New FACT Act/FCRA Furnisher Requirements Effective 2010
June 22, 2009
The OCC, Federal Reserve Board, FDIC, OTS, NCUA, and the FTC (Agencies) issued a joint final rule (Final Rule) under Section 312 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), which amends the Fair Credit Reporting Act (FCRA). Section 623 of the FCRA describes the responsibilities of persons that furnish information about consumers (furnishers) to credit reporting agencies (CRAs). The Final Rule addresses the accuracy and integrity of reported information and furnishers’ responsibility to reinvestigate disputes based on direct disputes from consumers. Furnishers are also required to establish policies and procedures to implement the requirements.
Policies and Procedures
The Final Rule requires furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information about consumers furnished to a CRA. The policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher’s activities.
Furnishers must consider the accuracy and integrity guidelines (in the Appendix of each Agency’s regulation) in developing policies and procedures. Furnishers must also review them periodically and update them as necessary, but an audit requirement is not imposed. Not all of the guidelines must be implemented.
According to the guidelines, furnishers’ policies and procedures should identify areas that compromise the accuracy or integrity of reported information, evaluate the effectiveness of existing policies and procedures, consider the need for changes, and evaluate the effectiveness of how information is provided to CRAs, making changes as necessary.
The elements of a furnisher’s policies and procedures should include how consumer information is reported, maintaining records , maintaining internal controls, training, oversight, furnishing consumer information in connection with mergers and other transactions, data integrity, dispute resolution, controls related to consumer reports furnished to CRAs, conducting periodic evaluations of procedures, and complying with applicable laws and regulations.
Accuracy. The term “accuracy” is defined as information that a furnisher provides to a CRA about an account or other relationship with the consumer that correctly:
- reflects the terms of and liability for the account or other relationship;
- reflects the consumer’s performance and other conduct with respect to the account or other relationship; and
- identifies the appropriate consumer.
The term “without error” was proposed but not included in the Final Rule because it would imply such high standards that the Agencies feared it might lead some persons to limit furnishing information to CRAs. The adopted “correctly reflects” standard is intended to achieve a high degree of accuracy without creating litigation risks.
Integrity. Information furnished to a CRA may be technically accurate yet lack “integrity” because it presents a misleading picture of the consumer’s creditworthiness if critical information is omitted. The term “integrity” is defined as information that a furnisher provides to a CRA about an account or other relationship with the consumer that:
- is substantiated by the furnisher’s records at the time it is furnished;
- is furnished in a form and manner that is designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; and
- includes the information in the furnisher’s possession about the account or other relationship that the relevant Agency has:
- determined that the absence of which would likely be materially misleading in evaluating a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living; and
- listed in section I.(b)(2)(iii) of the guidelines. (This section provides one item on this list: the credit limit, if applicable and in the furnisher’s possession) .
Each Agency will determine, and list in its guidelines, the types of information in a furnisher’s possession that must be provided to promote the integrity of the information. This list will be based on the Agency’s determination that the absence of the information would likely be materially misleading. In the preamble to the Final Rule, the Agencies note that, as furnishing information under the FCRA is voluntary, the definition of integrity applies only to information that the furnisher elects to provide to a CRA. The phrase “standardized and clearly understandable form” was proposed but not included in the Final Rule, but this notion is included in the guidelines.
Furnisher. The term “furnisher” means an entity that furnishes information relating to consumers to one or more CRAs for inclusion in a consumer report. An entity is not a furnisher when it:
- provides information to a CRA solely to obtain a consumer report;
- is acting as a CRA (e.g., resellers);
- is a consumer to whom the furnished information pertains (i.e., through self-reporting); or
- is a neighbor, friend, or associate of the consumer, or another individual with whom the consumer is acquainted or who may have knowledge about the consumer, and who provides information about the consumer’s character, general reputation, personal characteristics, or mode of living in response to a specific request from a CRA.
The last exception parallels the types of information that are collected in connection with an investigative consumer report, and is deemed necessary to avoid disrupting those activities.
A furnisher is now required to conduct a reasonable investigation if a consumer directly disputes certain information contained in a consumer report. “Direct dispute” means a dispute submitted directly to a furnisher (including a furnisher that is a debt collector) by a consumer concerning the accuracy of any information contained in a consumer report and pertaining to an account or other relationship that the furnisher has or had with the consumer. A furnisher is required to conduct a reasonable investigation if the dispute relates to:
- the consumer’s liability for a credit account or other debt with the furnisher, such as direct disputes relating to whether there is or has been identity theft or fraud against the consumer, whether there is individual or joint liability on an account, or whether the consumer is an authorized user of a credit account;
- the terms of a credit account or other debt with the furnisher, such as direct disputes relating to the type of account, principal balance, scheduled payment amount on an account, or the amount of the credit limit on an open-end account;
- the consumer’s performance or other conduct concerning an account or other relationship with the furnisher, such as direct disputes relating to the current payment status, high balance, date a payment was made, the amount of a payment made, or the date an account was opened or closed; or
- any other information contained in a consumer report regarding an account or other relationship with the furnisher that bears on the consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.
These provisions do not apply to a furnisher if the direct dispute relates to:
- the consumer’s identifying information (other than a direct dispute relating to a consumer’s liability for a credit account or other debt with the furnisher) such as name, date of birth, SSN, telephone number, or address;
- the identity of past or present employers;
- inquiries or requests for a consumer report;
- information derived from public records, such as judgments, bankruptcies, liens, and other legal matters (unless provided by a furnisher with an account or other relationship with the consumer);
- information related to fraud alerts or active duty alerts; or
- information provided to a consumer reporting agency by another furnisher; or
- the furnisher has a reasonable belief that the direct dispute is submitted by, is prepared on behalf of the consumer by, or is submitted on a form supplied to the consumer by, a credit repair organization .
Under any of these circumstances, the furnisher is not required to investigate the dispute (and these circumstances render the dispute “frivolous or irrelevant” as discussed below).
The consumer is required to submit a dispute notice to the furnisher: (i) at the furnisher’s address indicated by the furnisher on the consumer report; (ii) at a location clearly and conspicuously specified by the furnisher for submitting direct disputes provided in writing or electronically (if the consumer has agreed to the electronic delivery of information from the furnisher); or (if not provided as indicated above) at any business address of the furnisher.
The dispute notice must include sufficient information to identify the account or other relationship, the specific information in dispute together with an explanation, and all supporting documentation or other information reasonably required to substantiate the dispute. This may include a copy of the disputed portion of the consumer report, a police report, affidavit, court order; or account statements.
After receiving the notice, the furnisher must conduct a reasonable investigation and review the relevant information provided. The investigation must be completed and reported to the consumer within the same period that a CRA is subject to under its reinvestigation duty (30 days with a possible extra 15 days) . If the investigation results in a finding that the information reported was inaccurate, the furnisher must promptly notify each CRA to which the furnisher provided the information and provide any correction necessary to make the information accurate.
A furnisher is not required to investigate a direct dispute if the furnisher has reasonably determined that the dispute is “frivolous or irrelevant.” This exception applies if the consumer did not provide sufficient information to investigate the disputed information, or the furnisher had previously handled the same dispute properly. (A direct dispute is not substantially the same if it includes new information not included in the earlier dispute). These examples are not intended to be exhaustive.
The furnisher must notify the consumer within five business days after making a determination that a dispute is frivolous or irrelevant by mail or (if authorized by the consumer for that purpose) by any other means available to the furnisher. The notice must include the reasons for the determination and identify any information required to investigate the disputed information. It is allowable that the notice consist of a standardized form describing the general nature of such information. The Agencies note that the FTC, when it next updates its General Summary of Consumer Rights, will include consumers’ direct dispute rights in the summary.
Each of the Agencies provides an Appendix to its respective Final Rule entitled, “Interagency Guidelines Concerning The Accuracy And Integrity Of Information Furnished To Consumer Reporting Agencies.” The guidelines include more detailed procedures and guidance on all aspects of the obligations in the Final Rule. In the preamble to the Final Rule, the Agencies disclaim a “one-size-fits-all” approach requiring all furnishers to implement all of the guidelines. As discussed, a furnisher’s policies and procedures should be appropriate to the nature, size, complexity, and scope of its activities.
It appears that the Final Rule will become effective on July 1, 2010.
- No specific retention period is prescribed in the Final Rule or guidelines. Records must be kept for “a reasonable period of time, not less than any applicable recordkeeping requirement, in order to substantiate the accuracy of any information about consumers it furnishes that is subject to a direct dispute. Guidelines Section III.c.
- The Agencies consider that a key factor for evaluating creditworthiness is credit utilization. Omission of a credit limit for an account results in credit evaluators either ignoring credit utilization or using a substitute measure for the credit limit, such as the highest balance, which may result in a higher estimate of credit utilization.
- The term is defined in 15 U.S.C. 1679a(3) as “any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of—(i) improving any consumer’s credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).” For purposes of the Final Rule, the term also includes 501c-3 organizations that are credit repair organizations.
- The actual period is the limit set forth in 15 U.S.C. 1681i(a)(1) applicable to a consumer reporting agency’s reinvestigation duty—that is, 30 days with a limited 15-day extension.
The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.
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