Credit scores play a big role in everyday life, impacting everything from applying for a mortgage to purchasing a car or renting an apartment. Most people don’t think much about how much of their personal information gets shared behind the scenes when their credit is checked, but it’s a lot. That’s exactly why the Fair and Accurate Credit Transactions Act (FACTA) was created.
FACTA gives people more control over their credit information and helps protect them from identity theft and financial fraud. But it doesn’t just apply to consumers. It also places important responsibilities on the businesses that collect, store, or use this data.
Whether you’re a business handling customer credit information or an individual applying for a loan, FACTA likely affects you. Understanding what the law requires of businesses, and how it protects you on the other end, is what this article is all about.
Read on to learn what FACTA is, why it matters, and how it affects both consumers and businesses alike.
What Is the Fair and Accurate Credit Transactions Act?
The Fair and Accurate Credit Transactions Act, or FACTA, is a federal law that was passed in 2003 as an amendment to the Fair Credit Reporting Act (FCRA). It was created to give people better access to their credit information and more protection against identity theft and consumer fraud.
One of the most well-known parts of FACTA is the right it gives consumers to request a free copy of their credit report from each of the three major credit reporting agencies, Experian, Equifax, and TransUnion, once every 12 months. This helps people spot errors, detect suspicious activity, and stay on top of their credit health.
FACTA also introduced several rules that businesses need to follow in order to keep consumer data safe. These include how credit information is handled, how it’s disposed of, and what steps need to be taken to detect and respond to signs of identity theft.
In short, the goal of FACTA is to make credit information more accessible for consumers and more secure in the hands of businesses.
What Protections Does FACTA Provide?
Here’s a breakdown of some of the protections and requirements provided under the law:
Free Annual Credit Reports
Consumers have the right to request a free copy of their credit report from each of the three major credit reporting agencies once every 12 months. This gives people a chance to monitor their credit history, catch errors, and spot any suspicious activity.
Fraud Alerts
FACTA allows consumers to place fraud alerts on their credit reports if they believe they’re at risk of identity theft. These alerts require creditors to take extra steps to verify someone’s identity before issuing credit. For those already affected by identity theft, FACTA requires credit agencies to investigate and quickly correct any fraudulent information.
Extended Fraud Alerts
For identity theft victims, FACTA also allows for extended fraud alerts that last up to seven years, offering long-term protection from further misuse of personal information.
Correction of Credit Report Errors
If an item on a credit report is the result of identity theft, credit agencies are required to block that information and remove it from the file. This helps prevent victims from being penalized for fraudulent activity.
The Disposal Rule
When credit information that you’ve collected is no longer useful, FACTA requires you to dispose of it securely. It requires you to do more than just toss paperwork into the trash or delete files off of your desktop by dragging them into your recycling bin. The goal of the Disposal Rule is to prevent sensitive information from falling into the wrong hands due to carelessness during disposal.
The FACTA disposal rule applies to any business or individual that collects or uses consumer credit reports. That includes printed records, digital files, even credit data pulled during a background check.
To comply with the Disposal Rule, you’re expected to take “reasonable measures” to protect consumer information during the disposal process. That could include:
- Shredding physical documents
- “Wiping” or destroying electronic media
- Hiring a professional shredding company that follows secure destruction procedures
Failing to dispose of records properly can create compliance issues, as well as put your customers private information at risk. Even a single compromised document can lead to identity theft or fraud.
If your business handles credit data in any form, it’s worth reviewing your disposal process to make sure it’s secure and compliant.
The Red Flags Rule
The Red Flags Rule is a requirement under FACTA that applies to certain businesses, especially those considered creditors or financial institutions. If your business opens accounts, extends credit, or has access to sensitive customer data, you may be required to follow this rule.
The goal is to help businesses detect the warning signs, or red flags, of identity theft and take action before any further damage is done.
To comply, businesses need to create and maintain a written Identity Theft Prevention Program. This program needs to include details about how your business will:
- Identify warning signs of potential fraud
- Detect suspicious activity during account setup or access
- Respond quickly to any red flags that appear
- Keep the program up to date as threats change
For example, if a customer opens up a new account, but their personal information doesn’t match what’s found in public records, that’s considered a red flag. Your team should know how to spot that kind of issue and have a clear plan for what happens next so they can act quickly.
Even small businesses may be considered creditors under this rule, especially if you allow your customers to pay over time or collect credit information during your intake process. That’s why it’s important to review your business and make sure you’re covered.
Who Is Impacted by FACTA?
FACTA affects both consumers and the businesses that handle consumer credit information. If your credit report has ever been pulled, FACTA gives you rights under the law. And if you work for or run a business that uses, stores, or disposes of credit data, there are certain rules you’re expected to follow.
That includes more than just banks and lenders. Businesses of all sizes can fall under FACTA’s requirements, including any business that extends credit, collects personal or financial information, or runs background checks as part of their services. This can include:
- Auto dealerships
- Law firms
- Medical and dental offices
- Landlords and property managers
- Retailers offering financing options
If your business collects Social Security numbers, credit report details, or any other sensitive consumer information, you’re expected to take steps to keep that data safe, and FACTA regulates how.
Penalties for Non-Compliance
Ignoring FACTA requirements can lead to serious consequences, both legally and financially. Fines for violations can range from $100 to $1,000 per consumer affected, and in some cases, even higher if multiple violations are involved. Businesses may also face class-action lawsuits, regulatory investigations, or state-level penalties.
Beyond the legal risks, non-compliance can also damage your reputation. Customers expect their personal information to be handled responsibly. If data is mishandled or exposed, it can lead to lost trust, negative publicity, and long-term harm to your business.
Why Records Management Matters Under FACTA
Proper records management is one of the most important parts of staying compliant with FACTA. Businesses are expected to protect sensitive consumer information at every stage—from the moment it’s collected to the moment it’s no longer needed.
That includes making sure records are stored securely, handled with care, and destroyed using methods that prevent unauthorized access. Without a clear process in place, it’s easy for data to slip through the cracks—and that can lead to penalties, lost trust, or worse.
Strong records management practices not only help meet compliance requirements but also show a clear commitment to protecting the personal information of the people you serve.
SecureScan Can Help You Stay Compliant with FACTA
Keeping up with FACTA requirements doesn’t have to be complicated. Whether you’re managing stacks of outdated files or looking for a better way to handle sensitive documents, we can help you get organized and stay compliant.
Our secure document scanning service makes it easy to convert paper records into accessible digital files, so you can store, search, and manage them without the physical clutter. Everything is handled by trained staff in a secure facility, with privacy at the core of what we do.
When it’s time to dispose of old credit files or other sensitive records, our NAID AAA Certified shredding service ensures everything is destroyed securely. We’ll even provide a certificate of destruction for your records.
Not sure where to start? Our team has more than 22 years of experience helping businesses handle sensitive documents the right way. We’ll work with you to build a records process that fits your needs and keeps you aligned with FACTA’s requirements. Contact us for more information about how to get started or get a free quote from one of our technicians.