By now almost everyone knows how important credit is when it comes to qualifying for a mortgage, as it impacts the terms of your mortgage. Good credit can have a profound impact on the process, whether you’re refinancing or purchasing a home. You hear a lot about the importance of your credit score, and that is one of the primary things lenders look at to determine if you qualify. One of things that can have a serious impact on your credit score is becoming a victim of identity theft. Realizing this negative impact, in 2003 a new law to combat identity theft was enacted: The Fair and Accurate Credit Transactions Act of 2003, more commonly known as FACTA.
With the rise of e-commerce and the move to a more cashless economy, identity theft was a growing concern in the early 2000s. In response, FACTA implemented a series of rules meant to help consumers. FACTA provisions include:
- The ability of consumers to obtain a free credit report
- Increased fraud alerts and active duty alerts
- Truncation requirements so that full card numbers no longer appeared on receipts
- Requirements to inform victims
- Rules that collection agencies that are told charges are a result of identity theft must report that information to creditors
- The issuance of rules on “red flags” that should trigger alerts (which is the responsibility of the creditors)
- Rules on the proper disposal of consumer reports and information
According to a White House statement when the law was passed, “This legislation gives consumers unprecedented tools to fight identity theft and continued access to the most dynamic credit markets in the world. With a free credit report and powerful new tools to fight fraud, consumers have the ability to better protect themselves and their families.”
The law was not without critics, who thought that it was too difficult to obtain credit reports; the red flag rules actually increased the risk of identity theft by making more businesses hold consumers’ personal information for compliance reasons only, and limiting the ability of states to enact their own legislation. However, most advocates feel the law works as intended.
One of the strongest provisions of the law states, “If a fraud alert or active duty alert is placed on your credit report, any business that is asked to extend credit to you must contact you at a telephone number you provide or take other ‘reasonable steps’ to see that the credit application was not made by an identity thief.” This is important to people looking for a mortgage since this requirement applies to lenders as well. In fact, according to Jonathan D. Jerison and Andrea Lee Negroni, who are attorneys with Buckley Kolar LLP, there are many FACTA benefits to consumers who are looking for a mortgage. By allowingthe credit report to serve as an early warning, FACTA can help a client improve their score and get a better rate. It requires any lender to provide any credit report obtained to qualify a borrower. And it requires that any discovered identity theft items must be blocked on credit reports.
Although not a perfect solution, over the last 10 years FACTA has served as an important protection preventing identity theft and alerting victims when it occurs. So everyone can sleep a little easier tonight knowing their identity is safer than it was just 10 years ago.