FACT Act Is a Reality
by Jack Holzknecht, Pegasus Educational Services, LLC
The President has signed HR 2622, which amends the Fair Credit Reporting Act (FCRA). The new law is called the Fair and Accurate Credit Transactions Act of 2003 (the FACT Act). The changes, with some exceptions, take effect in one year, after the agencies draft implementing regulations and will significantly impact bankers, credit bureaus, the regulators and consumers.
Changes that Impact Bankers
Among other changes, the FACT Act:
Creates significant consumer protection measures in the area of identity theft. Bankers will need to rewrite existing policies and procedures to accommodate the new protections.
Expands and makes permanent existing FCRA preemptions of state law. The existing preemptions were due to expire at the end of this year. The pending expiration of the preemptions provided the major incentive to complete the revisions before Congress adjourned. This is good news for the industry. Uniform national law overrides inconsistent state laws
Creates a new notice of action taken for borrowers who receive a loan on terms less favorable than those available to most other borrowers. This requirement increases the paperwork burden and may, depending on the wording of the notice, create a major PR problem.
Places new restrictions on sharing customer information with affiliated institutions.
Requires truncation of account numbers on printed receipts for both debit and credit cards.
Creates new standards for those who furnish information to credit reporting agencies (CRA), including a prohibition on furnishing or refurnishing identity theft information.
Requires a notice to a consumer before furnishing negative information (or no later than 30 days after) to a CRA.
Limits creditor use of medical information.
Identity Theft
Last year's USA PATRIOT Act laid the groundwork for identity theft legislation with the Customer Identification Program provisions. The issue of identity theft is a major focus of the FACT Act. The legislation includes provisions that:
Create a national fraud alert system that allows consumers to place "fraud alerts" in their credit reports to prevent identity thieves from opening accounts or obtaining loans in their names (includes special provisions for active duty military personnel);
Provide consumers with a one-call system to notify all credit bureaus of potential identity theft;
Require banks to develop policies and procedures (that are consistent with the CIP rules) to identify potential instances of identity theft;
Require credit and debit card issues to verify a consumer's address information if a request for a new card is received within 30 days after a change of address;
Require lenders to disclose their contact information on consumer reports;
Prohibit bankers and merchants from printing the expiration date of a debit or credit card or more than the last 5 digits of the account number on an electronic receipt (Effective date is 5 years for existing equipment and January 1, 2005 for new equipment);
Allow consumers to block information from being given to a credit bureau and from being reported by a credit bureau if such information results from identity theft;
Provide identity theft victims with a summary of their rights;
Require financial institutions to provide records evidencing a transaction resulting from identity theft to the victim of the theft within 30 days of a request.
New Notice of Action Taken
If a lender uses a consumer report in connection with an application for credit on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of that lender's customers, the lender must provide an oral, written, or electronic notice to the customer. The notice must, at a minimum:
Include a statement informing the consumer that the terms offered to the consumer are set based on information from a consumer report;
Identify the consumer reporting agency furnishing the report;
Include a statement informing the consumer that the consumer may obtain a copy of a consumer report from that consumer reporting agency without charge; and
Include the contact information (including a toll-free telephone number) specified by that consumer reporting agency for obtaining such consumer reports.
Other Issues
Other FACT Act provisions:
Give consumers the right to see their credit score and to receive a free annual copy of their credit report;
Require that CRAs remove consumers from lists used for prescreening offers of credit or insurance if a consumer has an active duty alert in their file;
Simplify the way consumers can limit unsolicited marketing offers; and
Ensure improved accuracy of credit reporting procedures.
When Are the Changes Effective
The FACT Act requires the Federal Reserve Board (Board) and the Federal Trade Commission (Commission) to "jointly prescribe regulations in final form establishing effective dates for each provision of this Act" before the end of the two-month period beginning on the date of enactment. The regulations are to be effective as early as possible, but in no case later than 10 months after the date of issuance of the final regulations. Add it up and it looks like final regulations within 12 months of enactment. (The date of enactment was December 4, 2003.) Certain sections of the regulations have prescribed effective dates, some shorter and some longer than those just discussed. Discussions with regulators indicate that while final regulations must be effective within 12 months, mandatory compliance dates may be extended as necessary to allow for operational changes, form development or other situations.
Needed Action
Little action is needed at present. The following steps will help ease compliance issues:
Timeframe
Action
Now
Review a copy of the law. Determine what aspects of loan and deposit operations will be affected by the changes.
ASAP
Conduct a brief review session with management of those areas likely to be impacted by the changes. Summarize the changes so management can incorporate those changes into current decision-making. For example, it would make little sense to implement an information-sharing program with affiliates without considering the impact of the FACT Act.
90 days to 9 months
Watch for proposed regulations. Perform a detailed analysis of the proposal and let the agencies know if their proposal will work and what needs to be done to make the proposal more workable. Update management on the impact of the proposal.
12 months
Publication of the final regulations marks the real start of the race. Begin development of new policies and procedures and revisions to existing policies and procedures. Plan operational changes. Plan training efforts.
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