As if you didn’t already have enough to worry about, add one more thing to your company’s compliance check-list:
Draft Policy and Procedures Required by Furnisher (Accuracy and Integrity and Direct Dispute) Rule
Due Date: July 1, 2010
Last month, the federal Agencies published the long-awaited rules for furnishers of information to consumer reporting agencies. There are two components to the final rule. The first is entitled, “Procedures to Enhance the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies Under Section 312 of the Fair and Accurate Credit Transactions Act” and has accompanying guidelines, “Guidelines for Furnishers of Information to Consumer Reporting Agencies.” The second part of the final rule governs disputes that furnishers receive directly from consumers about information furnished to a consumer reporting agency. The new rule and Guidelines impose new requirements on any entity that furnishes consumer report information.
If you think this rule only applies to creditors that regularly furnish information to one of the credit bureaus, think again. The coverage is much broader than that; in fact, almost everyone who furnishes information to any consumer reporting agency is going to be subject to the new rule – including debt collectors. The definition of a “furnisher” includes any entity that furnishes information relating to consumers to one or more consumer reporting agencies for inclusion in a consumer report. While there are a few exceptions, they are very narrow and probably don’t apply to any company that sends information to a consumer reporting agency to be included in the agency’s consumer reporting database.
The primary goal of the rule is to enhance the accuracy and integrity of the data that is furnished about consumers. To that end, the first component of the rule mandates that furnishers: (1) have reasonable policies and procedures to ensure the accuracy and integrity of information furnished to consumer reporting agencies; and (2) conduct a reasonable investigation of direct disputes from consumers. The rule sets forth the basic requirements; the Guidelines that accompany the rule provide flexible standards for the furnisher to consider and implement.
Tackling the first requirement – having a policy and procedures in place to ensure accuracy and integrity – requires the furnisher to have an understanding of what those two terms mean. It might surprise you (pleasantly) to learn that “accuracy” does not mean what you think (exact or precise). Instead, “accuracy” means that the information a furnisher provides to a consumer reporting agency about an account or other relationship with a consumer correctly: (1) reflects the terms of and liability for the account or other relationship; (2) reflects the consumer’s performance and other conduct with respect to the account or other relationship; and (3) identifies the appropriate consumer. The Agencies expressly declined to adopt the proposed definition, which included the phrase “without error,” recognizing that such a high standard would be unworkable and posed the threat of increased litigation that might discourage furnishers from furnishing information. The Agencies also declined to include the concept of “completeness” into the definition of “accuracy,” because the completeness of information is subjective and depends on the person viewing the information.
Integrity is a closely-related concept that goes hand-in-hand with accuracy. The rule defines “integrity” as information that a furnisher provides to a consumer reporting agency about an account or other relationship with the consumer that: (1) is substantiated by the furnisher’s records at the time it is furnished; (2) 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 (3) includes information in the furnisher’s possession about the account or other relationship that the federal financial regulatory agency has determined that the absence 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 includes the credit limit, if applicable, and in the furnisher’s possession. This means that “integrity” will be based, in part on the information in the furnisher’s records at the time it is furnished; it will also be considered in light of the way in which the furnisher decides to deliver the information to the consumer reporting agency.
The Agencies have made it clear that by including these key definitions in the rule, they did not create any substantive consumer right that would give rise to liability if the information furnished is not perfect. Rather, the furnisher should implement policies and procedures designed to achieve the highest level of accuracy and integrity of the data furnished. The policies and procedures will vary depending on the furnisher and the nature and scope of information furnished. The Agencies contemplated the need for flexibility and decided to adopt the Guidelines rather than impose a mandatory one-size-fits-all policy under the rule.
Although furnishers have some flexibility in what the policies and procedures will look like, they still need to consider all of the components identified in the Guidelines, to incorporate the provisions that apply, and to reduce the policy to writing. Although some smaller furnishers requested that a written policy not be required, the Agencies decided to require the writing to ensure effective implementation of the rule and so that they can assess compliance. Even if it is initially burdensome for some, it is probably a good practice for all furnishers to have the policies and procedures in writing, so that the furnishers can identify potential problems and satisfy the regulators as to their compliance. The Agencies permit furnishers that may already have policies and procedures in place to address accuracy and integrity to incorporate these existing policies and procedures into the new written policy. The Agencies maintain that they are not trying to burden furnishers or to discourage furnishing information to consumer reporting agencies.
There are not really any surprises in the Guidelines. The rule requires furnishers to consider various things in the Guidelines in creating their policies and procedures. For example, a furnisher needs to identify practices that can compromise the accuracy or integrity of the information by reviewing existing practices, reviewing historical records, considering feedback from consumer reporting agencies, consumers or other third parties, obtaining feedback from staff, and considering the potential impact of the policies and procedures on consumers. Before you get nervous about the prospect of consumer feedback, note that the Agencies have made it clear that furnishers are not required to conduct consumer surveys to get feedback. However, you should consider information that you do receive from consumers. What may be different is having an affirmative policy of soliciting feedback from employees. As a practical matter, though, there are probably many other policies and procedures that are changed based upon the experience of employees who work in a specific area day in and out and know where the problems are most likely to arise. Formalizing the process should not be too onerous.
The Guidelines governing written policies and procedures also cover a host of other things, such as requiring an evaluation of the effectiveness of the existing policies and procedures, consideration of whether new or different policies and procedures would improve accuracy and integrity of data, and evaluation to determine if the technology adequately protects the accuracy and integrity of the data. Like all good policies, employee training and periodic updating of practices are critical.
The bottom line is that a furnisher must carefully consider each element of the Guidelines to decide if it makes sense in light of the nature and scope of the furnisher’s practices, and how to incorporate each applicable element to create effective policies and procedures to enhance the accuracy and integrity of the information furnished.
The second component of the new rule relates to direct consumer disputes. The direct dispute component of the rule requires a furnisher to conduct a reasonable investigation of disputes it receives from consumers. This is the standard that furnishers have essentially been following, so furnishers don’t need to worry about figuring out how to comply with a new standard. The bigger questions invovle which disputes need to be investigated and which procedures the furnishers need to follow. A “direct dispute” is a dispute submitted directly to a furnisher 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 had with the consumer.
The rule requires a furnisher to investigate a direct dispute if the consumer disputes any of the following: (1) liability for the account (such as claiming identity theft or fraud, or when there is a joint user or authorized user issue); (2) the terms of the credit account or debt, such as the principal balance, scheduled payment amount, or the credit limit on an open-end account; (3) the consumer’s performance on the account, such as current payment status, high balance, date a payment was made, the amount of the payment made, or the date an account was opened or closed; or (4) any information that bears on one of the seven credit characteristics in the FCRA definition of a consumer report.
While this list may seem relatively comprehensive, there are important exceptions so that a furnisher is not required to investigate every single issue raised by a consumer. A furnisher is not required to investigate the identity of past or present employers or information provided to a consumer reporting agency by another furnisher. If a furnisher reasonably believes that a credit repair organization is involved in the dispute, then the furnisher does not need to investigate the dispute.
In addition to these exceptions, a furnisher does not need to conduct an investigation if the furnisher reasonably determines that a dispute is frivolous or irrelevant. Of course, the rule places limits on what a furnisher can consider “friviolous” or “irrelevant.” Disputes that fall within this category include those in which the consumer did not provide sufficient information to investigate the dispute, the dispute is substantially the same as one previously submitted either directly or through the consumer reporting agency (but note that if any new information is submitted, it is not “substantially the same”), or the furnisher is not required to investigate the dispute because an exception applies.
Furnishers will have some measure of control over the mechanics of the dispute process. The furnisher can identify the address to which disputes must be submitted, and the rule requires the dispute to be in writing before it need be investigated. The furnisher can specify that the consumer include with the dispute sufficient information to identify the account, the information being disputed, an explanation of the basis for the dispute, and all supporting documentation to substantiate the dispute. The furnisher will usually have 30 days to investigate the dispute (unless the consumer submits additional information during the 30 days, then the furnisher might have 45 days), and must notify the consumer of the results of the investigation. If the investigation reveals that the information was inaccurate, the furnisher must promptly notify the consumer reporting agency to which it furnished the information. If the furnisher decides the dispute is frivolous or irrelevant, then the furnisher needs to notify the consumer within five business days of making the determination, by sending the consumer a notice advising the consumer of this finding and the reason for this determination, as well as identifying any information required to investigate the disputed information.
Both components of the furnisher rule (Accuracy and Integrity and Direct Disputes) are administratively enforced by a furnisher’s federal regulatory agency. That means that federal examiners will include compliance with the rule in their examinations of financial institutions, and the FTC will enforce compliance as to furnishers that are not regulated by another federal agency. There is no private right of action for violations of either part of the rule.
As you work through the rule and Guidelines, keep in mind that the primary objective is to enhance the accuracy and integrity of consumer report information. Also keep in mind that most furnishers probably have policies and procedures in place to ensure accuracy and to respond to direct disputes, so this rule won’t require many of you to start at the beginning. Rather, the hard work will come in incorporating the existing policies and procedures into a comprehensive program – after considering all of the requirements of the rule. The rule provides a structure for all furnishers to follow so that key items are included in all policies and procedures. While the new rule might not seem unduly burdensome, implementing all of the elements into a new program will take time and effort. You have less than a year left to get ready, so start now!
Lisa Crowley DeLessio is a partner in the Maryland office of Hudson Cook, LLP. Basis Points readers can reach Lisa at 410-865-5437 or by email at ldelessio@hudco.com.