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Credit Industry Background

In the US, the cost of credit was largely unregulated until the 1960’s when Congress passed the Consumer Credit Protection Act (CCPA) which contained the Truth-in-Lending Act (TILA).  CCPA has since grown over the past 50 years to include many acts associated with consumer credit.  The purpose of TILA was to create a fair and transparent marketplace for consumer credit so that consumers could fairly shop the cost of credit among potential creditors.  TILA created requirements on how interest could and could not be calculated and it created a series of disclosure requirements that a creditor must provide to a consumer debtor on a contract.  Some such disclosure requirements are the Annual Percentage Rate (APR), Amount Financed, Finance Charge, and Total of All Payments including interest.  In this manner, a consumer could more easily shop for credit and assess what is the best deal for the consumer.

Credit reporting, or “consumer reporting” as it is more properly referred to, is nothing more than a sophisticated form of story-telling that, in general, today uses an automated means of interchangeable data to tell the story.

Credit reporting began in the late 1800’s when a grocery store owner realized that many of his customers kept on coming to his store every week.  The owner realized that he could begin to gather information about his clients such as their race, sex, marital status, mode of living, etc… and that he could sell this information to other local businesses so that they could decide if they wanted to extend, or refuse to extend, credit to these individuals if they ever cane to their store.  The company that was born is called Equifax and today is one of the big three consumer reporting agencies (or credit bureaus) in the US.

Needless to say, the opportunity for misinformation was present and the opportunity to discriminate against potential consumers based on their personal characteristics was a problem.  In 1971, Congress passed a law in order to regulate consumer reporting, known as the Fair Credit Reporting Act (FCRA) and it was designed to level the playing field between huge corporations and average consumers with regards to being able to address errors in credit reporting.

Today, credit reporting is largely through the distribution of data and the most commonly used data interchange format is known as Metro 2 and this format sets forth a set of standards that are designed to conform to the strict accuracy requirements set forth

Prior to FCRA, if a consumer did not agree with the completeness or accuracy of the information that a consumer reporting agency (CRA) said about the consumer, there was no existing statutory framework in place in order to help the consumer attempt to address the problem.  Rather, the typical remedy at hand was for the consumer to hire a lawyer and sue the CRA for common law violations such as defamation, negligence, and invasion of privacy.  Once the FCRA was passed, it restricted the ability for the consumer to sue a CRA for defamation, negligence, and invasion of privacy for reporting untruthful information under most circumstances and it also allowed the consumer to be able to obtain a copy of his credit file from the CRA’s.  It also created several pathways to dispute inaccurate information with the CRA’s.  So now, rather than having no statutory framework in place, the consumer and the CRA alike are guided by the FCRA which created a general process workflow for all things related to consumer reporting.

Many states have passed laws similar to the FCRA that a consumer can attempt to use in state court to address consumer reporting issues.  If a state law is used in state court, and a defendant feels as though the facts should actually be governed by the Federal law under the principal that federal law is superior to state law for matters that are similar, then the defendant can file a motion with the court to remove the case from state jurisdiction to federal jurisdiction.  Once this motion is filed, the case is automatically removed into federal court and then a federal judge is assigned to the case and he will make a judgment as to whether the case should remain in Federal court or whether the motion to remove was improper and the case should be remanded (brought back) to state court.