The Financial Sector and Emerging Technology

November 11, 2012
BIS/220 – Clarence Wheeler, Jr.

In the 1970’s, technology was beginning to rapidly change the way the financial sector completed transactions and held records. Many records had changed to being stored electronically and the use of debit cards and electronic banking transactions had begun. This created a higher possibility for fraudulent activity. As records were being stored electronically and information being transferred the same way, consumers’ information was at risk. Regulations had to be put in place to control this activity. The Fair Credit Reporting Act (FCRA), was enacted in 1970 to create guidelines for Credit Reporting Agencies (CRA). CRAs had operated in a way that employees had to meet a quota for offering credit and declining credit to consumers. This created some fraudulent activity and unethical changes made to consumers’ credit reports. Consumers, at this time, had no right to view what was on their credit reports. The government realized this was unacceptable and unethical and created the FCRA to protect consumers. (The Fair, 2011) CRAs were also basing credit worthiness on factors that shouldn’t matter for extending credit. They were looking at things such as religion, sexual orientation and gender to make these decisions. The government put a stop to this with the FCRA. It is now illegal to make such decisions based on personal traits such as these. CRAs must use the same criteria with all consumers to remain fair. The act also requires certain measures to be taken to assure consumers’ privacy. CRAs hold a lot of private information in records that could be used to steal identities and create fraudulent transactions. It is the CRA’s responsibility to ensure these records are kept safe and confidential. Electronic banking and other financial transactions were starting to come into play in the late 70s. This created a lot of risk for both the institution and the consumer. It was unclear who was responsible for fraudulent transactions and keeping records safe. The government enacted the Electronic Funds Transfer Act (EFTA) in 1978 to help regulate electronic banking and define responsible parties. “The EFTA of 1978 is intended to protect individual consumers engaging in EFTs. EFT services include transfers through automated teller machines, point-of-sale terminals, automated clearinghouse systems, telephone bill-payment plans in which periodic or recurring transfers are contemplated, and remote banking programs” (EFTA, 2008). Most of us don’t think of electronic transactions starting until the 1990s, but they were being used in many forms in the 70s. The EFTA elaborated on who was responsible if there was unauthorized account use. The institution is responsible in this case, with many exceptions. Responsibilities were made clear, which was needed under these new electronic practices. Electronic banking has become very popular and is very convenient to consumers, but is also very dangerous. Private information is being processed all over the U.S. daily, which makes fraud much simpler for criminals. Since banks are responsible for unauthorized card use, they have taken many steps to assure security for customers. When fraudulent activity is suspected, many institutions will place a hold on the card in question and contact the consumer. Both acts have been modified greatly since their enactment, to keep up with technology changes. Technology will be ever-changing, so updates to the acts will be a necessity to protect institutions and consumers. Many new acts will probably be put into place, as well, over the next few decades to accommodate technology that we can only dream of today. Government regulation is very important to both consumers and institutions, so that fair and safe practices remain in place.

References

Electronic fund transfer act. (2008). Retrieved November 11, 2012, from http://www.federalreserve.gov/boarddocs/caletters/2008/0807/08-07_attachment.pdf
The fair credit reporting act (FCRA) and the privacy of your credit report. (2011). Retrieved November 11, 2012, from http://epic.org/privacy/fcra/