Fair and Accurate Credit Transactions Act (FACTA)

What Is the Fair and Accurate Credit Transactions Act (FACTA)?

The Fair and Accurate Credit Transactions Act (FACTA) is a federal law enacted by the United States Congress in 2003. Its stated purpose was to enhance consumer protections, particularly in relation to identity theft.

The most well-known feature of the Act is that it gave all citizens of the U.S. free access to their credit reports once per year through the website www.annualcreditreport.com.

Understanding the Fair and Accurate Credit Transactions Act (FACTA)

As a result of FACTA, there were numerous reforms implemented related to the use and protection of consumer information. For example, it increased the level of oversight that lenders, payment processors, and regulators must provide when proactively searching for suspicious transactions. Similarly, it allowed consumers to register fraud alerts on their own credit cards, in order to alert the authorities when suspected fraud has taken place.

FACTA was passed under the administration of then-President George W. Bush in response to an increase of instances of identity theft. Unfortunately, identity has only increased in prevalence since 2003 because of an increase in e-commerce, social networking, and other online activities.

In addition to its provisions intended to reduce identity theft, FACTA also contained measures designed to bolster consumer protection mechanisms 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 mortgage request. This includes releasing to customers the so-called “risk-based-pricing” factors used in their decision, as well as any specific issues noted on the consumer’s credit report.

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 “Red Flag Rules.” Red Flag Rules require creditors and financial institutions, such as banks and credit unions, to implement identity theft prevention programs that help detect and prevent identity theft. For example, issuers of credit and debit cards must take steps to validate any changes to customers’ addresses.

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 is required to 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 in order to meet certain provisions of FACTA. On the one hand, these changes might make the business and consumer less vulnerable to identity theft or other types of fraud. However, in the event that a hacking or theft of that business's records does take place in the future, there is potentially more information available to be accessed about that business's clientele, and this has the potential to be more damaging for consumers.