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Volume 5, Issue 2, 2005   Federal Reserve Bank of Dallas

Rollout of FACTA Complete
Residents of all 50 states are now eligible for an annual free credit report

According to a survey, one in four credit reports contains serious errors that could result in denial of credit, employment or insurance.[1] And identity theft is becoming an increasing concern for consumers. Government statistics report 10 million Americans are victims of some form of identity theft each year. The Fair and Accurate Credit Transactions Act (FACTA), signed into law in 2003, permanently establishes national standards relating to the type of information credit agencies can include in consumer credit reports and enhances provisions of the Fair Credit Reporting Act by giving consumers a tool for fighting identity theft. The act's goal is to ensure consumers are treated fairly and that loan decisions are based on information that is fair and accurate. The White House cites FACTA as a way "that all Americans, of every income level and background, are able to build good credit and confront the problem of identity theft."[2]

The primary intent of the numerous FACTA provisions is to give consumers the ability to review and monitor the information collected and distributed by credit reporting agencies and to limit the distribution or sharing of that information. One of FACTA's most significant provisions allows consumers the right to receive annually a free copy of their credit report from each of the three major credit bureaus (Experian, TransUnion and Equifax). The three nationwide consumer reporting companies have set up one central web site, toll-free telephone number and mailing address to order free reports. The official web site www.annualcreditreport.com Off-site page, which is relatively simple to navigate, features a list of frequently asked questions, including security issues. Consumers should beware of other sites that offer "free" reports—but only with a required purchase of other products.

Other important provisions of FACTA include fraud alerts, active military duty alerts and restrictions on the disclosure of credit card, debit card and Social Security numbers. It sets out rules for obtaining information once one becomes a victim of identify theft, establishes guidelines governing the actions of collection agencies when identity theft has occurred and restricts the disclosure of sensitive medical information. A Federal Reserve report, "An Overview of Consumer Data and Credit Reporting," found that over half the collections reported on credit reports were for medical debts.[3] Any medical-related reporting must be in codes and should not name the medical creditor or infer medical conditions.

FACTA provides some protection for military personnel by placing on their credit file an Active Duty Alert that is maintained for 12 months. Businesses asked to extend credit are alerted to verify that the application for credit is not a fraudulent request by an identity thief.

FACTA makes creditors more accountable in instances of fraud and allows consumers to contact creditors directly in identity theft situations. Creditors are required to investigate and are not allowed to report negative information while the investigation is pending. In the article "Taking Charge: Fighting Back Against Identity Theft," the Federal Trade Commission outlines steps to take immediately in the event of identity theft, including placing a fraud alert on your credit report.[4] This can be done by contacting one of the three credit reporting companies:

  • Equifax: 1-800-525-6285; www.equifax.com Off-site page; P.O. Box 740241, Atlanta, GA 30374-0241
  • Experian: 1-888-EXPERIAN (397-3742); www.experian.com Off-site page; P.O. Box 9532, Allen, TX 75013
  • TransUnion: 1-800-680-7289; www.transunion.com Off-site page; Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, CA 92834-6790

The alert can be placed on your credit report for 90 days (initial alert) or seven years (extended alert).

Another significant provision of FACTA is the requirement that financial institutions adopt procedures to "red flag" possible identity theft before it occurs. Requests for a change of address, replacement of debit or credit cards, or reactivation of dormant account could all point to a security breach.

Consumer credit reports obtained for purposes other than credit applications are also governed by FACTA. Organizations issuing these reports are referred to as nationwide specialty consumer reporting agencies, and consumers can request a free report from them annually as well. Although numerous companies fall into the specialty category, medical records, insurance reports and check writing history are dominated by just a few companies, namely, Medical Information Bureau; ChoicePoints CLUE; and Insurance Services Office ISO A-PLUS Report; and ChexSystems.[5] Employers are still afforded certain rights with regard to these types of reports. Workplace investigations for employee misconduct are still allowed and can be conducted by a third party without notifying the employee. Previously under the Fair Credit Reporting Act, a letter had to be sent to the employee. Although FACTA does require that a summary report be made available if action is taken against the employee, the summary report does not have to disclose sources. However, information can only be disclosed to the employer or federal, state or regulatory officer or agency.

Finally, FACTA contains a provision that allows consumers to limit "prescreened" offers of credit and insurance that are generated based on information in the consumer's credit report. Unsolicited "pre-approved" offers for credit and insurance must now include a toll-free phone number that consumers can call to remove their name and address from the lists these offers are based on. Consumers can opt out with the nationwide credit bureaus at 1-888-5-OPTOUT (1-888-567-8688) or do so online at www.optoutprescreen.com Off-site page.

Notes

  1. "Mistakes Do Happen: A Look at Errors in Consumer Credit Reports," National Association of State Public Interest Research Groups (PIRGs), June 2004, http://uspirg.org/reports/MistakesDoHappen2004.pdf PDF document
  2. http://www.whitehouse.gov/news/releases/2003/12/20031204-3.cfm Off-site page
  3. http://www.federalreserve.gov/pubs/bulletin/2003/0203lead.pdf PDF document
  4. See full article at http://www.ftc.gov/bcp/conline/pubs/credit/idtheft.htm Off-site page
  5. Visit the following web sites:

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e-Perspectives, Volume 5, Issue 2, 2005

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The views expressed are the authors' and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Development Office.

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