Lawyer Article

Published in the August 31, 2004 issue of Southeast Tech Wire.

If your business provides goods or services to consumers, or uses credit reports or supplies information to credit bureaus about consumers, you may be affected by new changes in federal law. The Fair and Accurate Credit Transactions Act ("FACT Act") will impact nearly every business that uses consumer credit reports or furnishes information about consumers to credit bureaus - and many businesses that do neither.

The FACT Act - much of which takes effect later this year - is a comprehensive rewrite of the federal Fair Credit Reporting Act ("FCRA"). Most of the FACT Act applies only to credit reporting agencies and financial institutions. But a number of provisions apply to all businesses that use consumer credit reports or supply information to credit bureaus, as well as many other businesses that enter into transactions with consumers. Those potentially affected include (but are not limited to):

• Businesses that provide sales financing to consumers
  (e.g., motor vehicle dealers, loan brokers, medical practices, etc.);
• Employers who use credit reports;
• Residential landlords and apartment management companies;
• Insurance brokers, agents and underwriters;
• Providers of medical services, products or devices;
• Utilities, including telephone companies and power companies; and
• Business that obtain personal information about consumers from corporate affiliates.

Unless otherwise noted, the effective date of all provisions summarized is December 1, 2004.

Parts of the FACT Act apply to all businesses, regardless of whether a business used a consumer credit report or furnished information about a consumer to credit bureaus. These provisions include:

• Affiliate Sharing - The FACT Act places limitations on the ability of businesses to share personal information of their customers with corporate affiliates for marketing purposes.

Affected businesses include: insurance or brokerage affiliates of banks and other financial institutions; other corporate affiliates that collect or have access to consumer information

• Truncation of Credit and Debit Card Account Numbers - The FACT Act requires the truncation of credit and debit card account numbers on electronically printed receipts.

Affected businesses include: any business that accepts credit cards or debit cards at point of sale; retail point-of-sale equipment vendors; payment systems providers.

Effective dates: December 4, 2006 for registers/machines in use prior to January 1, 2005; January 1, 2005 for registers/machines first put into use on or after January 1, 2005

The FACT Act imposes new requirements on businesses that use consumer credit reports. These provisions include:

• When a Credit Report Contains a "Fraud Alert" or "Active Duty Alert" - The new "identity theft" provisions of the FACT Act impose additional obligations on all businesses that use credit reports as part of extending credit to consumers. If a consumer credit report contains one of these alerts, a business using the report must exercise additional diligence in verifying the identity of the applicant before establishing a new credit plan, extension of credit, or increase in credit limit on an existing account.

Affected businesses: anyone who uses or accesses credit reports for the extension of credit

• Proper Disposal of Consumer Information - The FACT Act in effect will impose additional duties regarding proper disposal of consumer information, including credit reports.

Affected businesses: anyone who uses or accesses credit reports, including employers

Effective date: the date on which the final regulation becomes effective

The FACT Act imposes new requirements on businesses that furnish information about consumers to credit bureaus.

• Accuracy of Information Furnished to Credit Bureaus - The FACT Act contains new provisions on the accuracy of information furnished to credit bureaus.

* Higher Standards - Furnishers will be held to a higher standard for determining whether information furnished to credit bureaus is accurate.

Affected businesses: anyone who furnishes information about consumers to credit bureaus

* Identity Theft - Any business that enters into transactions with an "identity thief" is required to provide transaction-related information to the identity theft victim (consumer) and law enforcement, free of charge.

Affected businesses: anyone who enters into a transaction with a consumer, including credit, insurance and landlord/tenant transactions

* Consumer Disputes - For the first time, the FCRA (as amended by the FACT Act) permits consumers to dispute the accuracy of information directly with furnishers. In the case of such a dispute, the furnisher must investigate free of charge the accuracy of the disputed information.

Affected businesses: anyone who furnishes information about consumers to credit bureaus

"Blocking" by Consumers - Consumers will have the right to "block" their credit file information arising from identity theft, whereupon the credit bureau must notify the furnisher that the information may be the result of identity theft. Then, the furnisher must "quarantine" the consumer's information and not re-furnish it to the credit bureau.

Affected businesses: anyone who furnishes information about consumers to credit bureaus

• Negative Information Notice - The FACT Act requires businesses that extend credit to consumers in the ordinary course of business and who furnish to a credit bureau negative information (e.g., late payment, default, etc.) about the consumer to provide the consumer with written notice that it has furnished such negative information.

Affected businesses: any business that extends credit to consumers in the ordinary course of business and that furnishes negative information about the consumer to credit bureaus

• Medical Information - The FACT Act imposes additional requirements on "medical information furnishers" (persons whose primary business is providing medical services, products or devices and who furnish information to credit bureaus). Such furnishers must report their status to the credit bureau and must use codes that do not identify (or permit inference of) the specific provider or nature of such medical services, products or devices.

Affected businesses include: physicians; hospitals; nursing homes; medical device retailers; laboratories; etc.Effective date: March 4, 2005

Womble Carlyle Sandridge & Rice, PLLC regularly counsels financial institutions, businesses and industry organizations on financial services laws such as the FACT Act.