FACTA

The FACTA Act contains seven major titles: Identity Theft Prevention and Credit History Restoration, Improvements in Use of and Consumer Access to Credit Information, Enhancing the Accuracy of Consumer Report Information, Limiting the Use and Sharing of Medical Information in the Financial System, Financial Literacy and Education Improvement, Protecting Employee Misconduct Investigations, and Relation to State Laws.

Identity Theft Prevention and Credit History Restoration

This title of the act contains provisions that deal mainly with the prevention of identity theft. In particular, it establishes new regulations concerning ‘fraud alerts’ and ‘active duty alerts’, establishes new limitations on the printing of customers’ credit card numbers on receipts, and prescribes that new regulations be established by certain government agencies regarding the detection of identity theft by financial institutions and creditors.

Fraud Alerts

The title requires that consumer reporting agencies, upon the request of a consumer who believes he is or about to be a victim of fraud or any other related crime, must place a fraud alert on that consumer’s file for at least 90 days, and notify all other consumer reporting agencies of the fraud alert. Furthermore, such consumer may request an extended fraud alert, in which case requires the reporting agency to disclose this fraud alert in any credit score that it issues for the consumer during a seven year period. An extended alert also requires the reporting agency to exclude the consumer from any list distributed to third parties for the purpose of extending credit or offering insurance to that consumer. The title also provides for any active duty member to request an active duty alert, which requires the reporting agency to disclose such alert with any credit report issued within 12 months of the request and to exclude the active duty member from any list distributed to third parties for the purpose of extending credit or offering insurance for two years from the request.

Truncation of Credit and Debit Card Numbers

The act also prohibits businesses from printing more than 5 digits of any customer’s card number or card expiration date on any receipt provided to the cardholder at the point of sale or transaction. The provision excludes receipts that are handwritten or imprinted, where the only method of recording the credit card number is by such means. The act did not become effective for three years after its enactment for any cash register manufactured before January 1, 2005, and did not become effective for one year after its enactment for any cash register manufactured after January 1, 2005.

Identification of Possible Instances of Identity Theft (Red Flags Rule)

The act established so-called Red Flags Rule, which required the Federal banking agencies, the National Credit Union Administration, and the Federal Trade Commission to jointly create regulations regarding identity theft prevention applicable to financial institutions and creditors. The Red Flags Rule also address how card issuers must respond to changes of address.Regulations that were established as a result include:

• One that requires financial institutions or creditors to develop and implement an Identity Theft Prevention Program in connection with both new and existing accounts. The Program must include reasonable policies and procedures for detecting, preventing, and mitigating identity theft;
• Another that requires users of consumer reports to respond to Notices of Address Discrepancies that they receive; and
• A third that places special requirements on issuers of debit or credit cards to assess the validity of a change of address if they receive notification of a change of address for a consumer’s debit or credit card account and, within a short period of time afterward they receive a request for an additional or replacement card for the same account.

Another key item was the requirement that mortgage lenders provide consumers with a Credit Disclosure Notice that included their credit scores, a range of scores, credit bureaus, scoring models, and factors affecting their scores. This form is typically available from credit reporting agencies, and many will send this directly to the consumer on the lenders’ behalf.

Confusion with the Scope of the Red Flags Rule

Financial institutions faced a mandatory deadline of November 1, 2008, to comply with the Red Flags Rule, section 114 and 315 of the Fair and Accurate Credit Transactions (FACT) Act. However, due to widespread confusion over coverage under the act, specifically, whether the term “creditor” applies to particular businesses, members of Congress have repeatedly requested that FTC postpone the deadline for compliance with Section 315 until after December 31, 2010.

According to a Business Alert issued by the Federal Trade Commission in June 2008, the Red Flags Rule apply to a very broad list of businesses including “financial institutions” and “creditors” with “covered accounts”. A “creditor” is defined to include “lenders such as banks, finance companies, automobile dealers, mortgage brokers, utility companies and telecommunications companies”. However, this is not an all-inclusive list.

The regulations apply to all businesses that have “covered accounts”. A “covered account” includes any account for which there is a foreseeable risk of identity theft. For example, credit cards, monthly billed accounts like utility bills or cell phone bills, social security numbers, drivers license numbers, medical insurance accounts, and many others. This significantly expands the definition to include all companies, regardless of size, that maintains, or otherwise possess, consumer information for a business purpose. Because of the broad definitions in these regulations, few businesses will be able to escape these requirements.

Summary of Rights of Identity Theft Victims

Provisions in this title require that the Federal Trade Commission, in consultation with the Federal banking agencies and the National Credit Union Agency, “prepare a model summary of the rights of consumers … with respect to the procedures for remedying the effects of fraud or identity theft…”. Beginning sixty days after the summary of these rights were established, all reporting agencies are required to provide a copy of this summary to any consumer that contacts an agency and states that he believes he has been a victim of fraud or identity theft.

Blocking of Information Resulting from Identity Theft

The Act also allows requires any reporting agency to block the reporting of any information in a consumer’s file that the consumer identifies as information that originated from an alleged identity theft. Such agency must block the information within four days of receiving a proof, a copy of an identity theft report, the identification of the information by the consumer, and a statement from the consumer that the information is not a result of any transaction he participated in.

Agencies are not required to block any information (and may rescind any existing blocks) in the case that the block was found to be made in error or based on erroneous information as provided by the consumer, or that the consumer “obtained possession of goods, services, or money as a result of the blocked transaction or transactions.

Coordination of Identity Theft Complaint Investigations

This section requires that all consumer reporting agencies develop a means of communicating with each other consumer complaints regarding fraud or identity theft, or requests for fraud alerts or blocks. Furthermore, the section requires that each consumer reporting agency release a report each year to the Federal Trade Commission of fraud alert requests and complaints involving fraud or identity theft received by the reporting agency. Finally, the section requires the Federal Trade Commission to set-up a means by which consumers can contact the reporting agencies and creditors with a complaint involving identity theft or fraud.