (AnnualCreditReport.com).
FACTA states that consumer reports must contain “all of the information in a consumer's file at the time of the request…” (15 USCA § 1681g (a)(1)). But it states that it must not be construed to require disclosure of “any information concerning credit scores or any other risk scores or predictors relating to the consumer” (15 USCA § 1681g (a)(1)(B)).
FACTA requires the FTC to prepare a model summary of consumer rights for: (1) obtaining and disputing information in consumer reports, and (2) obtaining credit scores. It requires the credit reporting agencies to include with their disclosures, the summary, a toll-free number, a list of enforcement agencies, and a statement that accurate derogatory information will not be removed from consumer reports (15 USCA § 1681g(c)).
RIGHT TO OBTAIN CREDIT SCORES
Another provision in FACTA establishes a consumer's right to obtain his credit score (15 USCA § 1681g (f)). It defines “credit score” as a number or categorization derived from a statistical tool or model used by someone to predict the likelihood of certain credit behaviors, such as default. The law requires the credit score disclosure to include:
1. the consumer's current score or the most recent score that was previously calculated for a purpose related to extending credit;
2. the range of possible credit scores under its model;
3. all of the key factors that adversely affected the consumer's credit score, up to four;
4. the date the score was created; and
5. the name of the person or entity that provided the credit score or the data on which the score was created.
The law defines “key factors” as including all relevant factors adversely affecting an individual's credit score listed in order of importance based on their effect on the score. If a key factor consists of the number of inquiries made concerning a consumer report, the law requires the agency to include that factor in the disclosure without regard to the limit of four key factors.
The law requires agencies to report credit scores that are derived from a model that it distributes widely to users in connection with real estate transactions or that helps consumer to understand the credit scoring assessment of the consumer's behavior and predictions about his future credit behavior.
The law allows an agency to “charge a fair and reasonable fee, as determined by the Commission, for providing the information required…” (15 USCA § 1681 (f)(8)).
RELATIONSHIP OF FEDERAL TO STATE LAW
The basic rule for FCRA preemption is that state laws are preempted only if they are inconsistent with FCRA and then, only to the extent of the inconsistency (15 USCA 1681t (a)). There are several exceptions to the basic rule where the federal law specifically preempts state laws.
About the content of credit reports, federal law states, “No requirement or prohibition may be imposed under the laws on any State…with respect to any subject matter regulated under…section 1681c of this title, relating to information contained in consumer reports…” (15 USCA § 1681t (b)(1)(E)).
About the disclosure of credit scores, federal law states, “No requirement or prohibition may be imposed under the laws on any State…relating to the disclosure of credit scores for credit granting purposes…” (15 USCA § 1681t (b)(3)).