The Fair and Accurate Credit Transaction Act of 2003

The Fair and Accurate Credit Transaction Act of 2003 (the –FACT Act”) was signed into law on December 4, 2003.  The purpose of this new law is to expand the provisions of the Fair Credit Reporting Act (the –FCRA”) with a goal of uniform national standards in a number of key areas.  In addition, the Fact Act is intended to provide consumers with additional tools to fight identity theft and to ensure the accuracy of their credit reports.  As part of these additional tools the FACT Act requires financial institutions to provide negative information notices to customers before sending such information to a consumer reporting agency.  THIS REQUIREMENT WILL BE EFFECTIVE DECEMBER 1, 2004.

The following are excerpts from the FACT Act and the FCRA that explain who is required to provide the negative information notice:

§ 623(7)(A)(i):  If any financial institution that extends credit and regularly and in the ordinary course of business furnishes information to a consumer reporting agency described in section 603(p) of this title furnishes negative information to such an agency regarding credit extended to a customer, the financial institution shall provide a notice of such furnishing of negative information, in writing, to the customer.

§ 603(p):  The term –consumer reporting agency that compiles and maintains files on consumers on a nationwide basis” means a consumer reporting agency that regularly engages in the practice of assembling or evaluating, and maintaining, for the purpose of furnishing consumer reports to third parties bearing on a consumer's credit worthiness, credit standing, or credit capacity, each of the following regarding consumers residing nationwide: 

(1) Public record information.

(2) Credit account information from persons who furnish that information regularly and in the ordinary course of business.

In our opinion, the definition of a consumer reporting agency is broad enough to include agencies such as ChexSystems.  As such, we are advising all of our clients to revise the language in their collection letters to proactively inform consumers of negative information that will be provided to consumer reporting agencies.  The model disclosures set forth in the regulations only address the negative impact on a consumer's credit report, however, we believe it would be prudent to also inform consumers of the possibility of not being able to obtain checking account privileges at other financial institutions. 

The FACT Act requires institutions to send a negative information notice to customers before furnishing such notice to the consumer reporting agency, but in no event later than 30 days after the occurrence of the reporting event.  Once reported, the financial institution is not required to send further notices if additional negative information concerning the same transaction, extension of credit, account, or customer is provided to the consumer reporting agency.

Until we receive further clarification, we are recommending the following sample language be added to collection letters and brochures.  The Fact Act states that a financial institution shall be deemed to be in compliance with the negative notice requirement if the financial institution uses the model disclosure form prescribed by the Federal Reserve Board.  The last two lines are from the model disclosure form. 

SAMPLE LANGUAGE

WE MAY REPORT INFORMATION ABOUT YOUR ACCOUNT TO CONSUMER REPORTING AGENCIES, WHICH MAY AFFECT YOUR ABILITY TO OBTAIN CHECKING ACCOUNT PRIVILEGES AT OTHER FINANCIAL INSTITUTIONS.  WE MAY ALSO REPORT INFORMATION ABOUT YOUR ACCOUNT TO CREDIT BUREAUS.  LATE PAYMENTS, MISSED PAYMENTS, OR OTHER DEFAULTS ON YOUR ACCOUNT MAY BE REFLECTED IN YOUR CREDIT REPORT.

Although we provide the above information to keep you informed, we must expressly acknowledge that we are not attorneys and do not represent our efforts as legal opinion. We hope you and your legal counsel find these recommendations useful.  If you have any questions, please don't hesitate to give us a call.  We will continue to keep you updated on any new developments.

 

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