What Is the Fair and Accurate Credit Transactions Act (FACTA)?
The Fair and Accurate Credit Transactions Act (FACTA), also known as the FACT Act, is a federal law enacted by the U.S. Congress in 2003 to amend the Fair Credit Reporting Act passed in 1970. Its purpose was to enhance consumer protections, particularly with regard to identity theft. The best-known feature of the act is that it allows consumers free access to their credit reports at least once a year.
Key Takeaways
- The Fair and Accurate Credit Transactions Act (FACTA) is a federal law passed in 2003 to amend the Fair Credit Reporting Act.
- FACTA is principally known for its rules to protect against against identity theft, but it also included other consumer protections.
- Under FACTA, creditors and financial institutions are required to follow "red flag rules" to prevent and detect identity theft.
- The law also allows consumers to obtain free copies of their credit reports at least once a year from each of the three major credit bureaus.
- Unfortunately, identity theft is still a major problem that consumers need to take their own actions to guard against.
How the Fair and Accurate Credit Transactions Act (FACTA) Works
FACTA was passed under the administration of then-President George W. Bush in response to increasing instances of identity theft. It amended the Fair Credit Reporting Act, passed in 1970 before identity theft had become a major concern.
For example, 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, or truncating, certain key information such as credit card and Social Security numbers.
FACTA also requires credit bureaus to place a fraud alert on the file of a customer who has been affected by identity theft. They must also alert the other credit bureaus.
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 so-called "red flag rules." Those rules require creditors and financial institutions, such as banks and credit unions, to implement programs to help detect and prevent identity theft. For example, issuers of credit and debit cards must take steps to verify any changes to customers' addresses.
In addition to its provisions to reduce identity theft, FACTA also contained measures designed to bolster consumer protection 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 loan application. This includes releasing to customers the so-called "risk-based-pricing" factors used in the lender's decision, as well as any specific issues noted on the consumer's credit report.
Creditors or financial institutions that violate the FACTA rules are subject to fines.
The Impact of FACTA
Unfortunately, identity theft continues to be a major problem, largely because of the increase in e-commerce, social networking, and other online activities. In 2022, the Federal Trade Commission's IdentityTheft.gov website received more than 1.1 million reports of identity theft.
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 must 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. While these changes might make consumers less vulnerable to identity theft in some respects, they also create the potential for computer hackers and other thieves to obtain more information that could be used in committing a crime.
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. The Consumer Financial Protection Bureau shares rule-making authority for the law with the FTC.
How Can You Get a Free Credit Report Under FACTA?
You can obtain a free copy of your credit report at least once every 12 months from each of the three major reporting agencies—Equifax, Experian, and TransUnion—at the official website for that purpose, AnnualCreditReport.com. You're also entitled to free copies at other times in certain circ*mstances, such as if you've recently been denied credit. If you find what you believe to be errors in your credit report you have the right to dispute them, and the credit bureau is required to investigate the matter and get back to you with its findings.
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.
What Can Individual Consumers Do to Protect Themselves From Identity Theft?
One way to protect yourself from identity theft is to take advantage of your right to obtain free copies of your credit reports at least once a year. A fraudulent account that has been opened in your name may show up there. You can then alert the credit bureau and ask it to investigate. You also have a right to put a freeze on your credit reports; that can make it harder for someone who applies for credit in your name to be approved. In addition, be careful about who you share sensitive information with, such as your Social Security and bank account numbers and any passwords or PIN numbers you use.
The Bottom Line
The Fair and Accurate Credit Transactions Act (FACTA) is intended to help prevent identity theft and credit-related fraud in an increasingly online economy. The law requires creditors and reporting agencies to protect consumers' identifying information and take steps to guard against identity theft. It also allows consumers to access free copies of their credit reports. Identity theft remains a major problem all the same, and consumers need to take their own precautions to try to keep it from happening to them.
