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New Information Disposal Rule Takes Effect

FTC regulation requires that consumer-report data be destroyed, not just tossed.

Starting Wednesday, businesses and individuals must take steps to prevent unauthorized access to or use of discarded information derived from consumer reports. Under the Disposal Rule, a new part of the Fair and Accurate Credit Transactions Act of 2003 (Facta) that took effect Wednesday, those who use consumer-report information for a business purpose must dispose of those records in such a way that they cannot be misappropriated or misused.

The goal of the rule is to prevent identity theft and other harm to consumers when criminals obtain personal information from discarded materials through "Dumpster diving" and other means, says Karen Armstrong, an attorney with the Federal Trade Commission's Bureau of Consumer Protection. She notes that the rule serves to fill a regulatory gap for sensitive information not already covered by regulations such as the Health Insurance Portability and Accountability Act and Gramm-Leach-Bliley.

While unable to cite specific figures correlating discarded records with identity theft, Armstrong says that data contained in consumer reports is highly sought after by identity thieves. "If you were an identity thief and you wanted to steal someone's identity," she says, "a consumer report would be the perfect document."

Consumer reports are defined by the Facta rule to include information obtained from a consumer-reporting company that is used, or expected to be used, to determine a consumer's eligibility for credit, employment, or insurance, among other purposes. When companies or people get rid of records detailing a consumer's personal or financial information, the FTC wants those records disposed of in such a way that they can't be stolen.

The rule requires disposal practices that are reasonable and appropriate to prevent unauthorized access or use of consumer data. Compliance might require establishing a policy to burn, pulverize, or shred documents. Electronic media would need to be destroyed or erased in such a way that the information couldn't be read or reconstructed. If an outside contractor is used, the rule requires due diligence to make sure the information in question is handled properly and destroyed.

Dr. Judith Collins, associate professor at Michigan State University's School of Criminal Justice and director of MSU's Identity Theft University-Business Partnership, says that while shredding is important, it's not going to have a significant impact on identity theft alone. "The majority of identity theft occurs in the workplace," she says. "Only the stupid criminals go Dumpster diving."

In addition to adopting secure data-disposal practices, she says that businesses need to do a better job vetting personnel who have access to sensitive information. She also recommends conducting business-process risk assessments to determine when and where information might be vulnerable to misuse.

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