The FCRA's FACTual face-lift: What does it mean to you?Edward JamisonFACT Act,credit bureaus,consumer protection
On Nov. 5, 2003, the U.S. Senate reauthorized the Fair Credit
Reporting Act (FCRA) by a vote of 95 to two, with the House quickly
following suit. Following the vote, Congress further clarified the
parameters of the act by deciding in early December that the FCRA
would pre-empt all state laws, regardless of whether they were more
or less strict than the FCRA, and would actually prevent states
from enacting stricter measures. This made some state
lawmakers--especially those in California--furious, since
California is one of several states which does not feel it will
benefit from this new legislation. On the other hand, there are
many states that will benefit from the revised law, which Congress
has renamed "The Fair and Accurate Credit Transactions Act" (FACT
Act). To understand this discrepancy, let's review the act's
primary concepts.
Identity theft
The FACT Act attempts to prevent identity theft by allowing
consumers to report the fraud to only one credit bureau. The credit
bureaus will then be required to communicate with each other and
notify the other two of the fraud. This is important, because many
consumers only report fraud to one bureau, and therefore only get a
fraud alert with that particular bureau, allowing the thieves to
still have a chance of obtaining credit through companies that pull
their credit reports through one of the other bureaus. The credit
bureaus will also be required to place a fraud alert on the
consumer's file for no fewer than 90 days, unless the consumer
requests that it be removed earlier. The consumer can request that
this fraud alert remain on their file for up to seven years;
however, the consumer must be excluded from lists provided to
credit grantors for the first five years, unless the victim
requests to be included in those lists.
Fraud victims would also be entitled to two free credit reports
during the year the identity theft occurred. Credit grantors would
be required to contact a consumer by phone or some other reasonable
measure before granting new credit when there is a fraud alert on
their file. California state law offered even more protection in
this particular area, requiring that the consumer be contacted by
phone only, which gives the credit card companies less room to
maneuver when granting credit.
Under the FACT Act, credit bureaus would be required to block
information that was a result of fraud from appearing on a
consumer's credit report. The act goes an extra step in that it
also forbids credit bureaus from letting previously blocked
information reappear on the consumer's report. This is important,
because many creditors still update the consumer's report with
delinquencies that were a result of fraud. The credit bureaus are
now required to enact measures that prevent this from
happening.
Employment
Under older consumer-protection laws, employers were required to
obtain an employee's permission before they could pull the person's
credit report. This was interpreted to mean that an employee could
not be investigated for anything, even misconduct, unless their
permission was obtained first. The FACT Act makes exceptions to the
permission requirement in cases where a federal law may have been
violated or if there was employee misconduct, but the employee is
still entitled to a summary of the findings if adverse action is
taken against them as a result of the report pulled. Essentially,
though, employees have lost all of their rights in this area,
because an employer can claim almost anything as misconduct and
pull the employee's report without consent.
Credit reports
All consumers will be entitled to one free credit report every year
with information about their credit score and how it was derived.
This is good and bad for consumers, because the credit bureaus are
planning to outsource their consumer dispute divisions to other
countries as a result of the increased expense of complying with
this measure. Some fear that this will cause more fraud, since
countries with less strict laws than our own will be handling our
personal information, making it more probable that the information
will get into the wrong hands. In this day and age, such a fear can
lead people to imagine the worst type of nightmare scenarios: What
if terrorists assume your identity to gain access into this
country? The credit bureaus assure us that the outsource companies
will have the same strict security measures in place as the
divisions in the United States, but if the laws are not as strict
in that particular country, the deterrent factor will not be
there.
Consumers will be able to opt-out of pre-screened marketing
lists, but will not be able to prevent their current creditors from
sharing their information with affiliates. California state law
gave consumers the right to prevent even the affiliates from
getting the information, but the FACT Act's preemption provision
has taken that protection away. The problem is that many of these
companies have hundreds of affiliates with whom they can share your
information, and you have no say in the matter.
The FACT Act also bars retailers from printing more than the
last five digits of the credit card number on a receipt. This will
prevent dumpster-divers from being able to order goods with your
credit card numbers that appear on a discarded receipt. Retailers
have until 2007 to comply with this new provision.
Consumers will also be able to request that credit bureaus
abbreviate their social security number on their credit report.
Some will argue that consumers lose protection if they reside in
a state that already has its own tough measures, while states with
no consumer protection legislation win. I believe that all
consumers ultimately win once the pros and cons of the act are
weighed against one another. Overall, the FACT Act is a good law.
It offers many more protections than its predecessor, and
successfully achieves a balance between big-money lobbyist demands
and inflexible, far-left consumer watchdog groups.
Edward Jamison, Esq. is a consumer credit attorney based in
Los Angeles. He may be reached by phone at (310) 943-7820 or e-mail
[email protected].
