DEFINITION of Fair and Accurate Credit Transactions Act (FACTA)

The Fair and Accurate Credit Transactions Act (FACTA) is a U.S. resolution passed in 2003 that is aimed at enhancing protection measures for identity theft by creating standards for the handling of credit card numbers. This act allows individuals free access to their own credit reports and has created a nationwide alerts system.

This act is an amendment to the existing Fair Credit Reporting Act.

BREAKING DOWN Fair and Accurate Credit Transactions Act (FACTA)

With the passing of FACTA, people are now allowed to request their credit reports for free, once per year, from all three of the major credit reporting agencies (Equifax, Experian, and TransUnion).

Not only were requirements placed on mortgage lenders to release consumer information regarding credit scores and factors influencing the price of a mortgage loan. This includes releasing to consumers “risk-based-pricing” notices as well as credit scores in relation to any credit denials or less favorable credit offers.

How FACTA Is Applied by Regulators and Enforcement Agencies

Standards were put into place that require lenders and regulators to be more proactive in spotting identity theft before it occurs by looking for suspicious patterns. The identity theft protection efforts include letting consumers put fraud alerts in place on their credit files and information.

FACTA included the empowerment of enforcement agencies to take action on the so-called “Red Flag Rules,” which require creditors and financial institutions, such as banks and credit unions, to create and put into action identity theft prevention programs for the purposes of detecting, mitigating, and preventing instances of identity theft that can occur when a customer opens new accounts or accesses existing ones. For example, the issuers of credit and debit cards must take steps to validate any changes to customers’ addresses.

Various red flags include the introduction of suspicious documents or personal identifying information when dealing with accounts. The creation of suspicious accounts or other questionable activity in relation to a covered accounts can also trigger red flags

Subsequent policies introduced later under the Dodd-Frank Act transferred many rulemaking and one ongoing study requirement from the Federal Trade Commission, as was introduced under FACTA, to the Consumer Financial Protection Bureau. The Federal Trade Commission was authorized to study the accuracy of credit reports and the effects of issues that relate to Fair Credit Reporting Act. Even with more recent acts and amendments, the Federal Trade Commission continues to be responsible for overseeing rules on data security red flags and disposal, along with rulemaking provided by FACTA that pertains to certain motor vehicle dealers.