An Overview of Changes to the FCRA

The Fair and Accurate Credit Transaction Act (FACTA), requires disclosure of credit scores by certain mortgage lenders and is worded as follows:

In general, any person who makes or arranges loans and who uses a consumer credit score in connection with an application initiated or sought by a consumer for a closed-end loan or the establishment of an open-end loan for a purpose that is secured by 1 to 4 units of residential real property shall provide the following to the consumer as soon as reasonably practical:

  • A copy of the information that was obtained from a consumer reporting agency or was developed and used by the user of the information
  • In addition to the information provided to it by a third party that provided the credit or scores, a lender/originator is required to provide the Notice to Home Loan Applicant.

The FACT Act (HR 2622) was signed into law by President Bush in December 2003. Officially titled the Fair and Accurate Credit Transactions Act of 2003, the FACT Act incorporates and extends the Fair Credit Reporting Act (FCRA), which had preemption provisions due to expire in December 2003. The new Act also aims to:

  • Prevent identity theft,
  • Improve the resolution of consumer disputes,
  • Improve the accuracy of consumer records, and
  • Make improvements in the use of, and consumer access to, credit information.

Noble goals all.

Preventing identity theft

The fraud provisions of the new Act do, thankfully, make it easier for a consumer to deal with fraud when it does occur. Unfortunately, they don't do much to prevent identity theft from happening, apart from:

  • Allowing military personnel to place blocks on their accounts while serving overseas. (A good preventative protection for a few)
  • Preventing merchants from printing credit and debit account numbers on receipts in their entirety. (Also a good measure, though most merchants have been truncating account numbers for years.)

New fraud provisions in the FACT Act include:

  • Simplified requirements for consumers to report any suspected fraud or identity theft;
  • A requirement that the credit bureau receiving such a consumer report share the information with other major bureaus, so the consumer need only make one call;
  • A credit bureau receiving an initial fraud/identity theft report is required to advise the consumer of the right to receive 2 free credit reports in the 12 months immediately following the receipt of the information from the consumer;
  • Provides that individuals filing fraud/identity theft information may not be included in lists provided to third parties who wish to solicit insurance or credit business for a period of five years, automatically "opting you out" of their sell lists;
  • Stipulates that when a fraud or identity theft alert is in a credit report obtained by a user, the user must have policies and procedures in place to guard against establishing any new credit plans or credit extension, issuing additional cards or increasing credit limits for such customers unless they verify the true identity of the consumer making the request.

Many of the fraud provisions do not officially take effect until December 1, 2004, but the credit bureaus seem to already be honoring the new law by providing free credit reports to those who report they may be a target of fraud. One call allows an initial block on the account for 90 days. Once a fraud victim confirms the ID theft has occurred by obtaining and providing a copy of a police report to one CRA within 90 days, all CRAs will place extended blocks on the victim's files.

Improved resolution to consumer disputes and accuracy of records

The old FCRA had no provision that allowed you, the consumer, to dispute inaccurate information directly with the furnisher of the credit. Rather, you'd dispute the item with the credit reporting agency(s). You could always challenge the original creditor for reporting inaccurate information, but this was largely based on case law and required court action in most cases.

The new FACT Act allows you to contact the furnisher directly for a reinvestigation. The furnisher must investigate the dispute and report the results back to you in the same time frame allowed agencies for reinvestigation. (Credit reporting agencies have 45 days to conduct reinvestigations of disputed items resulting from free report requests (compared to 30-45 days for all other reinvestigations).

If they find the information to be inaccurate, they must correct the information with each credit reporting agency they've shared the incorrect information with.

Note however that reinvestigation responsibility will not be initiated by a notice that comes from a credit repair organization, and that credit furnishers need not respond to "frivolous" disputes. If they do determine your dispute to be "frivolous," they must notify you within 5 business days, tell you why they consider your dispute frivolous, and also tell you what information you must provide to convert the dispute into one that will start a reinvestigation.

And any financial institution that submits negative information to a national credit reporting agency about you must send you a written notice that they have done so.

Access to your information

All consumers, regardless of the state they call home, will now have the right to receive one free credit report annually from the national CRAs. The same will be true of all national specialty credit reporting agencies, a newly designated group of credit reporting agencies that collect information such as landlord-tenant, employment, or insurance information. This provision of the Act will become effective December 1, 2004. Until then, residents of different states are governed by their state's rules--some mandating free reports and others allowing a fee of $9 per report.

Credit scores and how they are determined must be disclosed to consumers for a reasonable fee, as determined by the FTC. Consumers must be notified of this right.

Mortgage lenders must provide credit scores (along with information on key factors lowering a consumer's score) to those who apply for mortgage loans at no fee.

Be aware that USA PATRIOT Act provisions are also included.

This is one amazing acronym! The USA Patriot Act stands for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001. That's a mouthful!

The Patriot Act has been incorporated into the new FACT Act in Section 627, allowing disclosure to governmental agencies for counter-terrorism purposes. A confidentiality clause requires that the consumer NOT be notified and that no note be made in the files that information was sought and obtained by the government.

Note: The FBI already had this same access to your records under the old FCRA. Access has just been broadened to include unnamed "governmental agencies." Say hello to Big Brother!

Effective FACT Act Dates:

On February 5, 2004, the Federal Reserve and Federal Trade Commission announced that the finalized effective dates for the FACT Act are March 31, 2004 for sections of the act that do not require significant procedure changes, and December 1, 2004 for those areas which will require significant overhauls. When the Act took effect in December 2003, these dates were established as interim rules. They are now official:

Provisions effective March 31, 2004.

(A) Section 111, concerning the definitions;
(B) Section 156, concerning the statute of limitations;
(C) Sections 312(d), (e), and (f), concerning the furnisher liability exception, liability and enforcement, and rule of construction, respectively;
(D) Section 313(a), concerning action regarding complaints;
(E) Section 611, concerning communications for employee investigations; and
(F) Section 811, concerning clerical amendments.

All other provisions became effective December 1, 2004.

These include procedures to enhance the accuracy and integrity of information furnished to consumer reporting agencies, improved disclosure of the results of reinvestigation, and the duty to conduct a reasonable reinvestigation. These provisions should help to clear up many of the problems consumers have been encountering under existing law.

To learn more:

Read the complete FACT Act.