Fact Act Passes House Financial Services Committee

KPMG Update
August 1, 2003

The House Committee on Financial Services passed H.R. 2622, the Fair and Accurate Credit Transactions ("FACT") Act by a 61-3 vote. H.R. 2622 would renew preemption provisions in the Fair Credit Reporting Act ("FCRA") that allow financial and retail firms to share certain customer data among their affiliates. These provisions are set to expire on January 1, 2004. The bill would also strengthen rules to fight identity theft.

The committee passed a number of amendments to the bill that would:

--Limit disclosures of certain medical used in preparing credit reports;

--Employ a fraud alert system to help victims of identity theft to ensure that credit is not extended to identity thieves;

--Ban businesses from sharing negative information about a consumer if they have received a copy of a police report indicating an illegal transaction following an identity theft; and

--Require the General Accounting Office ("GAO") to conduct a study on the role of race and gender in the credit granting process.

--Require credit bureaus to notify users of consumer reports when discrepancies exist in connection with addresses.

--Require federal bank regulators to issue guidance on how lenders should treat credit reports when there is confusion about a consumer's address.

--Ban the passing on consumer information to credit bureaus if the information furnisher has substantial doubts about the accuracy of the information.

--Permit consumers to reinvestigate consumer disputes directly through "resellers" of credit reporting information. Define a fraud alert as a statement that notifies users of the file that the consumer does not want credit offered without permission through a preauthorized procedure.

The bill also creates a tiered fraud alert system. The alert system is broken into three tiers, with:

--An initial alert,

--An extended alert, and

--A special military alert.

When an alert is created, it would automatically be communicated to other consumer reporting agencies and would exclude the consumer from pre-screened offers of credit or insurance.

The Committee also agreed to the following amendments regarding medical privacy, which would:

--Ban the display of medical information on credit reports unless it is coded.

--Prevent creditors from using medical information in decisions about whether to grant credit.

--Require medical entities submitting information to reporting agencies to identify their status. Specifically, it would forbid the name, address, or phone number from being displayed unless it is coded or the report is being provided to an insurance company engaged in business other than property and casualty insurance.

The FACT Act now heads to the House Floor for consideration. Congressman Oxley (Republican of Ohio), Chairman of the House Committee on Financial Services, would like the House to complete action on the bill before the end of September. Congressman Frank (Democrat of Massachusetts), predicted the bill would pass the Senate before January 1, 2004.

The text of H.R. 2622 is available on the Library of Congress Web site (http://thomas.loc.gov). (Michael Flood: mflood@kpmg.com)