FCRA Preempts State Credit Reporting Laws, Says Federal Court

A federal district court has ruled that the Fair Credit Reporting Act (FCRA) preempts state credit reporting laws, curtailing the ability of state governments to place restrictions or regulations on credit reporting practices. In effect, this means that states can only put laws about credit reporting into place when they do not conflict with the FCRA. This decision has raised concerns among privacy advocates and labor advocates, who are concerned about how credit reporting might be abused.

What is the FCRA?

The FCRA is the law that governs how credit reporting is regulated in the United States. Among other things, it dictates who may apply for a credit report, under what conditions they may apply for a credit report, and what liability someone faces for abuse of the credit reporting system. Given that credit reports are used by businesses for a variety of reasons, including making determinations about issuing loans, renting out to potential tenants, and even employment decisions about individual employees, the FCRA has a substantial impact on both people and businesses every day.

What is This Lawsuit?

            The lawsuit was brought after Maine’s state legislature passed laws intended to supplement the FCRA, restricting what could be included as part of a credit report. Two amendments in particular were the subject of litigation: one would prevent medical debt from being included in credit reports, while the other would exclude any debt that was the result of “economic abuse.” A trade association sued to have these amendments struck down for contradicting the FCRA’s terms on what could (or could not) be included in a credit report.

What Was the Ruling?

The federal district court ruled that the two amendments in question were preempted by the FCRA under the Supremacy Clause of the United States Constitution. In effect, this means that the two amendments contradict federal law, and where there is a dispute between state and federal law, federal law shall be supreme. This could place a damper on other similar efforts to limit what can be included in credit reports at the state level, because they must concern themselves with not contradicting the requirements of the FCRA.

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