White Paper Now Available: FACT Act Rules Finalized, Banks Need to Think Twice about Compliance Strategy
New Study by ID Insight Reveals Cost Implications of the New Requirements
NORTHFIELD, MINN. (November 1, 2007) — Now that the FDIC, Federal Reserve and other federal regulatory agencies have finalized the “Red Flag” and Address Discrepancy rules of the Fair and Accurate Credit Transactions Act (FACTA), financial institutions and other creditors will soon be required to adopt a risk-based program to detect and prevent identity theft.
According to Adam Elliott, president of Minnesota-based fraud-prevention company ID Insight, banks and other financial institutions may be faced with a massive challenge -- and a potentially massive amount of unrealized income -- as they scramble to develop a compliance strategy.
ID Insight has been monitoring and analyzing the cost implications of the new FACT Act compliance requirements since it was signed into law in 2003, and is releasing their exclusive findings in a new white paper written to help financial institutions and creditors digest and respond to the financial implications of the FACT Act guidelines. The rules take effect on Jan. 1, and financial institutions will have until Nov. 1, 2008, to comply.
By conducting exhaustive analyses of both retro and current industry data, the five-year old fraud detection company has developed a consortium study that examines the impacts of address mismatches across all aspects of the account lifecycle, from account acquisition to performance and closure. The study primarily assesses the financial implications of address mismatches, which are incurred by the combination of fraud losses, costs associated with reviews and other controls during the approval process, compliance requirements, as well as the cost of legitimate accounts declined. For a copy of the white paper, visit www.idinsight.com, or call 1-877-749-8731.
Under FACTA Sections 114 and 315, financial institutions and creditors are now required by law to adopt procedures to reduce the risk of identity theft by examining consumer address changes on both new and existing accounts. “Roughly 20 percent of new consumer credit applications feature a different address from the corresponding credit bureau file, so the workload that financial institutions can now expect is not at all trivial,” Elliott says. “And if they use conventional methods of third-party name-to-address verification, they could be losing out on millions of dollars of unrealized revenue by rejecting legitimate applications with an unverified address change.”
In addition to a potential hit in account approval rates, financial institutions are facing a huge jump in the manual review workload, Elliott says. The study by ID Insight closely examined new account acquisition strategies in California, a state that has enacted legislation similar to Section 315 of the nationwide FACT Act. According to Elliott, the FACTA-like compliance requirements in California result in 11 percent of all new applications reviewed for address mismatch reasons. This is nearly triple the current national average of approximately 4 percent. When FACTA compliance is required, banks and creditors can expect their manual review rates to echo the much higher rates currently seen in California.
The expense incurred from the additional manual reviews along with lost revenue from the diminished number of approved applicants will undoubtedly affect the bottom lines of some of the country’s largest banks. At the crux of the issue is the fact that legitimate people move very commonly, so the workload associated with verifying the identities of everyone who changes their address is immense. Still, there are technological breakthroughs available today that use predictive analytics to accurately measure risk of identity theft in an address change situation, even when identity verification data is not available, all in fractions of a second.
“It doesn’t have to be all gloom and doom,” Elliott says. “If institutions take the right steps to comply with FACTA, there are opportunities for millions of dollars in savings each year, especially for large banks that process thousands of applications each day.”
About ID Insight
Founded in 2002 by recognized leaders in the financial services industry, ID Insight, Inc., has quickly established itself as a leader in identity fraud prevention. By developing proprietary address-focused analytics to bridge a critical gap in identity risk management, the Northfield, Minn.-based company provides the next generation of identity verification and authentication solutions to the United States’ top banks, credit card issuers, retailers, wireless providers, online merchants, and financial services companies.
ID Insight is providing banks with an opportunity to avoid costs, capture more legitimate business, and still comply with FACTA through its industry-leading Safe2Change technology.
For more information, visit www.idinsight.com.
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Media Contacts:
- Brian Bellmont for ID Insight, (952) 233-0428,
