I. INTRODUCTION
Section 112 of the FACT Act provides for three types of fraud alerts that may be placed in a consumer’s credit report furnished by a consumer reporting agency. The alerts are intended to assist incidences of identity theft. The first alert is referred to as an “Initial Fraud Alert” that is placed in a consumer’s file when the consumer (or an individual acting on behalf of or as personal representative of the consumer) asserts, in good faith, a suspicion that he or she has been or is about to become a victim of fraud or related crime, such as identity theft. When a consumer reporting agency receives appropriate proof of the identity of the requester, the agency must include an initial fraud alert in the consumer’s file, provide the alert with any credit score generated using that for a period of not less than 90 days from the date of the request and refer information regarding the initial fraud alert to each of the other nationwide consumer reporting agencies. The second alert is called an “Extended Fraud Alert” that is placed in a consumer’s file for a period of seven years. Upon the direct request of a consumer (or an individual acting on behalf of or as personal representative of the consumer) who submits an identity theft report to a nationwide consumer reporting agency that maintains files on the consumer, a consumer reporting agency must include a fraud alert for a period of not less than seven years from the date of the request, exclude the consumer from any prescreened solicitation list for a period of not less than five years from the date of the request and refer information regarding the initial fraud alert to each of the other nationwide consumer reporting agencies. The third alert is named an “Active Duty Alert” that is placed in a consumer’s file for not less than 12 months when the consumer is on active military duty consumer (or an individual acting on behalf of or as personal representative of the consumer). During a two year period beginning on the date of request of an active duty alert, a consumer reporting agency must exclude the consumer from any prescreened solicitation list and refer information regarding the fraud alert to each of the other nationwide consumer reporting agencies.
In all cases of fraud alerts, consumers have the right to receive additional free copies of their credit files from nationwide consumer reporting agencies.
II. IMPACT OF FRAUD/ACTIVE DUTY ALERTS ON INSTITUTIONS
While the above-described fraud alerts directly impact consumer reporting agencies, there may be an indirect impact on financial institutions. Section 112(h) provides that users of credit reports that contain fraud or active duty alerts may not establish a new credit plan or credit extension (except for an open-end plan) or issue an additional card on an existing account or grant an increase in credit limit on an existing account unless specific measures are taken by the financial institution. In the case of a financial institution that obtains a credit containing an initial alert or active duty alert, the institution must contact the consumer at the telephone number provided to verify the consumer’s identity or take reasonable steps to verify the consumer’s identity and confirm that the application for a new credit plan is not the result of identity theft. Should the credit file contain an extended fraud alert, the financial institution must contact the consumer in person or by suing the contact method designated by the consumer to confirm the application for a new credit plan, increase in credit limit or request for additional card.
III. FDIC GUIDANCE
The FDIC has become aware of situations in which creditors have denied applications for credit based on the presence of fraud or active duty alerts on the applicants’ consumer reports. In such cases, no steps were taken to attempt to verify the identity of the applicants before the applicants were denied based on the alerts. Financial institutions are reminded that denying credit or taking other adverse actions related to credit because of the presence of a fraud or active duty alert constitutes unlawful discrimination based on the exercise of a right under the Consumer Credit Protection Act, thus violating the Equal Credit Opportunity Act.