Partners, Volume 15, Number 1, 2005

Identity Violations Spur Changes to Fair Credit Reporting Act

Large-scale thefts of social security numbers and credit report data have been making the national news lately as identity crooks become more sophisticated and expansive in their targets.

Why steal one identity at a time when you can steal thousands by posing as a legitimate small business?

Recent changes to the Fair Credit Reporting Act (FCRA) in response to increasing incidents of identity theft will provide lenders, consumers, and law enforcement agencies with a new arsenal to combat fraud. Enacted in 2003, the Fair and Accurate Credit Transactions Act (FACT Act) affords consumers more protections than ever before.

Identity theft case affects thousands
Large-scale identity theft can have widespread consequences. In February 2005, ChoicePoint Inc., a data aggregation company, announced it was the victim of a detailed fraud, perpetrated through organized crime. As a result, personal information was released for nearly 145,000 people.

According to ChoicePoint’s web site, the exposed files included individuals’ names, addresses, social security numbers, credit information, and other matters of public record, such as bankruptcies, liens, professional licenses, and real property data. An article in the Los Angeles Times on March 2, 2005 reported that, according to California court records, ChoicePoint suffered a similar incident of fraud in February 2002. Consumers are clearly becoming more vulnerable to identity theft as criminals become more resourceful.

How can the Fair and Accurate Credit Transactions Act help?
The Federal Trade Commission (FTC) estimates that approximately 10 million individuals were victims of identity theft in 2002. The increasing number of cases was one of the catalysts for the Fair and Accurate Credit Transactions (FACT) Act amendments to the FCRA. The legislation not only aims to prevent identity theft but also provides recourse for identity theft victims and addresses privacy concerns.

The FACT Act adds new protections to the FCRA through the following measures:

  • Allows consumers to obtain one free credit report annually from each of the three main credit report ing agencies.
  • Allows consumers to place fraud alerts and military active duty alerts on their credit reports.
  • Mandates the truncation of card information, account numbers, and social security numbers on receipts.
  • Allows identity theft victims to obtain copies of the impostor’s account application and transactions.
  • Requires collection agencies to inform creditors if a debt is the result of identity theft and restricts creditors from selling or placing such debt for collection.
  • Requires financial institutions to adopt procedures designed to spot and “red flag” events usually associated with identity theft.
  • Requires consumer reporting agencies and any busi nesses that use consumer reports to adopt procedures for their proper disposal.
  • Requires that identity theft victims receive a noticeof rights from credit reporting agencies.
  • Allows consumers to request their credit scores along with the factors that went into computing the scores.
  • Requires lenders to reveal a customer’s credit score and provide four reasons for the score when the customer applies for credit.
  • Requires lenders who receive notice of a dispute to investigate the claim and provide notice to credit reporting agencies that the negative information is being disputed.
  • Requires creditors to send customers a notice before or no later than 30 days after negative information is furnished to a credit bureau (for example, late payments, missed payments, partial payments, or any other form of default on the account).
  • Prohibits consumer reporting agencies from reporting the name, address, and telephone number of any medical creditor unless the information is provided in codes that do not identify or infer the provider of care or the individual’s medical condition.
  • Allows consumers to obtain one free annual report from “nationwide specialty consumer reporting agencies” that issue non-credit reports, if the report relates to the following information: medical records or payments; residential or tenant history; check writ- ing history; employment history; or insurance claims.

Credit counseling agency gives high marks for greater access to credit reports
According to Suzanne Boas, president of Consumer Credit Counseling Service (CCCS) of Atlanta Inc., unsecured debt has become much more widely available during the 12 years she has directed the nonprofit agency. She states that since credit scores are the principal determining factor in approving credit cards, it is “timely that changes be made to give consumers better access to the information they need.”

When are free credit reports available in my state?  
Western States December 1, 2004
MidwestStates March 1, 2005
Southern States June 1, 2005
Eastern States & all U.S. Territories September 1, 2005

CCCS has been educating consumers for years to request their credit reports. Ms. Boas sees the changes to the FCRA as especially significant for residents outside the seven states that already require free credit reports—Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont.

Reactions from credit reporting agencies and lenders
Credit reporting agencies have made adjustments to comply with new stipulations that mandate free credit reports for all consumers. In states like Georgia, however, residents are already entitled to two free credit reports annually. To offset the additional costs of issuing free yearly credit reports to consumers who apply for them, the credit bureaus have recently increased the price of reports for financial institutions, thus shifting part of the FACT Act compliance costs onto lenders, the primary purchasers of credit reports.

Lenders too have their fair share of worries and compliance burdens. For example, through the FACT Act consumers have the right to dispute credit reporting errors directly with the lender in question. A senior attorney at the American Bankers Association states that “everyone in the banking community is anticipating that there will be more [credit-reporting] disputes.”

The impact of these disputes will not be fully felt until the fall of 2005 when free credit reports become available nationwide. Eligibility for free reports will be phased in, depending on the consumer’s state of residence (see chart).

SunTrust Bank’s corporate privacy officer, Cliff Bussard, is generally upbeat with respect to the FACT Act amendments to the FCRA. He states that SunTrust has already implemented many of the FACT Act provisions, such as truncating account numbers on receipts. Furthermore, he is pleased that more consumers will be tracking their credit reports. His primary concern at this stage is the uncertainty of some of the rules that have yet to be finalized and implemented.

Be proactive about identity theft
Recent data losses by ChoicePoint, Bank of America, and other major companies highlight the reasons why the FCRA, legislation that addresses a convergence of concerns about privacy and identity theft, was recently amended. It is safe to say that all organizations retaining sensitive consumer information will be held to a higher standard in the years to come. Privacy advocates are already pushing for a national security notification law to alert affected customers when a company experiences a theft of paper files and/or electronic security breach.

But don’t wait for a notice in your mailbox informing you that your identity has been stolen. For more information on how to obtain your free credit report, see the website at or call 877-322-8228.

This article was written by Joe Cassar, senior consumer affairs examiner at the Atlanta Fed.

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