If your dealership handles credit reports during the course of its day-to-day business, sooner or later you'll probably need to know the answer to this question: What is the Fair and Accurate Credit Transactions (FACT) Act?
What did you say? You don't want to spend the next week plowing through dozens of pages, trying to make heads or tails of the legalese that makes up the Act? Fair enough. The following is a painless summary of the key changes that will affect your customers and, more importantly, your business.
Background and Definition
The FACT Act is basically the new and improved Fair Credit Reporting Act (FCRA). For the last several decades, the FCRA's statutes have governed the way credit bureaus and consumer reporting agencies have handled consumer credit information.
As is often the case with new legislation, there are still many unanswered questions about how businesses in unique industries, such as the automotive industry, will be affected. The Federal Trade Commission and other governing agencies are still in the process of figuring out when and how to enforce the new laws. So, while the feds and politicians iron out the nitty-gritty details, now's a good time to wrap your head around the basics — especially the ones that might directly impact your business.
When the FACT Act was signed into law in December 2003, it essentially delivered a series of amendments to the FCRA. The amendments were designed to make improvements in three major areas:
1. Access. The laws under the FACT Act are designed to help consumers get easier access to their credit files with the national credit bureaus.
2. Protection. Many of the new provisions are geared toward providing more comprehensive protection against identity theft and fraud.
3. Accuracy. Because the quality of a consumer's credit can largely affect his or her ability to purchase a home or car, or to get other types of financing, the Act also aims to improve the accuracy of credit report information.
Certainly, the most talked-about element of the FACT Act is that it entitles every consumer to one free credit report per year — more than one if he or she has been a victim of fraud. Keep in mind that the free-report rule won't fully kick in until after 2004.
Once the changes are made, you may begin to notice special alerts on credit reports. Consumers will be allowed to place these alerts on their files to help prevent ID thieves from opening new accounts using their identity. For example, military personnel can request an alert on their credit files to prevent fraudsters from using their identity if they are called away for active duty. In their absence, if anyone tries to obtain credit in their name, a special message will appear on the credit report, alerting the report reviewer to the suspicious activity.
Additionally, to help prevent identity theft before it occurs, businesses, including auto dealerships, may no longer print more than the last five digits of an account number on a credit card receipt. That way, if a bad guy happens to get his hands on the receipt, he or she won't have a complete number at his disposal.
Those who do fall victim to identity theft will be able to block from their files any derogatory information that resulted directly from the crime.
Consumers will also have to be notified if the number of credit inquiries on their file negatively affected their credit score. Many credit reports contain a summary key in the bureau score section where you can quickly see which factors impacted the consumer's score.
Now that you know the basics, you might want to seek out additional resources for more information on the FACT Act. Your credit-reporting provider might be able to offer additional insight specific to your business. That way, as new details of the FACT Act come to light, your dealership will be able to stay current with developments that impact you and your customers.
Kimberly Crossley is a researcher for First American CREDCO, which provides credit information to the mortgage, consumer finance and automotive industries. To reach a representative specializing in credit information solutions, contact Jim Trevithick of First American CREDCO at (866) 231-3191 or [email protected]
SIDEBAR: CHANGES TO COMPLY WITH IN 2005
By Anne Fortney
Many of the FACT Act's provisions will be implemented through rules written — after the Act's passing — by the FTC and other federal agencies. The industry and affected businesses will be obligated to comply only when the agencies publish these rules in final form and provide adequate time for businesses to get in compliance. As such, some of the rules created under the FACT Act are not yet final. However, there are several important provisions that will go into effect at the end of the year.
Auto dealers and other businesses that use credit reports will be subject to the following changes effective Dec. 1, 2004.
Keep in mind that if a dealership reports information such as a consumer's payment habits back to consumer reporting agencies or the national credit bureaus, the business will be subject to additional obligations under the FACT Act.
Anne P. Fortney is a partner in the Washington, D.C., office of Hudson Cook LLP, a law firm that specializes in legal issues related to the auto finance and leasing industry. She is a former associate director for credit practices at the FTC and an expert on the Fair Credit Reporting Act. Contact her at (202) 223-6930 or [email protected]