April 7, 2010Client Alert

The Federal Trade Commission’s Amendment to the Free Reports Rule Will Require Consumer Reporting Agencies to Make Additional Disclosures to Consumers

On April 2, 2010, an amendment to the Free Annual File Disclosures Rule (the “Free Reports Rule”) took effect. The amendment significantly affects all forms of advertisement by nationwide consumer reporting agencies (“CRAs”) for “free credit reports.” Some of the most significant changes (discussed in detail below) are that (i) advertisements must now carry a prominent disclosure notifying consumers of their right to a free credit report, (ii) CRAs may no longer require consumers sign up for an account before receiving a free credit report and (iii) CRAs may not advertise on the website, except on pages that are displayed to consumers after they have obtained their free credit report.

The Federal Trade Commission (“FTC”) originally promulgated the Free Reports Rule in 2004 to implement part of the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”). The Free Reports Rule delineates the procedures for consumers to obtain free annual file disclosures from CRAs, in other words, the procedures by which consumers receive free credit reports. The purpose of the Rule was to enable consumers to detect and to dispute inaccurate or incomplete information in the files of nationwide CRAs by providing the opportunity to obtain credit reports free of charge. Accordingly, the original Rule required the nationwide CRAs to jointly operate a centralized source from which consumers can obtain free credit reports. The centralized source has a website (, as well as a toll-free telephone number and mailing address.

The amendment to the Rule adds several restrictions on CRAs. First, CRAs must now make prominent disclosures in all advertisements for free credit reports. The amended Rule is very specific about the content and placement of the required disclosures and it covers television, radio, print and online advertisements. For instance, print advertisements must now contain the following disclosure:

You have the right to a free credit report at or 877–322–8228, the
ONLY authorized source under federal law.

Similarly, internet advertisements must provide the following disclosure:

You have the right to a free credit report from or 877–322–8228, the
ONLY authorized source under federal law.

The underlined portions in the internet disclosure must be functioning hyperlinks. The Rule has additional requirements that must be complied with according to the specifics of the particular advertisement.

Second, CRAs may no longer require consumers to establish an account or to agree to certain terms and conditions as a prerequisite to obtaining a free credit report. Before the rule change, consumers generally were unable to obtain their free credit report unless they signed up for an account with a CRA and agreed to certain terms and conditions. The amended Rule still allows CRAs to give consumers the option of establishing an account, but CRAs may no longer require the establishment of an account or agreement with terms and conditions before providing consumers with their free credit report.

Third, commercial advertisements on the site are limited to web pages that appear to a consumer after the consumer has obtained a free credit report. CRAs are also prohibited from placing hyperlinks on certain pages of the centralized website unless the hyperlink transports the consumer to a web page on which consumers can order a free credit report. Before the rule change, CRAs often advertised services for which they charged a fee on the centralized website. Notably, the amended Rule does not ban all CRA advertising on the centralized website; rather, CRAs must delay advertising until the consumer obtains a free credit report.

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