(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-1329
Before the National Association of Federal Credit Unions Identity Theft Seminar: Helping You Help Your Members
Dover, Delaware
Fighting Identity Theft: Challenges and Opportunities in Implementing the Fair and
Accurate Credit Transactions Act of 2003
I want to thank NAFCU and all the other people involved in the planning of the seminar for this opportunity to address this important collection of professionals from the federal credit union community. Thanks to the Dover Federal Credit Union from the Dover Air Force Base community for hosting the event. You work, day in and day out, as the credit union motto attests, “not for profit, not for charity, but for service,” and this is doubly true of the service men and women and their families among you that have dedicated their lives to service. I want to talk to you a lot about your service today.
You have already served so well. I want to acknowledge that at the outset. You have done an extraordinary job in working with us to comply with the new anti-money laundering and anti-terrorist finance provisions of Title III of the USA PATRIOT Act and its implementing regulations. Never before in the history of financial regulation have so many new regulatory burdens been imposed on such an array of financial institutions in so short a period of time. Of course, those new obligations are an important component of the war on terror. At the Treasury, we appreciate your diligent efforts to comply with not only the letter, but the spirit, of the new regulations. You are making an important difference in this fight. Thank you.
I am here to say that we expect still more of you. In particular, we need your help – your service – in the fight against identity theft.
I don’t have to tell you that identity theft is one of the fastest growing crimes in America. According to a November 2003 study by the Federal Trade Commission, 10 million Americans were victims of identity theft in 2002. Identity theft cost American consumers $5 billion in 2002. It cost financial institutions $50 billion.
I don’t have to tell you that identity theft is right here, in Delaware. Comprehensive state by state data is hard to come by. But we have some idea from a January 2004 report by the Federal Trade Commission on the number of identity theft complaints submitted to its consumer sentinel database. Delaware was ranked number 20.
The President recognized the growing threat of identity theft. He called it, “one of the most harmful abuses of personal information.” For that reason, the President tasked Secretary Snow and the Department of the Treasury with identifying new tools in the fight against identity theft. We, in turn, consulted with financial institutions, technology companies, regulators, and victims. On June 30, Secretary Snow announced the result: a baker’s dozen of proposals to help fight identity theft and renew national uniform standards that govern our national consumer credit reporting system. With some exceptions, we didn’t invent the ideas in the proposals. These didn’t come from bureaucrats in Washington. They came from you: from financial institutions, technology companies, consumers, and, most importantly, from victims.
Congress showed great leadership in this battle. Chairman Oxley, Congressman Bachus, and Chairman Shelby held extensive hearings documenting the scope of the problem of identity theft and the economic importance of national, uniform consumer credit reporting standards. Their leadership, and the leadership of many of their committee members, culminated in the Fair and Accurate Credit Transactions Act of 2003, which passed the Congress with overwhelming bipartisan support.
The President signed the FACT Act on December 4. It was an important step toward strengthening our economy. As the President said, “reliable access to credit and capital is essential to growth and prosperity.” And the FACT Act, as the President said, “confronts the problem of identity theft.” For example:
· Consumers will be able to get a copy of their credit report free of charge every year so that they can correct inaccuracies and spot fraud early in the crime spree.
· With one phone call, a consumer will be able use the national security alert system established under the law to put merchants and lenders on their guard that an impersonator is transacting business fraudulently in the consumer’s name.
· An Active Duty Alert will permit our active duty service men and women, or their representatives, to alert merchants and prospective creditors that they are away from home for an extended period of time, and potentially vulnerable to fraud.
· Bank regulators will draw up guidelines to identify patterns of identity crime that financial institutions will use to help prevent the crime and protect their customers.
Since passage of the Act and the President’s signing, regulators – the FTC, the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and, of course, and the National Credit Union Administration – have been hard at work implementing the Act through rules and regulations.
This process is a difficult one. Congress imposed very tight deadlines on the regulators so that the rules would be issued as soon as possible. The issues are difficult and complicated. They are inter-related. There are many moving parts. It is something of an understatement to say that implementation of the FACT Act through regulation presents some challenges.
I believe that we can meet those challenges if we keep two principles in mind. They were the principles that the President talked about when he signed the Act. They were the principles that the Secretary talked about when he announced the Administration’s proposals way back on June 30 th. They are accessibility and security. As we write the rules, we should keep our eye on expanding access to credit while enhancing the security and accuracy of consumers’ personal financial information. For example, when we contemplate rules implementing new notice provisions, we should ensure that the notices help expand access to credit and enhance the security and accuracy of consumers’ personal financial information.
In some cases, those goals may be served by sending the notice to many, many consumers. As, for example, is the case with the negative information reporting provision of the FACT Act.
In other cases, it seems better to ensure that notices are sent only to customers who might benefit from them more immediately than generally. Do all consumers need to receive a risk-based pricing notice every time they apply for credit? If they do, how long before consumers will start to disregard the notice? How will a consumer know when to take the notice seriously enough to check his or her credit report to see whether there are inaccuracies that are driving up the cost of credit to that consumer? If consumers come to disregard the notices, what purpose will they serve? Will they expand access to credit? Will they enhance the accuracy of information in the consumer reporting system?
At the same time, it is important to recognize that you can go too far in the other direction. Efforts to too narrowly target the notice to consumers who need it most could backfire. One could imagine a rule that is very difficult and very expensive to comply with. Ultimately, such regulatory traps hurt consumers because they raise the costs of financial services and drive companies from providing services to segments of the market that they might otherwise serve.
How to achieve the balance? That’s the challenge. Maybe different rules make sense for different types of credit. Maybe the notice could be limited to situations in which very specific, objective, quantifiable terms are affected in some specific, quantifiable way? Ultimately, these are questions for the regulators to resolve. I am hopeful that they will resolve them in a way that advances the twin goals of the FACT Act: expanding access to credit and enhancing the security and accuracy of consumers’ financial information.
I would like to close where I began -- with the concept of service. Because I haven’t gotten to the hardest part of the FACT Act. That will be your efforts to comply. The FACT Act imposes a number of new obligations on financial institutions to ensure that they are following best practices, spotting red flags, and helping us fight identity theft. It will be the spirit of service that will carry you through. Not service to us, your government. After all, the government works for the people. Rather, it will be your service to your customers that makes the FACT Act real and that protects your customers from the growing problem of identity theft.
Thank you.