Implementation of FACT Act May Warrant Further Analysis of ID Theft by FinCEN

By John Byrne, Bank of America

In each issue of The SAR Activity Review, representatives from the financial services industry offer insights into some aspect of compliance management or fraud prevention that present their view of how they implement the BSA within their institutions. The Industry Forum section provides an opportunity for the industry to share its views. The information provided may not represent the official position of the U.S. Government.

One of the key issues facing law enforcement and the financial industry is the critical obligation to report identity theft activities in a prompt and efficient manner. While this reporting requirement has been with the industry for some time, the issuance of final rules under The Fair and Accurate Credit Transactions Act of 2003 10(the ?FACT Act?) necessitates that each financial institution have in place by November 1, 2008 an ?Identity Theft Prevention program? to, among other things, identify, detect and respond to relevant ?red flags.? This is a brief overview of the red flags, as well as a request for FinCEN to provide new analysis of SAR filings to assist the industry with this reporting obligation.

In June, 2001, FinCEN highlighted the trend of identity theft and reminded the public of the laws in place, specifically ?the Identity Theft and Assumption Deterrence Act of 1998? which amended 18 USC ? 1028 to make it a federal crime for anyone to:
11 knowingly [transfer] or [use], without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law.

FinCEN also reviewed SAR narratives at the time that showed the most common ways to become the victim of identity theft are through the loss or theft of a purse or wallet, mail theft, and fraudulent address changes.

FACT Act Identity Theft Red Flags

Consumer Report Indicators

• A fraud or active duty alert is included with a consumer report.
• A consumer reporting agency provides a notice of credit freeze in response to a request for a consumer report.
• A consumer reporting agency provides a notice of address discrepancy.
• A consumer report indicates a pattern of activity that is inconsistent with the history and usual pattern of activity of an applicant or customer, such as:
  • A recent and significant increase in the volume of inquiries;
  • An unusual number of recently established credit relationships;
  • A material change in the use of credit, especially with respect to recently established credit relationships; or
  • An account that was closed for cause or identified for abuse of account privileges by a financial institution or creditor.

Suspicious Documents

• Documents provided for identification appear to have been altered or forged.
• The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification.
• Other information on the identification is not consistent with information provided by the person opening a new covered account or customer presenting the identification.
• Other information on the identification is not consistent with readily accessible information that is on file with the financial institution or creditor, such as a signature card or a recent check.
• An application appears to have been altered or forged, or gives the appearance of having been destroyed and reassembled.

Suspicious Personal Identifying Information

• Personal identifying information provided is inconsistent when compared against external information sources used by the financial institution or creditor. For example:
  • The address does not match any address in the consumer report; or
  • The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration?s Death Master File.
• Personal identifying information provided by the customer is not consistent with other personal identifying information provided by the customer. For example, there is a lack of correlation between the SSN range and date of birth.
• Personal identifying information provided is associated with known fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:
  • The address on an application is the same as the address provided on a fraudulent application; or
  • The phone number on an application is the same as the number provided on a fraudulent application.
• Personal identifying information provided is of a type commonly associated with fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:
  • The address on an application is fictitious, a mail drop, or a prison; or
  • The phone number is invalid, or is associated with a pager or answering service.
• The SSN provided is the same as that submitted by other persons opening an account or other customers.
• The address or telephone number provided is the same as or similar to the account number or telephone number submitted by an unusually large number of other persons opening accounts or other customers.
• The person opening the covered account or the customer fails to provide all required personal identifying information on an application or in response to notification that the application is incomplete.
• Personal identifying information provided is not consistent with personal identifying information that is on file with the financial institution or creditor.
• For financial institutions and creditors that use challenge questions, the person opening the covered account or the customer cannot provide authenticating information beyond that which generally would be available from a wallet or consumer report.

Unusual Use of, or Suspicious Activity Related to, the Covered Account


• Shortly following the notice of a change of address for a covered account, the institution or creditor receives a request for a new, additional, or replacement.
• A new revolving credit account is used in a manner commonly associated with known patterns of fraud. For example:
• The majority of available credit is used for cash advances or merchandise that is easily convertible to cash (e.g., electronics equipment or jewelry); or
• The customer fails to make the first payment or makes an initial payment but no subsequent payments.
• A covered account is used in a manner that is not consistent with established patterns of activity on the account. There is, for example:
  • Nonpayment when there is no history of late or missed payments;
  • A material increase in the use of available credit;
  • A material change in purchasing or spending patterns;
  • A material change in electronic fund transfer patterns in connection with a deposit account; or
  • A material change in telephone call patterns in connection with a cellular phone account.
• A covered account that has been inactive for a reasonably lengthy period of time is used (taking into consideration the type of account, the expected pattern of usage and other relevant factors).
• Mail sent to the customer is returned repeatedly as undeliverable, although transactions continue to be conducted in connection with the customer?s covered account.
• The financial institution or creditor is notified that the customer is not receiving paper account statements.
• The financial institution or creditor is notified of unauthorized charges of transactions in connection with a customer?s covered account.

Note: FinCEN acknowledges that the issue of identity theft continues to be a concern for financial institutions, and agrees with the recommendation to undertake a review of SAR filings in this area with a goal towards publishing an advanced analytic product in the future.

10 The FACT Act expanded the Fair Credit Reporting Act and is intended primarily to help fight identity fraud. The Act contains a number of provisions to help reduce identity theft, such as fraud alerts for victims of identity theft, and active duty alerts for persons in the military, making fraudulent applications for credit more difficult. The Act addresses accuracy and privacy of information, limits on information sharing, and consumer rights to disclosure, and requires secure disposal of consumer information.
11 The FTC defines Identity Theft as ?fraud that is committed or attempted using a person?s identifying information without authority.?

Excerpted from SAR Activity Review Issue 14, page 44