|Business Credit Law and Regulations
What Does It Mean to The Credit Professional???
The Fair and Accurate Credit Transaction Act of 2003, or commonly referred to as the Fact Act, amended the Fair Credit Reporting Act. The Fact Act was signed into law by President Bush on December 4, 2003.
The Fact Act is primarily aimed at providing consumers with more options to protect and monitor their credit. The Fact Act may spill over to businesses obtaining and using consumer credit reports. We examine how the Fact Act amends the Fair Credit Reporting Act, and how this may impact the credit professional.
Overview of the Fact Act
The Fact Act was passed because consumer reporting agencies have assumed a vital role in assembling and evaluating consumer credit information. Congress recognized a need to make sure that consumer reporting agencies exercise their responsibilities with fairness, impartiality, and respect a consumerís right to privacy by safeguarding private financial information.
The Fact Act Amends the Fair Credit Reporting Act
In 1996, the Fair Credit Reporting Act was amended. These amendments provided new consumer rights, but under these amendments, states were temporarily preempted from passing stronger protections in specific areas. The Fact act permanently reauthorizes the seven national uniformity provisions of the Fair Credit Reporting Act (FCRA) that were scheduled to expire on January 1, 2004.
The seven national uniformity provisions prevent states from creating conflicting legislation concerning the sharing of credit information, credit bureau reports, application information, and transaction and experience data.
Creating national uniformity in these areas allows business to have clear guidelines when using credit information and reporting fraud related to private financial information. Businesses should not be required to follow different legislation passed by 50 different states. Even more significant, is that the Fact Act has allowed the federal preemptive uniformity approach into the related arena of identity theft.
Before the enactment of the Fact Act, Congress had only passed one law in response to the growing crime of identity theft. Congress made identity theft a felony and ordered the FTC to coordinate federal efforts to monitor the crime.
Changes the Credit Professional May Anticipate as a Result of the Fact Act
The changes credit professionals experience should be relatively minimal. When extending credit to a sole proprietor, partnership, or when principals execute personal guarantees, obtaining consumer credit reports on the principals is helpful to determine creditworthiness. The FCRA still requires vendors to obtain express written consent from the customer in these circumstances before obtaining a consumer credit report.
The Fact Act does, however, govern how a vendor stores these consumer credit reports, process consumer fraud complaints, and a few other related areas.
Key Provisions of the Fact Act
The Fact Act enables consumers to obtain one free copy of their consumer credit report from certain reporting agencies during a twelve month period. The Fact Act also provides harsh new requirements on companies that trade or use consumer credit information. The Fact Act mandates that vendors and credit agencies improve their systems for dealing with consumer fraud complaints and sensitive information like credit card numbers.
The Fact Act also allows states to have the authority to continue to protect their residents from identity theft. States may pass legislation to supplement the Fact Act identity theft provisions as long the legislation does not upset the preemption mentioned above.
California recently passed SB3186. This legislation requires businesses, conducting business in California, to notify consumers when their private financial information may have been obtained improperly. Wells Fargo Bank has had to make three separate disclosures to thousands of their customers stating private financial information stored by Wells Fargo may have been obtained by fraudsters.
The recent breaches of security at CheckPointe, Inc., and LexisNexis, highlight the need for more security procedures and legislation to ensure private financial records cannot be accessed by fraudsters. While the Fact Act allows states to legislate additional requirements and remedies to help thwart those seeking to steal identities, legislating tough federal standards may be the only way to consistently provide consumers with protection, and give businesses notice of the requirements they must meet when using and storing private financial information.
Attempts to Stop the Epidemic of Identity Theft
One of the main goals of the Fact Act is to help consumers monitor their credit more effectively. The Fact Act helps to close the door on would be thieves of credit information by mandating that receipts for credit and debit card transactions may not include more than the last five digits of the card number or expiration date. The effective date of this provision is a long way off for some vendors and there are also some loopholes. The mandate does not apply to receipts that are by handwriting or by an imprint or copy of the card. If the credit processing machine was in use before July 1, 2005, the vendor has three years to comply. Also for machines in use after January 1, 2005, the vendor has one year to comply.
The first step for an identity theft victim to regain financial health is gaining copies of the fraudulent documents the thief used to steal their identity. As of June 1, 2004, a vendor that provides credit or products and services to an imposter using anotherís identity must give the victim copies of the documents used, such as applications for credit or transaction records. The vendor must also provide copies of the fraudulent documents to any Federal, state or local law enforcement agency the victim specifies.
There are exceptions though. A vendor is not required to turn over the fraudulent documents if they do not have a high degree of confidence that the consumer requesting the fraudulent documents actually owns the true identity. A vendor does not have to turn over the fraudulent documents if the request contains a misrepresentation of fact, or the information is internet navigational data.
A vendor can be sued for not turning over the requested fraudulent documents, but only from a government agency and if the vendor does not make a good faith effort to comply.
Usually the first notice a consumer receives that their identity has been stolen is when a collection agency calls them to collect a debt. If a vendor sends a debt to be collected by a collection agency, and the victim notifies the collection agency that the debt resulted from the theft of their identity, the collection agency under the Fact Act is required to give notice to the vendor. A vendor, once notified of the identity theft and the creation of a fraudulent account, cannot sell the debt or place it for collection. This provision took effect December 1, 2004.
The Fact Act will eventually require certain entities to institute procedures designed to catch identity theft before it takes place. There are certain events that are red flags to identity theft such as a change of address, a request for a replacement credit card, or efforts to reactivate a dormant credit account with a vendor. A consumerís ability to protect themselves from identity theft is limited. Much of the problem is a result of inadequate procedures on the part of businesses. The Fact Act instructs the Federal Trade Commission to adopt regulations that establish guidelines for red flag behavior and the proper response. These guidelines have yet to be published for public comment.
Irresponsible credit information disposal has led to many cases of identity theft. Under the Fact Act, if a vendor uses a consumer credit report for the extension of credit, the vendor must adopt procedures for the disposal of the reports. This provision is attempting to eliminate the wealth of information gained from fraudsters dumpster diving.
The Fact Act provides valuable new legislation which allows consumers to monitor and protect their credit more effectively. In the future, credit professionals should expect more federal legislation governing the storage, use, and protection of all forms credit information.
Reprinted by permission from The Trade Vendor Quarterly Blakeley & Blakeley