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Credit Fraud And The Fair Credit Reporting Act

The following post is part of our Law Student Blog Writing Project, and is authored by Jessie Smith, a law student from the University of Kentucky.

An unfortunate reality of modern living involves the prevalence of credit scams. Those who have fallen victim to a credit scam, or suspect they have fallen victim to such a scam, are oftentimes left wondering what, if any, courses of action are available to unwind the inevitable fraudulent transactions that follow suit. The goal of this blog post is to identify some of the most common types of credit scams that exist today, illuminate the legal issues that surround these scams, and discuss some of the remedies that are available to those who have fallen victim to these schemes. To that end, an examination of the most widespread scams that pervade the current legal landscape will first be had.

What Are Some Of The Most Common Types Of Credit Scams?

Whether by simple convenience or sheer malice, the most prominent form of credit scam involves the utilization of consumers’ credit card information. Indeed, according to one source, forty percent of all financial fraud is associated with credit cards. The question that becomes immediately apparent is: how are fraudsters able to obtain one’s credit card information? The answer varies from the inanely basic to the technologically advanced.

For example, one method used by credit card scammers to obtain credit card information is known as “skimming.” Skimming involves placing a device, referred to as a “skimmer,” over swiping mechanisms in credit card readers in stores, ATMs, and gas pumps. When a customer swipes their card through the card reader, the skimmer essentially copies the card’s information. Later, that information is gathered by the criminal and used to make illegitimate transactions under the cardholder’s name.

A method related to, yet distinct from, skimming is a process called “digital skimming,” by which a fraudster utilizes a technology known as “radio-frequency identification” to obtain a victim’s credit card information remotely. This process is, at its most basic, the modern equivalent of pickpocketing. The scammer may use something as mundane and unthreatening as a smartphone, equipped with a particular app, which, when equipped, permits the theft of credit card information from distances of as much as six inches away.

A less advanced, yet common, method of stealing cardholders’ information is mail fraud. A credit card fraudster will look through one’s mail, searching for credit card statements that contain the pertinent information needed to perpetrate the fraud, or, worse, a pre-approved credit card offer. The forms provided with pre-approved offers are filled out and mailed back to the credit card company, and the criminal later steals the newly issued credit card.
Yet another method of effecting credit fraud is a modern phenomenon that involves a low-tech, albeit clever, scheme. A fraudster will call an unsuspecting victim, and, whilst recording the conversation, ask the victim a question with the intent of having the victim verbally utter the word “yes” (often, the question posed will be something like “Can you hear me?”). This recording is later edited and saved so that the scammer can use the recorded statement (i.e., “yes”) to authorize credit transactions in the victim’s name.

Each of the aforementioned methods of credit fraud have one common thread running through each of them: they will, at some point in time, result in negative information being provided to credit reporting companies. Although these companies do not knowingly, nor willingly, participate in these frauds, some of the most damaging consequences of identity theft and credit fraud concern one’s credit report, and, thus, the credit reporting companies that prepare such reports. Luckily for those that fall victim to credit fraud, the Fair Credit Reporting Act (hereinafter “FCRA”) provides a plethora of rights that one may exercise when faced with credit fraud.

What Remedies Are Available To Victims Of Credit Scams?

Although credit scams are clearly a regrettable fact of modern living, there are a number of steps a victim of credit fraud can take to seek some amount of redress for their economic injuries. Some of the options available to mitigate the damage incurred by credit fraud are provided by the Fair Credit Reporting Act (hereinafter “FCRA”). The rights afforded to victims of credit fraud under the FCRA are outlined below:

1. Place a “Fraud Alert” on Your Credit Report
Once one suspects or confirms that they have fallen victim to credit fraud, they have the right to ask one of the three major credit reporting companies (that is, Equifax, Experian, or TransUnion) to place a “fraud alert” on their credit report. A fraud alert provides creditors with notice that one may have had their identity stolen, and makes it difficult for identity thieves to obtain credit in one’s name. When a fraud alert is present on one’s credit report, creditors must verify one’s identity before issuing credit, which, in many instances, will result in a phone call being placed to one before a transaction is undergone. A fraud alert will remain on one’s credit report for ninety days; however, fraud alerts can be renewed at the end of this period.

2. Place an “Extended Alert” on Your Credit Report
An alternative to renewing a “fraud alert” every ninety days is to place an “extended alert” on one’s credit report. An extended alert remains active for seven years. However, in order to place an extended alert on one’s credit report, one will need to provide an “identity theft report” to the credit reporting company. An identity theft report is, in essence, a police report that has been filed with a law enforcement agency, whether said agency be local, state, or federal in nature.

3. Acquire Documents Related to the Credit Fraud
In addition to the aforementioned rights, victims of credit fraud have the right to obtain copies of credit card applications or other records pertaining to the transactions that have occurred or accounts that have been opened due to the fraud. However, it is important to note that a request for such documentation must be made in writing, and the businesses or creditors involved may ask for a police report, an affidavit, and proof of identity before releasing the records.

4. Gather Information from Debt Collectors, if any are Involved
If a debt collector contacts a victim of credit fraud in an attempt to collect on a debt fraudulently incurred, said victim has the right to obtain information from the debt collector, including the name of the creditor and amount of debt incurred.

5. Ask Credit Reporting Companies to Block Information Resulting from Credit Fraud
In the most unfortunate of circumstances, a victim of credit fraud may find themselves in a position of owing debt that they did not authorize nor incur. When this happens, victims of credit scams have the right to ask credit reporting companies to block information from their credit report that is related to the fraud or identity theft. In order to do so, one must provide the credit reporting company with proof of their identity, as well as an identity theft report.

6. Prevent Creditors from Reporting Negative Information to Credit Reporting Companies
A victim of credit fraud has the right to ask businesses and creditors not to report information to credit reporting agencies, as well. Where a victim of credit fraud believes that information possessed by businesses or creditors is the result of identity theft, they may ask the creditor to refrain from reporting said information to credit reporting agencies, assuming a copy of an identity theft report, as well as identification of the information the victim wishes not to be reported, is provided. In addition, such a request must be sent to an address provided by the business in question.

In sum, it is apparent that, in today’s world, credit fraud is an all-too-common problem that many will face at one point or another. Those saddled with the burden of rectifying credit fraud perpetrated against them face an uphill battle. However, some amount of comfort may be had in knowing that Congress, through passage of the FCRA, has provided those affected by credit fraud with rights that will diminish the damage done to victims’ financial reputation.
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