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Be Careful With Clients' Financial Info!

By Tanya Roth, Esq. on February 22, 2010 10:15 AM

Don't dump your clients' financial records in a public dumpster, or your former clients might become identity theft victims.

Or worse, you might get cited by the Federal Trade Commission.

That's the lesson learned in the mortgage industry. A mortgage broker recently settled a complaint with the Federal Trade Commission and was forced to pay a civil penalty of $35,000.

The mortgage broker allegedly failed to accurately dispose of personal financial records of his clients. Allegedly, the mortgage broker inappropriately discarded 40 boxes of sensitive consumer records, including tax returns, mortgage applications, bank statements, photocopies of credit cards and drivers' licenses and over 230 credit reports. He left these documents in a dumpster, easily accessible by the public.   

As a result, he was sanctioned under section 62 of the Federal Credit Reporting Act, under their rules on "proper disposal of consumer information."

Here's where small businesses should take warning: If your business relies on collecting consumer reports or gathers information from such reports, then you need to take care and properly dispose of that information. Consumer reports are defined as any information obtained from a consumer credit reporting company that is used -- or expected to be used -- in establishing a consumer's eligibility for credit, employment, or insurance, among other purposes.

Examples of consumer reports are:

  • credit reports
  • credit scores
  • reports on employment background
  • reports on check-writing history
  • reports on insurance claims
  • reports on residential or tenant history
  • reports on medical history 

It's certainly wise to have written policies in place for the destruction of the information.  And that, in itself, is not enough. You actually need to follow those policies, too.

Some examples of disposal could be shredding, burning or pulverizing, according to a regulation that explains the law a little further.  

It's certainly wise to read more on this topic, if you are a business that relies on or uses consumer reports. You might use them to do background checks on employees, to set up payment plans with customers or for a variety of other reasons. Tread carefully, because the liability is heavy. And identity theft victims certainly look for vindication!

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