The Fair and Accurate Credit Transactions Act of 2003 (the FACT Act) amended the Fair Credit Reporting Act (FCRA) and created many provisions that impact the compliance examination process. To date, only one regulation related to the consumer compliance examination provisions in the FACT Act has been finalized. The FACT Act provision involving the notice of furnishing negative information had an effective date for compliance of December 1, 2004, and model notices have been issued under Regulation V, Fair Credit Reporting, to facilitate compliance. In addition, several other provisions of the FACT Act that do not require implementing regulations had effective dates of December 1, 2004 or earlier.
During 2005, the interagency FFIEC FCRA Examination Procedures will be substantively updated to reflect the new FACT Act requirements, including the self-executing provisions of the FACT Act. Until the FFIEC procedures are finalized, examiners will use the following interim guidance for reviewing compliance with the provisions that became effective on December 1, 2004. This guidance will be replaced with the formal FFIEC FCRA Examination Procedures upon their completion.
Interim Examination Procedures
Provisions that became effective on December 1, 2004 or earlier appear below in order of the FCRA section. Examination guidance for each provision appears in italics.
Ensure that the financial institution does not redisclose medical information except as allowed by the statute. This should be coordinated with the evaluation of the institution’s compliance with Regulation P, Privacy of Consumer Financial Information.
Review the financial institution’s procedures to ensure that when a consumer report containing such an alert is obtained, appropriate steps are taken to verify the consumer’s identity.
Review the financial institution’s practices and procedures to ensure that information about fraudulent accounts or transactions is appropriately disclosed upon request and after submission of appropriate documentation by the requestor.
Ensure that the financial institution provides the appropriate credit score notice to consumers.
Determine if the financial institution collects debts for third parties. If applicable, ensure policies and procedures are in place to notify third parties when the financial institution learns that the debt in question may be the result of identity theft.
Although use of model notices is not required, a financial institution is deemed to be in compliance with this section of the Act if the institution properly uses the notices set forth below.
Model Notice B–1
We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.
Model Notice B–2
We have told a credit bureau about a late payment, missed payment, or other default on your account. This information may be reflected in your credit report.
Ensure that the required negative information notice is provided to consumers. Financial institutions have flexibility in complying with this provision by either providing an advance notice to consumers or notifying the consumer within 30 days after providing negative information to a nationwide consumer reporting agency. Some institutions may choose to provide the advance notice to all customers as an abundance of caution; however, the statute only requires that the notice be given to consumers about whom negative information is reported. Violations will only be cited if the institution reported negative information about a consumer after December 1, 2004, without providing the appropriate notice to the consumer.
Ensure that the financial institution’s policies and procedures for furnishing data to consumer reporting agencies include provisions for prompt investigation of disputes and reporting of the outcome of investigations.
Provisions of the FACT Act that do not require implementing regulations and the provision requiring the furnishing of negative information became effective December 1, 2004. Going forward, examinations will include reviews for compliance with those provisions.
Other FACT Act provisions require additional guidance that has not been finalized. Compliance examinations will not include reviews of these provisions until after the mandatory compliance dates, which will be set forth when the guidance is issued.
If you have any questions about the FACT Act, please contact
either Supervising Examiner Eddie
L. Valentine or Supervising Examiner John
D. Fields through the Regulations Assistance Line at (215)
The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.