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Under the Fair and Accurate Credit Transactions Act of 2003 (FACTA), passed by the U.S. Congress on December 4, 2003 (link available at end of article), consumers were granted the ability to place Fraud Alerts on their credit files. Such Fraud Alerts are an important tool in fighting Identity Theft. Unfortunately, there have been some common misperceptions about such Fraud Alerts. We examined FACTA's Title 1, "Identity Theft Prevention and Credit History Restoration", sections 112 to 115, in order to clarify three common misperceptions: A- whether or not the Act requires that consumers with Fraud Alerts on their file to be contacted prior to issuance of new credit, or extension of existing credit B- how consumers can place Fraud Alerts and whether they need to pay for Fraud Alerts C- whether or not Fraud Alerts prevent the issuance of new credit, or extension of existing credit.

Fraud Alerts basically constitute a flag on a consumer's credit report, notifying potential users of such report, that the consumer "asserts in good faith a suspicion that the consumer has been or is about to become a victim of fraud or related crime, including Identity Theft." There are two types of Fraud Alerts that the consumer can request: A- Initial Alerts and B- Extended Alerts. Extended Alerts are only available to consumers who have become actual victims of Identity Theft, and are in possession of an Identity Theft report filed with the police or a similar law enforcement entity.

In the case of Initial Alerts, the Act specifies that users of the Credit Report (such as Credit Card companies), may not issue new credit, or extend existing credit, unless "the user utilizes reasonable policies and procedures to form a reasonable belief that the user knows the identity of the person making the request." Such verification process may include contacting the consumer by telephone, but does not have to, as long as the user "takes reasonable steps to verify the consumer's identity and confirm that the application for the new credit plan is not the result of Identity Theft."

Hence, when placing Initial Fraud Alerts, although it makes sense for creditors to contact the consumer by telephone to verify his identity, they do not have to make such a call. On the other hand, when a consumer places Extended Fraud Alerts, the Act does specify that the consumer must be contacted by "telephone or other reasonable contact method designated by the consumer."

Some companies offering Identity Theft Protection plans may claim that their plan entails you receiving a call prior to issuance of new credit, or extension of existing credit. In most cases, such companies are merely placing an Initial Fraud Alert on your behalf. In such case, they really cannot guarantee that you will receive such call, simply because the Act does not require it. Some creditors may indeed make the call, but they may also decide to employ other "reasonable methods."

Many such Identity Theft Protection companies referenced in the previous paragraph may charge you more than $100 for their services. Their services, and the backbone of their Identity Theft protection plan, is essentially the Fraud Alerts they are placing on your behalf. According to the Act, you can place such Fraud Alerts on your own, and without incurring any cost whatsoever. All you need to do is to call one of the Credit Reporting Agencies. The Act specifies that if one Credit Reporting agency receives a request for placing Fraud Alerts, such agency must notify the others to do the same. Hence, you do not have to incur any costs for placing Fraud Alerts, and you may not have to make more than one call.

Finally, although Fraud Alerts are a valuable tool, they do not stop the issuance of new credit. In the case of both Initial and Extended Alerts, as long as the creditor believes your identity has been verified as stated by the Act, such creditor can provide a new credit account in your name. The only way to stop the issuance of new Credit Accounts in your name is by locking down access to your Credit Report by placing a Credit Freeze (if available in your state). The majority of U.S. states have passed Credit Freeze laws enabling consumers to lock down access to their Credit Reports (for a map depicting availability of Credit Freeze in the U.S.A., click http://www.creditlock.com/creditlockdownpro.html ).