Fair and Accurate Credit Transactions Act

The Fair and Accurate Credit Transactions Act (FACTA) was enacted to reduce identity theft and help victims recover. FACTA has special paperwork and compliance problems for employers.

FACTA amends the Fair Credit Reporting Act (FCRA) the federal law that governs consumer credit reports and their use for employment purposes. FACTA requires that any person who maintains or otherwise possesses consumer information, or any compilation of consumer information, derived from consumer reports for business purpose, to properly dispose of that information.

Consumer information includes: any record about a person who is a consumer, or information that is derived from a consumer report that is either: [1] an “investigative consumer report” based on personal interviews with neighbors, friends, associates, and knowledgeable acquaintances of the person who is the subject of the report or; [2] a “consumer report” provided by a reporting agency and contains information on the employee’s or applicant’s credit worthiness, credit standing, credit capability, character, general reputation, personal characteristics, or mode of living. Consumer information also includes any compilation of these records.

Example: anytime you use an outside agency to get a credit report, or do a background investigation, or perform a reference or driver’s record check, the agency involved will provide you with information that is covered by the FACTA disposal requirements. If you incorporate information from these outside or external reports into another report, any summary of the reports’ finding in a document recommending an applicant’s hiring or an employee’s promotion, is also covered.

Internal records created in the course of the employment relationship that contain personal identifying information are not considered “consumer information” and are not covered by FACTA -- but we urge you to proceed with caution in handling that information.

"Proper disposal" under FACTA means taking reasonable measures to protect against unauthorized access to, disclosure or use of the information when your company disposes of it. FACTA rules cite these examples of “reasonable measures” for disposal: burning, pulverizing, and shredding paper documents, and erasing computer files containing protected information or hiring a vendor to do any of these things.

FACTA rules are also designed to reduce the risk of consumer fraud and related harm -- including identify theft -- risks created by improper disposal of consumer information.

One FACTA provision requires the three major credit reporting agencies to provide consumers with a free copy of their own credit report every 12 months. The reports allow consumers to discover and correct errors in their credit records and to assure that accounts have not been fraudulently opened in their names.

One provision that became effective in December, 2004 will help prevent identity theft is the National Fraud Alert System. Consumers who suspect they have been or may be victimized by identity theft (even military personnel -- including Guard or reserve members on active duty away from home) can place an alert on their credit files. The alert will put potential creditors on notice that they must proceed with caution when granting credit. Another section of FACTA will require that account numbers on credit card receipts be “truncated” (or shortened) so that merchants, employees, or others who may have access to those receipts do not have access to consumers’ names and full credit card numbers.

The Federal Trade Commission (FTC) is working with bank regulators to identify “red flag” indicators to help financial institutions and creditors analyze identity theft patterns so that they can take action to prevent further incidences of identity theft. The agencies also are working on a rule that will require appropriate disposal of sensitive credit report information.

This requirement will help to ensure that sensitive consumer information -- including Social Security numbers -- is not simply left in a dumpster once a business no longer needs the information. These measures that will help consumers recover their credit reputations after they have been victims of identity theft include:

-- A provision that will require credit reporting agencies to stop reporting allegedly fraudulent account information when a consumer establishes that they have been the victim of identity theft;

-- A provision that requires creditors to provide copies of business records of fraudulent accounts or transactions related to them;

-- The information can help victims to prove that they are victims. Example: they may be better able to prove that a signature on an application is not theirs;

-- A provision that will allow consumers to report accounts affected by identity theft directly to creditors and credit reporting agencies -- to prevent the spread of erroneous credit information. When fully in place, these provisions should help to reduce the incidence of identity theft, and help victims recover when the problem does occur.

May, 2008, 2005