Section 312 of the Fair and Accurate Credit Transactions (FACT) Act amended the Fair Credit Reporting Act to require the federal banking agencies and the Federal Trade Commission to issue guidelines for use by furnishers of information to consumer reporting agencies regarding the accuracy and integrity of the consumer information that they provide, and to prescribe regulations requiring furnishers to establish reasonable policies and procedures to implement the guidelines. Section 312 of the FACT Act also requires the government agencies to issue regulations identifying the circumstances under which a furnisher must investigate disputes concerning the accuracy of information contained in a consumer report based on a direct request from a consumer. A copy of the interagency regulations was recently released by the National Credit Union Administration.(1) The rules are effective from the first day of the first calendar quarter following one calendar year from the date on which they are published in the Federal Register. The rules were due to be published in early June, which would make the effective date July 1 2010.
The rules are important for all entities that provide information to consumer reporting agencies. The accuracy and integrity rule requires furnishers to evaluate their current policies and procedures and revise them as necessary based on specific guidelines. Furthermore, the rule permitting direct disputes with furnishers may result in significantly higher dispute volumes with creditors. The rules are subject to administrative enforcement only.
Each furnisher must establish and implement reasonable policies and procedures regarding the accuracy and integrity of the consumer information that it furnishes to a consumer reporting agency. The policies and procedures must be in writing and appropriate to the nature, size, complexity and scope of each furnisher's activities. Each furnisher is required to consider the guidelines issued by the government agencies in developing its policies and procedures and to incorporate the appropriate guidelines. Furthermore, each furnisher must review its policies and procedures periodically and update them as necessary to ensure their continued effectiveness.
In developing its policies, a furnisher should consider, for example:
the types of business activity in which it engages;
the nature and frequency of the information that it provides to consumer reporting agencies; and
the technology it uses to furnish information.
According to the guidelines, the policies and procedures should be reasonably designed to promote accuracy, integrity, reasonable investigations and the updating of information, as necessary.
With respect to accuracy, the information should:
identify the appropriate consumer;
reflect the terms of and liability for accounts reported; and
reflect the consumer's performance on the account.
With respect to integrity, the information should:
be substantiated by the furnisher's records;
be furnished in a form and manner that is designed to minimize the likelihood that the information may be incorrectly displayed in a consumer report; and
include the credit limit.
The government agencies may suggest that the information include specific information in addition to the credit limit. They have issued a request for comment on the matter.
According to the guidelines, a furnisher should identify practices or activities that can compromise the accuracy or integrity of information furnished, including by obtaining feedback from its staff. The furnisher should evaluate the effectiveness of existing policies and consider whether new policies are necessary. The guidelines provide 13 specific components to address, as appropriate, including record keeping, internal controls and communications with consumer reporting agencies.
Currently, there is no requirement in the Fair Credit Reporting Act for a furnisher to conduct an investigation of the information it furnished to a consumer reporting agency unless the request is made through the agency. However, the direct dispute rule will impose new obligations on furnishers. Specifically, a furnisher must conduct a reasonable investigation of a direct dispute in virtually all circumstances involving disputes about the accuracy of furnished information typically provided by a furnisher to a consumer reporting agency. The rule provides certain exceptions to the direct investigation requirement, such as if the dispute relates only to the consumer's identifying information or if it relates to information provided to a consumer reporting agency by another furnisher.
The rule allows the consumer to submit a dispute notice to any business address of the furnisher unless the consumer reporting agency specifies the address provided by the furnisher on the file disclosure being disputed by the consumer (or the furnisher otherwise provides the appropriate notice to the consumer in writing). The dispute notice must include:
sufficient information to identify the account involved;
the information in dispute;
an explanation of the dispute; and
all supporting documentation reasonably required by the furnisher.
Once the furnisher receives a dispute notice, it must:
conduct a reasonable investigation;
review all relevant information provided by the consumer; and
complete the investigation generally within 30 days (with the possibility for a 15-day extension in limited circumstances).
If the investigation indicates that the information reported was inaccurate, the furnisher must promptly notify each consumer reporting agency to which it provided the information and correct it.
A furnisher is not required to investigate a direct dispute if the furnisher has reasonably determined that the dispute is frivolous or irrelevant. Upon making a determination that a dispute is frivolous or irrelevant, the furnisher must notify the consumer, including the reasons for such determination and identifying any information required to investigate the dispute.
For further information on this topic please contact Michael F McEneney or Karl F Kaufmann at Sidley Austin LLP by telephone (+1 202 736 8000) or by fax (+1 202 736 8711) or by email (email@example.com or firstname.lastname@example.org).
(1) Available online at www.ncua.gov/GenInfo/BoardandAction/DraftBoardActions/2009/May21/Item%201b.pdf.
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