Banks, other consumer lenders and entities which use and/or furnish credit information to national consumer credit reporting agencies must be well versed on the FACT Act. The Fair and Accurate Credit Transaction Act of 2003 (“FACT Act”) significantly amends the Fair Credit Reporting Act mainly to combat identity theft. As outlined below the FACT Act establishes specific duties on consumer credit lenders and users of consumer credit bureau reports; duties which if are not met may lead to claims by consumers.

User Requirements:

The FACT Act includes several provisions aimed at protecting consumers from identity theft. For instance, if a Credit Bureau Report is requested by a user of credit information and the address provided by the user is substantially different from the one on record at a nationwide consumer reporting agency, then the user is alerted and must take steps to confirm the identity of the consumer. Further, procedures are to be put in place by the Federal Trade Commission (“FTC”) to assure consumer credit information is properly disposed of by businesses that regularly maintain compilations of that information.

Furnisher Obligations:

Guidelines are to be established by the FTC for furnishers of credit information to ensure the accuracy and integrity of that information. The duty to provide accurate information has been heightened in the FACT Act.

Under the FACT Act, consumers are able to dispute the accuracy of information furnished to a nationwide consumer reporting agency directly with the furnisher of the information. Upon receipt of a dispute, the furnisher must conduct an investigation, review relevant information provided by the consumer and do so within a specified time frame.

Furnishers must notify a borrower when negative information about a loan is reported to a consumer reporting agency.

Affiliate Sharing of Solicitations:

An entity that receives consumer report information from an affiliate cannot use that information to make marketing solicitations without first complying with the new notice and opt-out requirements unless there is already a relationship established between the entity and consumer.

Risk-Based Pricing Notice:

In the event credit is extended to a borrower, “on material terms that are materially less favorable than the most favorable terms available to a substantial portion” of its new credit customers, a notice must be provided to that borrower. The notice must include a statement that the terms are offered based upon information in a consumer’s credit report, the name of the consumer reporting agency used by the lender and the credit reporting agency’s contact information for receipt of a free credit bureau report.

Identity Theft Prevention and Mitigation:

The FACT Act establishes nationwide procedures whereby a fraud alert can be placed on a credit bureau report in the event a consumer has been a victim of identity fraud. Under the FACT Act, a user of a credit bureau report which has a fraud alert must utilize reasonable policies and procedures to form a reasonable belief that the user knows the identity of the person it is dealing with.

Parties that accept credit cards and debit cards at a point of sale transaction must not print the last five digits of the card number on any electronically printed receipt. In addition, the expiration date must be omitted.

The credit reporting agency must honor a consumer’s request to truncate the first five digits of a social security number when providing the consumer with a copy of a credit bureau report.

Red flag guidelines must be established by the FTC for use in recognizing identity theft.

Credit Reports and Credit Scores:

Consumers are allowed to receive one free credit bureau report annually from each national consumer reporting agency under the FACT Act. Further, credit reporting agencies must provide credit score information to consumers upon request if such scores are provided to users.

This article is to highlight points of the new FACT Act. A copy of the entire Act may be obtained from Poyner & Spruill upon request.

If you have questions regarding this publication, please contact Anna Gorman  at (704) 342-5276 or  agorman@poynerspruill.com.

This electronic publication is published by Poyner & Spruill LLP to provide general information about significant legal developments. Because the facts in each situation vary, the legal precedents noted herein may not be applicable to individual circumstances.