A brief history of the Fair Credit Report Act (FCRA)
How did credit reports come to exist? Years ago, when a person went to the town general store and purchased something on credit, the retailer would write the purchase down on what was called a cuff. The cuff was a piece of paper rolled into a tube and worn on the clerk’s wrist. As the consumer made payments back to the retailer, the clerk would make those notes on his cuff. Nowadays, “cuffs” are sewn onto the end of a gentleman’s shirt sleeves and are no longer made of paper. This is also partially where the term “off the cuff” originated.
The cuff proved to be an imperfect system, leading savvy businessmen to the idea of gathering each retailer’s “cuff” information to make a list of “bad borrowers.” This was, essentially, the original form of credit reporting. In the beginning, these reports reflected only negative information. These lists would then be sold to lenders, letting them know about high risk borrowers. As these lists became more prominent, the categories of information they contained began to extend to more than just payment histories. Unfortunately, this led to unverified information being reported about both a person’s personal character and their risk as a borrower.
From here, cuffs evolved to roller skates. In a warehouse filled with filing cabinets of consumer data, a clerk would sit at a desk with roller skates on, answering calls and verifying requests for the data of a specific consumer. The clerk would then roll throughout the warehouse and find the requested data, and return to provide it to the person at the end of the line. The information they shared was often subjective, depending on how the clerk felt that day and what they wanted to say about the individual. By this point, credit reports were both unreliable and strictly confidential; most individuals didn’t know what information their report held, or that their information was being aggregated and reported, let alone that they could verify or dispute it. Ultimately, this set the stage for the legislation that guides our industry today. Enter the Fair Credit Reporting Act (FCRA) of 1971…
TheFCRA now divides credit information into two parts: investigative consumer reports and credit reports. The investigative consumer report was specific to personal references on character and morals, and the credit report included the objective information such as payment history.
Today, when lenders receive a credit report, they’ll receive only objective information, both good and bad pertaining to the person’s past financial/credit information. This eliminates the possibility of subjective information from unreliable (or prejudiced) sources ruining a person’s financial reputation. Thanks to advancements in the Fair Credit Reporting Act and related legislation, the credit reports delivered today contain factual and verifiable information that has disclosure requirements and can be disputed by the subject of the report. As the FCRA continued to evolve, it was determined that no secret databases may be used to make decisions about an individual’s life, that everyone has the right to see the information held about them, and that these documents no longer be available after a certain time.
Thanks to the FCRA and legislation like it, the background screening industry can service every industry’s screening needs with confidence.
ABOUT THE AUTHOR
Barton Taylor is the CEO/Founder of TazWorks, a technology company that provides software, tools, and technology to the largest number of independent background screening companies in the nation. Barton is a thought leader in the industry and is well-known and respected as one of the early trailblazers of background screening technologies for Consumer Reporting Agencies (CRAs).
Learn more about TazWorks at www.tazworksdev.wpengine.com