In response to the growing concern over identity theft, the federal government amended the Fair Credit Reporting Act to require creditors to develop and implement an Identity Theft Prevention Program by December 31, 2010. The Red Flags Rule required all organizations that extend credit to consumers, including utilities, to create and implement programs to identify, mitigate and prevent identity theft. In short, you must be reasonably sure that the person applying for service is who he or she says. The program also must be board-approved and included in your policies and procedures.

The financial crisis beginning in 2008 marked the start of the current economic recession and prompted lawmakers to introduce initiatives to stabilize our financial system. This led to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although many provisions focus on the financial system, the Act also introduced measures on Risk-Based Pricing and Score Disclosure requirements. If your organization uses a credit score to determine security deposits, you must disclose this and what scoring method you used to the consumer whenever you charge a higher than normal deposit. The requisite language should be added to your Adverse Action notice to ensure compliance.

Although not regulatory in nature, SSN Randomization dramatically impacts applicant screening and identity verification for utilities. On June 25, 2011, the Social Security Administration implemented this new SSN assignment method to protect the integrity of the SSN and prevent identity theft. This will result in a completely random number. Determining if a SSN has been issued and in which state will be impossible for SSNs issued after June 25, 2011. Only those SSNs that consist of sequential numbers or those with 000, 666, and 900-999 can be identified as invalid/non-issued going forward. This will require more stringent verification methods.

Utilities have also seen an increase in their write-offs recently. While writing off accounts has been viewed as a part of doing business, utilities now realize they must do better managing their bad debt. The difficulty in achieving this is that some don’t do enough during the application process, and lack the knowledge and resources  to recover accounts efficiently. The good news is that by following a few best practices you can significantly reduce bad debt. 

The application process is the best chance to eliminate bad debt. Recording good identifying information on the applicant makes Red Flag compliance easier and increases the likelihood of recovering the account if it becomes delinquent. It is also important to evaluate the applicant’s creditworthiness using their credit file (no letters of credit!) and charge a deposit based on credit risk. If the account becomes delinquent, this can be used to offset losses or zero the account. The challenges many utilities face lies in bringing together disparate sources of information, synthesizing it, and arriving at consistent deposit decisions throughout the organization. 

If an account does become delinquent, the quality of applicant information you gathered will determine how successful collection efforts are, regardless of whether you pursue the debt yourself or use an agency. By validating the applicant’s identity and collecting comprehensive demographic information, you provide the resources that can help recover your bad debt efficiently. When using a third-party, it is important to submit account information quickly and respond to requests for information promptly. 

---

NEPPA does accept articles from our Affiliate Members who want to educate our members on their expertise. If you are thinking about submitting an article to the newsline, please contact Courtney Crouse at ccrouse@neppa.org