As I prepare this article for print, mortgage servicers and credit reporting agencies are bracing themselves for what is certain to be an onslaught of inquiries about inaccurate information contained in the free annual credit reports, which West Coast consumers were able to start receiving December 1.  The rest of the nation is scheduled to receive free credit reports in staggered stages over the course of 2005. 

The concept of providing consumers with the ability to obtain a free copy of their credit report annually is one of many provisions contained in The Fair and Accurate Credit Transactions Act of 2003 (FACT Act), which was enacted on December 4, 2003, and made sweeping changes to the Fair Credit Reporting Act (FCRA).

Summary of Changes

As stated by Congress, the purpose of the FACT Act is to “prevent identity theft, improve resolution of consumer disputes, improve the accuracy of consumer records, [as well as] make improvements in the use of, and consumer access to, credit information.”

The most significant change the FACT Act makes to the FCRA is to require that information furnishers, such as mortgage servicers, comply with the provisions of the FCRA [15 U.S.C. § 623].  The FACT Act also places several duties and obligations on information furnishers regarding identity theft and information accuracy. 

Specifically, the FACT Act prohibits an information furnisher from providing any information to a credit reporting agency that they know, or have reasonable cause to believe, is inaccurate  [15 U.S.C. § 623(a)(1)(A)].  An information furnisher can avoid liability under this section if the furnisher provides the consumer with an address where the consumer may write to contest whether the information being reported is accurate [15 U.S.C. § 623(a)(1)(C)].

However, by utilizing the safe harbor provision, the furnisher may incur additional duties under the Act once it receives notice from the consumer that information in the credit report is inaccurate. For instance, if the furnisher receives a notice from the consumer that his/her report contains inaccurate information, and it is determined that the information is in fact inaccurate, the furnisher is required to report the correct information to the credit reporting agencies [15 U.S.C. § 623(a)(1)(B)].

Further, the furnisher may not subsequently report the contested information to any credit reporting agency without first providing notice of the dispute [15 U.S.C. § 623(a)(3)].  Finally, the furnisher is required to conduct, and complete, a reasonable investigation of the disputed information within thirty days of receiving notice of the dispute [15 U.S.C. § 623(a)(8)].

Awaiting Regulations

Unfortunately, several of the provisions of the FACT Act require that regulating agencies, such as the Board of Governors of the Federal Reserve System, and the Federal Trade Commission, promulgate rules and regulations enforcing the Act.  To date, many of these rules and regulations remain unwritten.

In a letter dated November 24, 2004, signed by the chief and general counsels of the various agencies, and addressed to the American Bankers Association, the agencies acknowledge that compliance with at least six provisions of the Act, including the provisions on accuracy guidelines and consumer dispute guidelines, is not possible until the agencies issue the final regulations.   While the letter states that the agencies hope the regulations will be issued in the near term, the letter suggests that many will not come out until 2005.  The letter also advises that effective dates will be contained in the rules as they are issued.

Requirements for Info Furnishers

The FACT Act requires information furnishers to have reasonable procedures in place to address notifications from the credit reporting agencies of identity theft occurrences and to prevent the refurnishing of blocked information.  Furnishers will also be required to respond appropriately to Fraud and Active Duty Alerts placed on a consumer’s credit report by the reporting agencies.  The Act prohibits an information furnisher from providing information, which a consumer has identified as emanating from fraud or identity theft, to a credit reporting agency [15 U.S.C. § 623(a)(6)].  Additionally, the Act places restrictions on the sale, transfer, or collection of accounts that resulted from identity theft [15 U.S.C. § 615(f)].

Mortgage servicers should be advised that the provisions of the FACT Act relating to identity theft do not require the implementation of rules or regulations by any agency.  Therefore, these provisions of the FACT Act became effective December 1, 2004.