DMers Get Used to New Credit Rules

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With new rules under the Fair and Accurate Credit Transactions Act of 2003 taking effect today, some marketers that prescreen consumers might be surprised by the changes while others may discontinue prescreening altogether. But all credit grantors will be eager to see how the changes affect response to their offers.


"I have been saying to myself, 'Are these clients who use prescreening data understanding the magnitude of change that they need to make?'" said Peter Harvey, president/CEO of Intellidyn, Hingham, MA. "What we see is the more sophisticated mailers have been preparing for this but the less sophisticated ones will be caught by surprise."


The credit bureaus are checking for compliance before releasing credit report data for prescreening purposes, Harvey said.


"The mailers must get the mail piece approved by the credit bureaus before we can release the names," he said. "They approve it on their end, but at the same time mailers should have their own legal counsel check it out because the bureaus don't accept liability."


The rules obviously apply to credit card issuers, mortgage lenders and insurance companies but any marketer using prescreening needs to comply, according to the interpretation of many in the direct marketing industry. It is the "bill-me" marketers, which can include catalogers, publishers, continuity programs or any marketer that lets consumers buy now and pay later, that may face decisions.


The Direct Marketing Credit Association is a trade group of credit professionals from major mailers in the "bill-me" segment of the DM industry including companies such as Bookspan, BMG, Columbia House, Scholastic, IMP, Reader's Digest and Publishers Clearing House.


DMCA president Robert Hawkins, who also is senior director of credit operations at New York-based Rodale Inc., spoke to DM News on behalf of the DMCA about how the rules will affect bill-me marketers, which was the topic of the group's June meeting.


"Like the original intent of the FCRA, FACTA is directed more to the credit card and financial credit granting market so consumers know who is looking at their credit and giving them the opportunity to prevent that from happening and not receiving offers of credit," Hawkins said. "The typical direct marketed bill-me offer for a $30 book, video or two pounds of coffee is looked upon more as incidental credit and doesn't get the same level of attention. It is more of a free trial period with a short grace period of usually 30 days or less, rather than a revolving credit situation. However, intent or not, many feel the FACTA regulation could be interpreted to cover those offers that are prescreened by consumer reporting agencies that use credit data in their models or matching criteria."


As a result, credit reporting entities such as Innovis Data Services, Experian, The Credit Index and Alliant Cooperative Data Services have altered some of their list screening models to incorporate only unregulated data, letting marketers use it without having to comply with FACTA, Hawkins said.


"The credit reporting agencies have taken a proactive step to work with the major mailers to help them identify those services they offer that access credit data, and offer them alternative marketing-type data that works just as well, and in many cases better," he said. "For those offers where substantial risk is evident, or where the price points warrant, the mailer can still choose to go with the credit data tools, and the credit reporting agency will require them to follow the opt-out disclosure language in their promotional copy."


One service provider added a new database to its business model to accommodate mailers.


Alliant Cooperative Data Solutions had launched TransactionBase, its cooperative database for "bill-me" marketers, in July 2004. It contains five years of transaction and payment history from its nine charter contributors. Those clients are the anchors of the database: BMG Music Service, Bookspan - Doubleday Book Club, Bookspan - Book of the Month Club, International Masters Publishers, National Geographic Society, Oxmoor House, Publishers Clearing House, Reader's Digest and Southern Progress.


But in response to the new FACTA rules, Alliant plans a target marketing database called DecisionBase 360. It is also an industry-sourced cooperative transactional database but does not use regulated credit data. It soft-launches this month, with a hard launch in September.


"Basically, we have an FCRA-compliant database and a marketing database, and the onus is on the mailer and their legal counsel to decide which one to use," said JoAnne Monfradi Dunn, CEO of Alliant Cooperative Data Solutions, Brewster, NY. "If the mailer's offer is a permissible offer for prescreening, then they can use TransactionBase and must comply with all FCRA provisions."


TransactionBase customers sign an agreement with a copy of the law attached, she added.


"I feel like our industry hasn't looked at what the impact of having to put that copy in their mail pieces will be," Dunn said. "Let's just say if a financial services mailer mails 1 million names and gets 1 percent response. What if that drops to one-half a percent or 0.7 percent due to the disclosure? That's going to affect how many names he buys, lettershop, print and production. Plus, he's going to be whammed with more postage next year. It will affect new-to-file names as well."


Intellidyn is a data vendor that deals with many clients in financial services but Harvey still expects that many mailers are not ready to implement the FACTA changes and may have to alter their mail plans on the fly.


Intellidyn houses the complete TransUnion and Experian credit files and has extracts from Equifax as well as non-credit-related marketing data from other sources including Acxiom. Clients include credit card, insurance and mortgage lenders, which always have been tightly regulated under FCRA.


Kristen Bremner covers list news, insert media, privacy and fundraising for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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