Fair and Accurate Credit Transactions Act (FACTA)

What Is the Fair and Accurate Credit Transactions Act (FACTA)?

The Fair and Accurate Credit Transactions Act (FACTA) is a federal law enacted by the United States Congress in 2003. Its stated purpose was to enhance consumer protections, particularly in relation to identity theft.

The most well-known feature of the Act is that it gave all citizens of the U.S. free access to their credit reports once per year through the website www.annualcreditreport.com.

Key Takeaways

  • The Fair and Accurate Credit Transactions Act (FACTA) is a federal law passed in 2003 designed to enhance consumer protections.
  • FACTA is principally known for its provisions against identity theft.
  • Under FACTA, creditors and financial institutions are required to implement "red flag rules" to detect and prevent identity theft.
  • The law also allows consumers to access free credit reports once per year from each of the three leading agencies.
  • Unfortunately, identity theft is still on the rise as consumers’ social and purchasing patterns continue to move online.

Understanding the Fair and Accurate Credit Transactions Act (FACTA)

As a result of FACTA, there were numerous reforms implemented related to the use and protection of consumer information. For example, it increased the level of oversight that lenders, payment processors, and regulators must provide when proactively searching for suspicious transactions. Similarly, it allowed consumers to register fraud alerts on their own credit cards, in order to alert the authorities when suspected fraud has taken place.

FACTA was passed under the administration of then-President George W. Bush in response to an increase of instances of identity theft. Unfortunately, identity has only increased in prevalence since 2003 because of an increase in e-commerce, social networking, and other online activities.

Measures Under the Fair and Accurate Credit Transactions Act (FATCA)

In addition to its provisions intended to reduce identity theft, FACTA also contained measures designed to bolster consumer protection mechanisms more generally.

For instance, it placed new requirements on mortgage lenders to disclose the credit scores and other factors that influenced their decision about whether or not to approve a mortgage request. This includes releasing to customers the so-called “risk-based-pricing” factors used in their decision, as well as any specific issues noted on the consumer’s credit report.

Though less visible to consumers, FACTA also included many new rules for businesses and financial service providers. In particular, it permitted enforcement agencies to take action on any violations of “Red Flag Rules.” Red Flag Rules require creditors and financial institutions, such as banks and credit unions, to implement identity theft prevention programs that help detect and prevent identity theft. For example, issuers of credit and debit cards must take steps to validate any changes to customers’ addresses.

FACTA Provisions

In addition to the measures outlined above, FACTA requires financial institutions to take "reasonable measures" to protect the sensitive information of their customers. This includes proper disposal of paperwork with identifying information, and obscuring certain key information such as credit card numbers.

FACTA also requires consumer reporting agencies to place a fraud alert on the file of a customer who has been affected by identity theft and to block any transaction information from the credit file that results from identity theft. They must also alert other credit bureaus.

The law also places strict penalties on creditors or institutions that violate FACTA. If a firm is found to be noncompliant with FACTA requirements, it may be subject to a $2,500 federal fine, or a $1,000 state fine. Further transgressions after a regulatory warning can result in fines of $11,000 per violation.

Special Considerations

One of the unintended consequences of FACTA is that it may have contributed to the amount of personally identifiable information that businesses are required to obtain from their customers.

For example, a business that is required to confirm the identity or whereabouts of a customer in a more rigorous manner as a result of FACTA may need to request multiple forms of identification in order to meet certain provisions of FACTA.

On the one hand, these changes might make the business and consumers less vulnerable to identity theft or other types of fraud. However, in the event that a hacking or theft of that business's records does take place in the future, there is potentially more information available to be accessed about that business's clientele, and this has the potential to be more damaging for consumers.

Who Enforces FACTA?

FACTA is enforced by the Federal Trade Commission (FTC), which performs audits of credit bureaus and some financial institutions. If a creditor or reporting agency is not in compliance with FACTA rules, it may incur warnings or penalties from the FTC.

How Do You Receive a Free Credit Report Under FACTA?

FACTA gives every U.S. citizen or resident the right to a free credit report every year from each of the major reporting agencies. You can find these on the official website www.annualcreditreport.com.

What Are the Most Common FACTA Violations?

Some common examples of FACTA violations involve businesses printing more than five digits of a credit card number on a receipt, or printing any portion of the expiration date. Businesses are also required to securely dispose of any records that contain sensitive identifying information.

The Bottom Line

The Fair and Accurate Credit Transactions Act (FACTA) is intended to prevent credit card theft and fraud in an increasingly online economy.

This law requires creditors and reporting agencies to protect consumers' identifying information and to take steps against identity theft. It also allows consumers to access free credit reports on an annual basis.

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