Six weeks remain to implement FACTA Red Flags

Jeremy Phillips

The Fair and Accurate Credit Transactions Act 2003 (FACTA) lets consumers 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). In cooperation with the Federal Trade Commission, the three major credit reporting agencies set up the website,, to provide free access to annual credit reports. This Act also contains provisions to help reduce identity theft, enabling individuals to place alerts on their credit histories if identity theft is suspected, making it more difficult to effect fraudulent applications for credit. Additionally this legislation requires secure disposal of consumer information.

Financial institutions face a mandatory deadline of 1 November 2008 by which they must comply with FACTA’s Red Flag Rules (for which see FACTA, ss 114 and 315). These rules apply to a broad list of businesses including “financial institutions” and “creditors”. A “creditor” is defined to include “lenders such as banks, finance companies, automobile dealers, mortgage brokers, utility companies and telecommunications companies”.

The rules apply to all businesses that have a “covered account” — a concept that includes any account for which there is a foreseeable risk of identity theft (eg credit cards, utility bills and phone bills). The three new regulations

* require financial institutions and creditors to develop and implement an Identity Theft Prevention Program for both new and existing accounts. This must include reasonable policies and procedures for detecting, preventing, and mitigating identity theft;
* require users of consumer reports to respond to Notices of Address Discrepancies that they receive;
* impose specific requirements on issuers of debit and credit cards to assess the validity of a change of address if they receive notification of a change of address for a consumer’s debit or credit card account where, shortly thereafter, they receive a request for an additional or replacement card for the same account.

Mortgage lenders must also provide consumers with a Credit Disclosure Notice which contains various items of information containing their credit rating. This form, normally available from credit reporting agencies, will usually be sent directly to the consumer on the lender’s behalf.

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