Employers must shred personal data

Starting Wednesday (June 1, 2005), employers must destroy personal information about their employees before they throw it out if they got the information from a credit report. That means "shredding or burning" paper documents or "smashing or wiping" computer disks.

All employers — even if they have only one worker — are covered by the new regulations, which are part of the Fair and Accurate Credit Transactions Act passed in December 2003. Even individuals who employ a nanny or a yardman, for instance, and who have run a credit check must pulverize information before they throw it out. Employers could face state and federal fines or class-action lawsuits by employees.

"Because the credit report is such a huge piece of personal information, this is an excellent addition to protecting consumer information from beginning to end," says Jennifer Schwartzman, a spokeswoman for the Federal Trade Commission. The regulations are part of a government effort to crack down on identity theft. The identities of about 7 million Americans were stolen in 2003 and their personal information used to set up credit card or bank accounts, according to two studies. Thieves get the information in a variety of ways, from stealing wallets to online scams to hacking into computer networks.

Recent scandals involving the theft of Social Security numbers and other information have highlighted the vulnerability of personal information in the digital age. Data broker ChoicePoint, news and information broker LexisNexis, the University of California at Berkeley and Time Warner are among companies that have had personal information on their workers or customers stolen recently.

But some identity theft comes in old-fashioned ways, such as going through garbage to find bank receipts and credit card bills. "We don't know how much identity theft happens because of 'dumpster diving.' No one knows," says Robert Johnson, executive director of the National Association for Information Destruction, which represent industrial shredding companies. "We're happy to admit that it is only a percentage of the problem. But we don't know if it's 5% or 40%."

Johnson says the new regulation has sparked demand for paper and computer disk shredding services. "We're seeing an increase from auto dealers, apartment complexes, appliance stores — companies that haven't been interested before," he says.

The personal shredder industry, too, expects an increase in sales. "We've had a huge increase over the past several years, and because of the new legislation, we expect it to continue," says Sharyn Frankel, spokeswoman for Staples. Sales of personal shredders at Staples rose 18% in 2004 vs. 2003, she says.

The biggest trend the company sees: "More and more people are looking to upgrade their shredder," she says. "Before, you just worried about paper." But because of the new rule, "now you need one that can shred a floppy disk or a credit card."

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Statement of Senator Paul S. Sarbanes (D-MD)
"Fair and Accurate Credit Transactions Act of 2003"
November 24, 2003

        Mr. President, Saturday evening the Senate passed by voice vote the “Fair and Accurate Credit Transactions Act of 2003” (the “FACT Act”). I want to congratulate Chairman Shelby, Chairman Oxley and Congressman Frank and all the conferees on the successful completion of the conference on this bill. This is an important piece of legislation and, as I have previously done, I want to acknowledge the thorough examination of these important issues provided by the comprehensive series of six hearings on this subject that Chairman Shelby held in the Banking Committee. The bill passed unanimously out of the Banking Committee on a voice vote on September 23, 2003 and was adopted 95-2 on the floor on November 5, 2003. These votes, I believe, are a testament to our chairman’s willingness to work on a bipartisan basis.

         I believe the same can be said of Chairman Oxley and Congressman Frank. Their bill was voted out of the House Financial Services Committee by 63-3 on July 24, 2003, and was passed overwhelmingly on the floor 392-30 on September 10, 2003. The conference report was passed on the floor of the House on Friday night on a vote of 379-49.

         While there were a number of differences between the Senate and House passed versions, I think the conference successfully took many of the best provisions from each bill. Although I would have liked to have gone further in a few areas – in the affiliate sharing section to provide more protection for the financial privacy of consumers, and also in preserving the rights of States to act – I believe a good compromise was reached. Among other things, this legislation:

• provides consumers with free credit reports annually from the national credit bureaus and provides consumers with an easy method to obtain their free credit reports, and easier access to their credit scores;
• requires that consumers be given a summary of their right to opt out of prescreened offers;
• provides for accuracy guidelines;
• requires financial institutions to send their customers written notice prior to submitting negative information about them to a national consumer reporting agency;
• lengthens the statute of limitations for all Fair Credit Reporting Act violations;
• extends the situations in which consumers are notified when adverse actions have been taken against them;
• prohibits the sale, transfer, or collection of identity theft debt, so that such bad debt will not be perpetuated in the credit system;
• limits the sharing of medical information in the financial system;
• with certain limitations, provides consumers with the right to opt out of solicitations for marketing purposes that result from affiliate information sharing; and
• helps enhance the financial literacy of all Americans.

         This legislation contains a number of important consumer protections, and I want to address some of these provisions more thoroughly.

         First I would like to note a significant consumer right contained in the legislation – the right to obtain a free credit report annually. This legislation will, for the first time, allow consumers to make one request, and obtain their credit reports free annually from each of the national credit bureaus. Financial institutions rely heavily on credit report information to make credit decisions, and it is extremely important that consumers be aware of the information contained in their credit reports. Providing consumers with the right to obtain this important information free is a major step forward in ensuring consumers’ knowledge of, and control over, their financial information.

         In addition to obtaining free reports, under this legislation consumers will be informed when negative information is added to their credit reports. This important provision, combined with the consumer’s right to a free report, will help improve Americans’ access to and understanding of information contained in their credit reports.

         This legislation will also help ensure that consumers are aware of how to opt out of the prescreening process which results in many of the unsolicited offers of credit that consumers receive in the mail. Under the FCRA, credit reporting agencies may generate for creditors prescreened lists of individuals with certain credit characteristics to be targeted to receive a direct mailing. The success of the FTC’s “Do-Not-Call” Registry has highlighted Americans’ frustration with unsolicited telephone offers. Under this legislation, creditors making such unsolicited offers of credit to consumers by mail will be required to include a summary of consumers’ rights to opt-out of prescreening in their offers to consumers. The FTC in consultation with the banking agencies and the National Credit Union Association will be required to write rules on the size and prominence of the disclosure of the opt-out telephone number that is included with offers of credit to consumers.

         In order to ensure that consumers are aware of the many rights provided for them under the Fair Credit Reporting Act, this bill directs the FTC to undertake an educational campaign. The FTC is directed to actively publicize, and conspicuously post on its website, a number of important FCRA consumer rights. Among these are:

• the right to obtain free credit reports annually, and other circumstances in which consumers may obtain free credit reports;
• the right of a consumer to dispute information in his or her credit report;
• the consumer’s right to obtain a credit score from a consumer reporting agency, and a description of how to obtain a credit score; and
• the consumer’s right to opt out of prescreened lists, and the toll-free telephone number maintained by the national credit bureaus by which consumers may opt out.

         This FTC campaign will help ensure that Americans are informed of their rights under the FCRA, including the new rights afforded to them by this Act.

         This legislation will also add a new provision to the FCRA that would provide consumers with a notice when they receive less favorable credit terms, based on their credit report. Receiving the notice would trigger the consumer's right to examine his or her credit report free of charge. Although the new provision would give the Federal Trade Commission and the Federal Reserve Board broad authority to make rules regarding the form and content of the notice and when it should be delivered, the notice, by its very logic, must be given after the terms of the offer have been set based in whole or in part on the credit report. The notice should be provided as early as practicable in the transaction after the terms have been set.

         This legislation will also benefit consumers by requiring federal agencies to provide greater oversight of the accuracy and integrity of credit reports. Under this Act, Federal banking regulators and the Federal Trade Commission will, for the first time, establish and maintain guidelines regarding the accuracy and integrity of information provided by data furnishers to credit reporting agencies. The Act also requires these agencies to prescribe regulations requiring creditors and other furnishers of information to credit bureaus to establish reasonable policies and procedures for implementing these guidelines. For the purposes of this section, “accuracy” relates to whether the information that is provided by data furnishers to credit reporting agencies is factually correct. The term “integrity” relates to whether all relevant information that is used to assess credit risk and to grant credit is accurately provided. Integrity of information is not achieved when furnishers do not fully provide data that, by its absence, could have a positive or negative effect on a consumer’s credit score, or on his or her ability to obtain credit under the most favorable terms for which he or she qualifies.

         The bill also contains important provisions relating to financial companies’ ability to market to their customers based on private financial information of the customers that has been shared among affiliates. For the first time, the bill will require affiliates who share customer information to make solicitations for marketing purposes to disclose this sharing to consumers, and to provide consumers with an opportunity to opt out of marketing resulting from such sharing. Exceptions are provided for pre-existing customers, solicitations based on existing shared data, solicitations contracted for by employers, compliance with State insurance laws, service providers, and responding to consumer requests.

         In addition to providing an opt-out of marketing based on affiliate sharing, this legislation helps protect consumers’ private financial information by including a number of important identity theft prevention and protection provisions. I want particularly to note Senator Cantwell’s leadership in the area of identity theft. Senator Cantwell’s identity theft legislation passed on the floor of the Senate last year, and several of the provisions from her bill have been incorporated in the FACT Act, including an extension of the statute of limitations, provisions allowing consumers to block identity theft information from appearing on their credit reports, and a provision allowing consumers to obtain copies of business records reflecting any transactions that have been carried out in their name by identity thieves. I believe that these provisions will be beneficial to identity theft victims, and I want to commend Senator Cantwell’s leadership in this area along with that of Senators Enzi and Feinstein.

         After careful consideration by the conferees, the conference report provides for preemption of the States with respect to conduct required by specific listed provisions of the Act on identity theft. This narrowly focused preemption will leave States free to supplement these protections and to develop additional approaches and solutions to identity theft.

         I would also like to highlight the important steps this legislation takes to improve the financial literacy of consumers by establishing a Financial Literacy and Education Commission which will coordinate promotion of federal financial literacy efforts, and will develop a national strategy to promote financial literacy and education. I want to commend Senators Enzi and Stabenow, along with Senators Corzine, Akaka and others, for their leadership in the Senate in this area. The House had a strong interest in the development of this title, and added, among other provisions, an authorization of $3 million for the development of a national public service multimedia campaign that will be consistent with the national strategy.

         In closing, I would like to take a moment to acknowledge the outstanding work done by the staff of the Committee on this legislation. On my staff, I would like to express my deep appreciation for the work done by Lynsey Graham as well as Dean Shahinian, Aaron Klein, Marty Gruenberg and Steve Harris.

         It was a pleasure working with the staff of Chairman Shelby who are to be congratulated for their outstanding work. I particularly want to acknowledge the work of Mark Oesterle, Doug Nappi and Chairman Shelby’s staff director, Kathy Casey.

         I would also like to thank Laura Ayoud from Senate Legislative Counsel, who has worked tirelessly and, as always, effectively, to put this package together.

         I would also like to acknowledge the vital role played in developing this legislation by all of our Senate conferees: Senators Bennett, Allard, Enzi, Dodd and Johnson, and in particular by the Chairman, Senator Shelby.

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