FTC Released Guidance that FACTA Disposal Rule Goes into Effect June 1, 2005

FACTA Disposal Rule Goes into Effect June 1

June 1, 2005

The Federal Trade Commission (“FTC”) issued guidance regarding the Disposal Rule under the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”) becoming effective on June 1, 2005. This rule mandates that businesses and individuals take appropriate measures to dispose of sensitive information derived from consumer reports to prevent unauthorized access and use.

The Fair and Accurate Credit Transactions Act (“FACTA”) is a federal law enacted in 2003 aimed at enhancing consumer protection, particularly in the context of identity theft. It mandates improvements in the accuracy and privacy of consumer information, sets guidelines for the disposal of sensitive information, and grants consumers additional rights regarding their credit information and identity theft prevention. The FACTA introduced several important rules and provisions aimed at enhancing consumer protection and addressing identity theft. Here are some key updates and rules established by FACTA:

1. Free Credit Reports. Consumers are entitled to request one free credit report per year from each of the three major credit reporting agencies (Equifax, Experian, and TransUnion). This provision allows individuals to monitor their credit for inaccuracies or fraudulent activity.

2. Identity Theft Prevention. FACTA requires credit reporting agencies to establish procedures for consumers to place fraud alerts on their credit reports. This alert warns potential creditors to take extra steps to verify a consumer's identity before extending credit.

3. Credit Score Disclosure. Consumers who are denied credit based on information in their credit reports must be provided with the name of the credit reporting agency that provided the report. They must also receive information about how to obtain a free copy of their credit report.

4. Red Flags Rule. This rule requires financial institutions and creditors to implement identity theft prevention programs that identify and respond to “red flags” indicating potential identity theft.

5. Proper Disposal of Sensitive Information. The FACTA Disposal Rule mandates that businesses take appropriate measures to securely dispose of sensitive information derived from consumer reports, such as shredding documents or securely erasing electronic files.

6. Increased Accuracy of Consumer Reports. FACTA emphasizes the need for accuracy in consumer reports and establishes procedures for consumers to dispute inaccurate information.

The Disposal Rule under the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”) mandates:

• Scope of the Rule. The Disposal Rule applies to all entities using consumer reports, including lenders, insurers, employers, landlords, government agencies, and individuals accessing consumer reports for various purposes (e.g., background checks).

• Definition of Consumer Reports. Under the Fair Credit Reporting Act, a consumer report includes information from consumer reporting companies used for establishing eligibility for credit, employment, insurance, etc. Examples include credit reports, background checks, and insurance claims histories.

• Disposal Measures. The rule emphasizes that disposal practices must be reasonable and appropriate based on the sensitivity of the information. Acceptable methods include:

  • Burning, pulverizing, or shredding paper records.

  • Erasing or destroying electronic files.

  • Engaging a certified document destruction contractor, which involves due diligence in assessing their compliance with the rule.

• Integration with Other Regulations. Financial institutions must incorporate the Disposal Rule into their information security programs, as required by the Gramm-Leach-Bliley Act (“GLBA”) Safeguards Rule.

• Purpose. The overarching goal is to protect consumer privacy and secure sensitive information against identity theft and misuse.

These rules collectively enhance consumer rights, promote transparency in credit reporting, and aim to reduce the risk of identity theft. For the most current and specific details, it's best to refer to the FTC or other official sources related to FACTA.

 

For more information, see here:  https://www.ftc.gov/news-events/press-releases/2005/06/facta-disposal-rule-goes-effect-june-1

 

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