Federal Reserve Operations 55 Consumer and Community Affairs Among the Federal Reserve’s responsi­ consumer financial products and ser­ bilities in the areas of consumer and vices at the request of Congress. community affairs are During 2004, the Board issued final rules implementing provisions of the • writing and interpreting regulations to Fair and Accurate Credit Transactions implement federal laws that protect Act, an act that significantly amends and inform consumers, the Fair Credit Reporting Act. The Board also issued guidance on the stan­ • supervising state member banks to dards it and the Federal Deposit Insur­ ensure their compliance with the ance Corporation (FDIC) will use when regulations, determining whether to take supervisory or enforcement actions in cases involv­ • investigating complaints from the ing the unfair and deceptive trade prac­ public about state member bank com­ tices provisions of the Federal Trade pliance with regulations, and Commission Act. The Board produced two reports for Congress summarizing • promoting community development in the findings of Board studies on the historically underserved markets. disclosure of fees related to debit card purchases and on the ability of consum­ These responsibilities are carried out by ers to avoid receiving unsolicited writ­ the members of the Board of Governors, ten offers of credit or insurance. In addi­ the Board’s Division of Consumer and tion, the Board revised its Truth in Community Affairs, and the consumer Lending Act regulation and the associ­ and community affairs staff of the Fed­ ated commentary, issued interim final eral Reserve Banks. rules incorporating technical changes to the regulation implementing the Community Reinvestment Act, raised Implementation of Statutes certain thresholds that would trigger Designed to Inform and Protect additional requirements under the Home Consumers Ownership and Equity Protection Act, The Board of Governors writes regula­ and issued a final rule revising the dis­ tions to implement federal laws involv­ closure tables that the federal finan­ ing consumer financial services and fair cial regulatory agencies use to publicly lending. The Board revises and updates release Home Mortgage Disclosure Act these regulations to address the intro­ data reported by covered institutions. duction of new products, to implement legislative changes to existing laws, and to address problems consumers may Fair and Accurate Credit encounter in their financial transactions. Transactions Act To interpret and clarify the regulations, In December 2003, the President signed Board staff issues commentaries and the Fair and Accurate Credit Trans­ other guidance. In addition, the staff actions Act (the FACT Act) into law. may undertake studies on aspects of The FACT Act amends the Fair Credit 56 91st Annual Report, 2004 Reporting Act (FCRA) in numerous established December 31, 2003, as the respects, including making permanent effective date for the preemption pro­ an FCRA provision that preempts states visions of the FACT Act, as well as for from enacting laws in seven areas provisions authorizing the agencies to addressed by the FCRA. The FACT Act adopt rules or take other actions to also includes provisions to address iden­ implement the FACT Act. The final joint tity theft, the accuracy of consumer rules the agencies adopted in February reports, the duties of furnishers of infor­ 2004 included the same schedule of mation, the ability of consumers to opt effective dates contained in the interim out of receiving marketing solicitations rules. The Board’s final rule amended from an organization when the solicita­ its Regulation V, which implements the tion is based on information provided FCRA. to that organization by its affiliate, and Also in December 2003, the Board the ability of creditors to obtain or and the FTC had issued for comment use medical information in connection proposed joint rules that would establish with determining credit eligibility. (The a schedule of effective dates for other FACT Act also established the Finan­ provisions of the FACT Act that did not cial Literacy and Education Commis­ contain effective dates. After reviewing sion. See ‘‘Promotion of Community the comments on the proposal, the agen­ Economic Development in Historically cies, in the February 2004 joint final Underserved Markets’’ later in this rules, established March 31, 2004, as chapter.) the effective date for provisions of the The FACT Act requires the Board to FACT Act that did not require signifi­ issue regulations or guidelines to imple­ cant changes to business procedures. For ment various provisions of the statute. those FACT Act provisions that would In 2004, the Board issued three final likely entail significant changes to busi­ rules: one pertaining to effective dates ness procedures, the agencies estab­ for certain provisions of the FACT Act, lished December 1, 2004, as the effec­ one pertaining to the furnishing of nega­ tive date, to allow a reasonable time tive information to consumer reporting for the industry to establish systems that agencies, and one pertaining to the comply with the statute. disposal of consumer information. The Board is currently working on several Furnishing of Negative Information additional regulations or guidelines required by the FACT Act. In June, the Board issued a final rule amending Regulation V to add model Effective Dates notices that financial institutions may use to comply with the notice require­ In February, the Board and the Federal ment for furnishing negative informa­ Trade Commission (FTC) issued joint tion to nationwide consumer report­ final rules to implement section 3 of the ing agencies. Under section 217 of the FACT Act, which required these agen­ FACT Act, a financial institution that cies to establish effective dates for pro­ furnishes negative information about visions of the act that did not already credit extended to a customer (such as contain specific effective dates. The information on a customer’s delinquen­ Board and the FTC had jointly adopted cies or late payments) to a nationwide interim rules in December 2003 that consumer reporting agency is required Consumer and Community Affairs 57 to provide a clear and conspicuous writ­ measures for properly disposing of con­ ten notice to the customer about furnish­ sumer information derived from con­ ing negative information. The required sumer reports (such as credit reports). notice is a one-time notice, and a finan­ The agencies’ final rules implement sec­ cial institution may provide the notice tion 216 of the FACT Act by amending before, or no later than thirty days after, the Interagency Guidelines Establish­ furnishing the negative information to a ing Standards for Safeguarding Cus­ nationwide consumer reporting agency. tomer Information (retitled the Inter­ Section 217 of the FACT Act became agency Guidelines Establishing Stan­ effective on December 1, 2004. dards for Information Security), which The FACT Act required the Board were adopted in 2001 (as appendix D-2 to issue a concise model form not to of Regulation H). The National Credit exceed thirty words that institutions Union Administration, the FTC, and may, but are not required to, use to the Securities and Exchange Commis­ comply with the notice requirement. The sion adopted similar standards for their Board’s final rule added two model institutions. notices to Regulation V. One notice may The interagency guidelines currently be used by financial institutions that require financial institutions to protect give the notice before furnishing nega­ customer information by implementing tive information to a nationwide con­ information security programs. An insti­ sumer reporting agency. The other may tution’s information security program be used by financial institutions that must include measures for the proper give the notice after furnishing negative disposal of ‘‘customer information.’’ information to a nationwide consumer Such information is generally defined as reporting agency. The Board also nonpublic personal information about a amended Regulation V to incorporate a ‘‘customer,’’ namely, an individual who statutory safe harbor relating to the use obtains a financial product or service to of the model notices. The safe harbor in be used primarily for personal, family, the FACT Act provides that a financial or household purposes, and who has institution will be considered to be in a continuing relationship with the finan­ compliance with the notice requirement cial institution. The final rules amend if the institution uses the model notice the interagency guidelines to require in­ issued by the Board, or if it uses the model stitutions to also include measures for notice and rearranges the format. The the proper disposal of ‘‘consumer infor­ Board also provided additional guidance mation,’’ which is generally defined as about using the model notices, including information that is a consumer report guidance on how financial institutions (such as a credit report), or that is may rearrange the format of the notices derived from a consumer report about without losing the safe harbor from lia­ an individual (regardless of whether that bility that the model notices provide. individual is a customer), and that is maintained or otherwise possessed by, Disposal of Consumer Information or on behalf of, the institution for a business purpose. The final rules will In December, the Board along with the take effect on July 1, 2005; however, other federal financial