Fair and Accurate Credit Transactions Act (FACTA)

The FTC has released a guidance document that clarifies the scope of its Red Flags for Identity Theft Prevention Rule (“the Red Flags Rule”) and provides a practical four step guide for covered entities to assess compliance.

The Red Flags Rule requires certain businesses and organizations to have in place a written identity theft program designed to detect “red flags” indicative of identity theft and take appropriate steps to prevent it. While the Red Flags Rule has always applied to “financial institutions” and “creditors,” the scope of the term “creditors” has generated some confusion. The initial Red Flags Rule defined “creditor” broadly by reference to the definition in the Equal Credit Opportunity Act and arguably covered any company that extended credit by allowing a customer to defer payment. This would include most businesses and service providers, including retailers, doctors, and lawyers.

After allegations that such a broad definition exceeded the FTC’s authority under the Fair and Accurate Credit Transactions Act (“the FACT Act”), Congress reacted by passing the Red Flag Program Clarification Act of 2010. The Act clarifies that for the purposes of the FACT Act, creditor means only those creditors that regularly and in the ordinary course of business either: (1) obtain or use consumer reports in connection with a credit transaction, (2) furnish information to consumer reporting agencies in connection with a credit transaction, or (3) advance funds to or on behalf of a person, based on an obligation of the person to repay. The Act further clarifies that creditor does not include an entity that “advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person."

Continue Reading FTC Issues Guidance to Clarify Scope and Requirements of Red Flags for Identity Theft Prevention Rule

Businesses have until July 1, 2010 to comply with the new rules and guidelines under the Fair and Accurate Credit Transactions Act (“FACTA”), which amended the Fair Credit Reporting Act (“FCRA”), adopted by the Federal Trade Commission nearly a year ago relating to information provided to credit reporting agencies. Many know FACTA as the statute that allows consumers to request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian, and TransUnion), or the Act that contains provisions to help reduce identity theft. These new guidelines are designed to increase the accuracy and integrity of the information that furnishers provide to credit reporting agencies. The rules, in turn, require furnishers to establish reasonable written policies and procedures that implement the guidelines. The policies and procedures that furnishers are required to establish will vary depending on the “nature, size, complexity, and scope of each furnisher’s activities.” 16 C.F.R. § 660.3(a).

The rules also provide consumers an additional avenue to challenge the accuracy of information used to generate their credit rating. Historically, consumers were encouraged to deal with the credit reporting agency about the accuracy of such information. Under the new FACTA rules, furnishers are now required, in most cases, to investigate disputes that are submitted directly to them by consumers regarding the accuracy of information that furnishers provided to a credit reporting agency.

Click here to review the final inter-agency rules and guidelines.

Last week , the Federal Trade Commission, jointly with other federal agencies that regulate financial institutions, released "frequently asked questions" designed to provide additional assistance to companies required to comply with new identity theft rules pursuant to the Fair and Accurate Credit Transactions Act ("FACTA") . 

Those rules were issued in November 2007. Under the regulations, financial institutions are required to develop and implement written programs to detect and respond to possible identity theft as indicated by certain "red flags." These newly required programs were to be in place on or before November 1, 2008.

The FAQs are the latest step in a number of efforts by the FTC and others to assist companies in complying with the new FACTA rules. For instance, in July 2008, the FTC launched an outreach program to explain the rules in greater detail, to clarify the types of institutions to which the rules apply, and to offer guidance as to how these institutions can comply. That outreach effort included an alert providing information relating to definitions and terms used in the rules, including the definitions of “financial institution,” “creditor,” “transaction account,” and “covered account.” In addition, the alert addressed five categories of “red flag” activities.

Financial institutions should continue to monitor for guidance from the federal agencies, and/or consult with counsel, regarding their compliance with the new FACTA rules.

Which among the following businesses are potentially subject to consumer financial services laws, rules, and regulations?

A. a retail clothing chain
B. a bank or mortgage company
C. an internet retailer
D. a fast food franchisor
E. all of the above

If you answered E, “All of the above,” you are CORRECT. However, many companies do not realize their businesses are subject to consumer financial services laws. Consequently, their businesses may not be compliant and may be subject to litigation risk.

The focus of the Consumer Finance Law Blog is to keep – all on one site – traditional and non-traditional financial service providers subject to consumer financial services laws abreast of recent developments in:

  • State consumer protection statutes and regulations
  • State privacy statutes
  • Privacy and consumer protection litigation
  • Card Association Rules
  • Equal Credit Opportunity Act
  • Electronic Funds Transfer Act
  • Fair Credit Reporting Act
  • Fair Credit Transactions Act
  • Fair Debt Collection Practices Act
  • Payment Card Industry Data Security Standard
  • State Money Transmitter Statutes
  • State Retail Installment Sales Act
  • State and Federal Unfair and Deceptive Trade Practices Acts
  • TILA, RESPA, and related federal and state consumer disclosure and notice requirements
  • Insurance coverage issues
  • Legislation that may impact company compliance or create new litigation risk.

We welcome you and hope that you find our posts interesting, educational, and thought provoking. We also welcome your feedback and invite you to suggest topics or recent decisions of interest that you would like us to address.