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Color of Money

Somewhat More Fair And Increasingly Accurate

By Michelle Singletary
Thursday, December 11, 2003; Page E03

It's official. President Bush last week signed into law the Fair and Accurate Credit Transactions Act of 2003, also known as the FACT Act.

This law will help consumers fight identity theft and correct errors in their credit files, and will finally give the Federal Trade Commission authorization to study various aspects of the credit-reporting industry.

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"In an age when information about individuals can be found easily, sold easily, abused easily, government must act to protect individual privacy," Bush said during the signing ceremony. "People work hard to build up good credit histories and rely on their credit to move forward in life. Today, we're helping to make our credit system fair, fair to all, and to better protect people from those who would abuse it."

Some consumer advocates aren't happy with the law, and for good reason. In some instances, the FACT Act preempts stricter measures enacted by the states. For example, a new California law makes it much tougher for companies to share customer information with affiliated businesses. Under that law, companies must get a customer's permission before sharing information.

The FACT Act also restricts the use of consumer information by a company's affiliates and allows consumers to decide whether to share their information for marketing purposes. For example, your bank may have to ask you before sharing certain information about you with an affiliate that wants to sell you insurance. You would have the option to refuse such an exchange. The restriction on marketing solicitations with affiliates is a new privacy protection. However, the federal law is considered by consumer advocates to be far too generous in granting exceptions in which notification wouldn't be required and a consumer wouldn't have to be offered the chance to opt out.

"We think this law fails consumers," said Edmund Mierzwinski, the consumer program director for U.S. PIRG, the national lobbying office for state Public Interest Research Groups. "The threat of stronger state laws caused Congress to act. But now the states are limited in what they can do."

Even though the FACT Act has some flaws, it has many provisions worth trumpeting.

In fact, some of the best provisions in the federal law -- requiring businesses to verify identities and addresses before opening accounts and demanding that those businesses cooperate with identity theft victims -- come from recent state laws, Mierzwinski said.

Chief among the new changes is the right of consumers to get a free credit report every year from each of the three major credit bureaus. But don't go rushing to get your free reports. It will most likely be six months to a year before you can get them, said Scott Duncan, assistant communications director for the House Committee on Financial Services.

Duncan said the FTC has six months to draft regulations that will specify how the free credit report distribution system will work. After that, the agency has another six months to make those rules final and fully functional.

In addition to the free credit reports, better identity fraud alerts and affiliate opt-out provisions, the new law mandates that the FTC conduct research that could lead to further changes in the credit reporting system, such as:

• A look at common financial transactions not generally reported to the credit bureaus that may bear on a consumer's creditworthiness. For example, some lenders don't report to the credit bureaus their borrowers' on-time loan payments, to keep competitors from poaching their customers. However, not reporting such information can hurt a consumer's credit score.

• Research on the accuracy and completeness of information contained in consumer credit files. This is long overdue. Many consumers complain that trying to have incorrect data removed from their credit files is akin to getting a 3-year-old to eat spinach -- a frustrating and messy task. The FTC will have to submit interim reports and a final report to Congress on its findings and conclusions, together with recommendations for legislative and administrative action.

• An examination of the use of credit scores and credit-based insurance scoring. It's common for insurance companies to use information in your credit file to determine if you're at a higher risk to file an insurance claim. As a result, if you have a poor credit history, you may end up paying a higher auto insurance premium. However, consumer advocates argue that a person's credit history is not a fair indicator of insurance risk. The FTC is being asked to study the use of credit scores and credit-based insurance scores on the availability and affordability of financial products.

I'll be following these reports, and so should you.

Overall, the Fair and Accurate Credit Transactions Act may not be perfect, but it does provide some needed updates to how our credit files are handled and protected.

Michelle Singletary discusses personal finance Tuesday on NPR's "Day to Day" and online at www.npr.org. Readers can write to her in care of The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or by e-mail at singletarym@washpost.com.

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