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FACTA - Fair and Accurate Credit Transaction Act

The FTC's latest FACTA rule requires any business "that maintains or otherwise possesses consumer information, or any compilation of consumer information, derived from consumer reports for a business purpose" to "properly dispose of such information or compilation." Both FACTA and the new rule are supposed to cut down on the incidences of identity theft by, among other methods, restricting the ability of thieves to go "dumpster diving" for valuable consumer information contained in discarded business records.

One of the keys to understanding the new FACTA rule is to understand the meaning of the term "consumer information." Consumer information means any record about an individual, whether in paper, electronic, or other form, that is a consumer report or is derived from a consumer report.

What this "legal word play" really means is that if your business has or obtains any consumer credit reports, employee background reports or similar reports that have been prepared by an outside agency or company, then the FACTA disposal rules apply to those records.

But before you breathe a sigh of relief, remember that FACTA also covers any of your own company's records that are "derived" from a consumer credit report or employee background report. So if your company copies, uses or incorporates any information from a consumer credit report or employee background report that you obtained from an outside agency, then that report is also subject to FACTA disposal rules.

The "information derived from" rule apparently has no limit and can raise some interesting problems for businesses that handle a large amount of consumer information received from a variety of sources. As even the FTC acknowledges, businesses may not always know whether the information they receive was derived from a consumer report.

But, even if you don't know whether any information in one of your records was derived from a consumer report, FACTA will still hold your business responsible for proper storage and disposal of that record.

Given the confusing situation regarding which business records are covered by FACTA, perhaps the safest policy for businesses to adopt is to consider all their records containing consumer information to be part of their safe storage and disposal policy, even if not all their records technically fall under the definition of consumer information as defined by FACTA.

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(By Chris Kelleher - Entrepreneur.com)

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