CUNA Regulatory Comment Call

December 18, 2007

EXECUTIVE SUMMARY

• The Fair and Accurate Credit Transactions (FACT) Act contains provisions that are designed to enhance the accuracy of credit reports. These provisions require the National Credit Union Administration (NCUA), the other Federal financial institution regulators, and the Federal Trade Commission (FTC) to establish and maintain guidelines for use by those who furnish information to credit bureaus that address the accuracy and integrity of the information. These provisions also require the regulators to issue rules to require furnishers to develop policies and procedures to ensure the accuracy and integrity of information provided to credit bureaus, and to consider the guidelines, as appropriate.
• The regulators must also issue rules identifying the circumstances in which a furnisher, based on a direct request from a consumer, must investigate disputes about the accuracy of information in a credit report.
• The regulators have now issued a proposed rule in order to solicit comments as they proceed with developing these rules and guidelines that are required under the FACT Act.
• The rules and guidelines issued by NCUA will apply to federally-chartered credit unions, and the rules and guidelines issued by the FTC will apply to state-chartered credit unions, although these rules are essentially the same.
• Comments in response to the proposed rule will be due by February 11, 2008. Please submit your comments to CUNA by January 30, 2008.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rule. You may also access a copy of the proposed rule here.

BACKGROUND

The FACT Act was enacted in December 2003 and permanently extends the federal preemptions for credit reporting under the Fair Credit Reporting Act (FCRA). It also enhances the ability of consumers to combat identity theft, increases accuracy of credit reports, and allows consumers to exercise greater control regarding the marketing solicitations they receive.

The provisions regarding the accuracy of credit reports require NCUA, the other Federal financial institution regulators, and the FTC to establish and maintain guidelines for use by those who furnish information to credit bureaus that address the accuracy and integrity of the information. These provisions also require the regulators to issue rules to require furnishers to develop policies and procedures to ensure the accuracy and integrity of information provided to credit bureaus, and to consider the guidelines, as appropriate. The regulators are also required to issue rules identifying the circumstances in which a furnisher, based on a direct request from a consumer, must investigate disputes about the accuracy of information in a credit report.

The rules and guidelines issued by NCUA will apply to federally-chartered credit unions, and the rules and guidelines issued by the FTC will apply to state-chartered credit unions, although these are essentially the same. The regulators are required to consult and coordinate with each other to ensure that, to the extent possible, these rules are consistent and comparable.

In March 2006, the regulators issued an advance notice of proposed rulemaking, requesting comments on a number or issues in connection with these FACT Act requirements. The regulators considered these comments as they developed the proposed rules and guidelines. Click here for CUNA’s comment letter, which was submitted in response to this request.

BRIEF DESCRIPTION OF THE PROPOSED RULES AND GUIDELINES

I. Proposed Rules and Guidelines on the Accuracy and Integrity of Information Provided to Credit Bureaus

Furnishers of credit information to credit bureaus must consider the guidelines that accompany the rule as they develop their policies and procedures regarding the accuracy and integrity of consumer information that is provided to credit bureaus and must incorporate the guidelines that are appropriate. Furnishers should consider the guidelines in the context of the nature, size, complexity, and scope of their activities. The policies and procedures must be reviewed periodically and updated, as necessary, to ensure continued effectiveness.

The proposal outlines two approaches for implementing these FACT Act provisions that require written rules and guidelines with regard to the accuracy and integrity of information that is furnished to credit bureaus. One approach is referred to as the Regulatory Definition approach and the other is the Guidelines Definition approach. The significant difference between these two approaches is how the terms “accuracy” and “integrity” are defined and placed within the regulation and guidelines.

Regulatory Definition Approach

Under the Regulatory Definition approach, the term “accuracy” requires that the information provided to credit bureaus about an account or other relationship with the consumer reflect without errors the terms of and liability for the account or other relationship, as well as the consumer’s performance or other conduct with respect to the account or relationship. The term “integrity” would mean that any information a furnisher provides to a credit bureau about the account or relationship must not omit any term of the account or relationship, if the absence of which can reasonably be expected to contribute to an incorrect evaluation of the consumer’s creditworthiness, credit standing, credit capacity, character, reputation, personal characteristics, or mode of living. These definitions would only apply to information that the furnisher elects to provide to the credit bureaus.

Both the terms “accuracy” and “integrity” would be defined in the rule. The guidelines would include the following six objectives that the furnisher’s policies and procedures should accomplish:

• The information accurately identifies the appropriate consumer, the terms of the account or other relationship with the consumer, and the consumer’s performance and other conduct with regard to the account or relationship.
• The information avoids misleading users of the credit report about the consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.
• The furnisher conducts reasonable investigations of consumer disputes concerning the accuracy or integrity of information in consumer reports and takes appropriate actions based on the outcome of such investigations.
• The information is reported in a form and manner designed to reflect the current status of the consumer’s account or other relationship, including any transfer, sale, or assignment to a third- party for collection and any cure of the consumer’s failure to abide by the terms of the account.
• Ensure the information is reported in a form or manner that is intended to minimize the likelihood that the information, although accurate, is reflected erroneously in the credit report. This would include providing the correct identifying information, including the time period in which it applies, as well as providing the information in a clear and understandable manner.
• The information provided by the furnisher is substantiated by the furnisher’s own records.

Guidelines Definition Approach

Under the Guidelines Definition approach, the terms “accuracy” and “integrity” would be defined in the guidelines, rather than in the rule, in connection with the objectives that the furnisher’s policies and procedures are designed to accomplish. Specifically, under this approach, the guidelines would identify the following four objectives that the furnisher’s policies and procedures should accomplish, with the definitions being incorporated within the first two:

• Ensure the information it furnishes about the account is accurate. This objective defines the term “accurate” and is the same definition as used under the Regulatory Definition approach.
• Ensure the information it furnishes about accounts or other relationships with a consumer is furnished with integrity. This objective defines “integrity,” which is different than the definition used under the Regulatory Definition approach. Here, it means that any information that a furnisher provides to a credit bureau about an account or relationship with the consumer:
• is reported in a form and manner designed to minimize the likelihood that the information, although accurate, may be erroneously reflected in a consumer report, by ensuring the information is reported with the appropriate identifying information about the consumer, is reported in a standardized and clear manner, and reported with a time period in which the information pertains; and
• should be substantiated by the furnisher’s own records.
• The furnisher conducts reasonable investigations of consumer disputes about the accuracy or integrity of information in consumer reports and takes appropriate actions based on the outcome of such investigations.
• The information is reported in a form and manner designed to reflect the current status of the consumer’s account or other relationship, including any transfer, sale, or assignment to a third- party for collection and any cure of the consumer’s failure to abide by the terms of the account.

Under the Guidelines Definition approach, the definition of “integrity” does not address the omission of any term the absence of which could contribute to an incorrect evaluation of the consumer’s creditworthiness. The other components of the definition under the Guidelines Definition approach are incorporated in the objectives that are outlined under the Regulatory Definition approach.

Additional Description of the Guidelines Applicable Under Both Approaches

The proposed guidelines reference the requirement under the rule that the furnisher’s policies and procedures must be appropriate to the size, complexity, and scope of their activities. The guidelines provide the following examples of aspects of the furnisher’s business that these policies and procedures should reflect:

• The types of business activities.
• The nature and frequency of the information provided to credit bureaus.
• The technology used by the furnisher to provide information to credit bureaus.

Under the guidelines, furnishers should address all of the applicable requirements currently imposed on furnishers under the Fair Credit Reporting Act. The guidelines also identify the following three steps that furnishers should undertake when establishing the accuracy and integrity policies and procedures:

• Identify practices and activities that can compromise the accuracy and integrity of consumer information provided to credit bureaus. Appropriate methods include:
  • Reviewing the furnisher’s existing practices and activities.
  • Reviewing historical records and other information relating to the accuracy, integrity, or disputes of information provided to credit bureaus, as well as the types of errors, omissions, or other problems that may have affected the accuracy and integrity of the information.
  • Obtain feedback from credit bureaus, consumers, the furnisher’s staff, or other appropriate parties.
• Evaluate the effectiveness of existing polices and procedures with regard to the accuracy and integrity of information provided to credit bureaus and consider whether additions or modifications are necessary. Furnishers are permitted to incorporate in these policies any existing policies and procedures that may be relevant.
• Evaluate the effectiveness of specific methods the furnisher uses to provide information about consumers to credit bureaus and whether changes are appropriate in order to enhance its accuracy and integrity.

The proposed guidelines outline the following specific components that should be addressed in the furnisher’s policies and procedures:

• A system for furnishing information about consumers to credit bureaus that is appropriate to the nature, size, complexity, and scope of the furnisher’s business operations.
• Standard data reporting formats and standard procedures for compiling and furnishing the data, where feasible, such as electronic transmission.
• The furnisher maintaining its own records for a reasonable period of time, no less than any applicable recordkeeping requirement, in order to substantiate the accuracy of any information that may be subject to a direct dispute by the consumer.
• Appropriate internal controls regarding the accuracy and integrity of information provided to credit bureaus, such as by implementing standard procedures, verifying random samples, and conducting regular reviews of the information.
• Training for staff to implement these policies and procedures.
• Appropriate and effective oversight of relevant service providers whose activities may affect the accuracy and integrity of the information to ensure compliance with the policies and procedures.
• Furnishing information about consumers to credit bureaus following mergers, acquisitions, or transfers of accounts and other debts, in a manner that prevents re-aging of the information, duplicative reporting, or other problems that may affect the accuracy and integrity of the information.
• For disputes initiated by the consumer directly with the furnisher, attempts to obtain information should be made before determining that the dispute is frivolous or irrelevant.
• Ensuring that deletions, updates, and corrections furnished to credit bureaus are reflected in business systems to avoid furnishing erroneous information.
• Investigations of disputes initiated by the consumer directly with the furnisher in a manner that promotes efficient resolution.
• Ensuring that technological or other means of communication with credit bureaus are designed to prevent duplicative reporting of accounts, erroneous association of information with the wrong consumers, and other occurrences that may compromise the accuracy and integrity of the information.
• Providing credit bureaus with sufficient identifying information in the furnisher’s possession to properly identify the consumer.
• Periodic evaluation of the furnisher’s own practices, credit bureau practices that the furnisher is aware, investigations of disputed information, corrections of inaccurate information, means of communication, as well as other factors that may affect the accuracy and integrity of the information.

II. Proposed Rule Regarding Direct Disputes

The FACT Act requires the regulators to issue rules that identify the circumstances in which a furnisher is required to investigate a dispute concerning the accuracy of information that is contained in a credit report, based on a direct request by the consumer. With regard to these “direct dispute” provisions, the proposed rule would require a furnisher to investigate such a dispute if it relates to:

• The consumer’s liability for a credit account or other debt with the furnisher, such as direct disputes as to whether there 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 the 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 on an account, or the amount of the reported credit limit on an open-end account, such as a credit card.
• The consumer’s conduct concerning the credit account or other debt, such as direc t disputes relating to current payment status, high balance, date a payment was made, the amount of a payment made, or date the account was opened or closed.
• Any other information in a credit report regarding an account or relationship with the furnisher that bears on creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living that is attributed to the furnisher.

The following are exceptions to the requirement to investigate a “direct dispute:”

• The direct dispute relates to:
  • The consumer’s identifying information (other than related to the consumer’s liability
  for an account or debt with the furnisher), such as names, date of birth, Social Security number, telephone numbers, and addresses.
  • Identity of past or present employers.
  • Inquiries or requests for a credit report.
  • Information derived from public records, such as judgments, bankruptcies, liens or other legal matters (unless provided by the furnisher).
  • Information related to fraud alerts or active duty alerts.
• The direct dispute is submitted or prepared by a credit repair organization.

A furnisher will only be required to investigate a direct dispute if the consumer submits a dispute notice to the furnisher at one of these addresses:

• An address of the furnisher that is provided by a furnisher and set forth on a credit report relating to the consumer.
• An address that is clearly and conspicuously specified by the furnisher for submitting direct disputes that is provided in writing or electronically (if the consumer agrees to electronic delivery of the information) or any business address of the furnisher, if the furnisher has not specified an address.

The dispute notice must include the following:

• Name, address, and telephone number of the consumer.
• Sufficient information to identify the account or other relationship that is in dispute, such as an account number.
• Specific information that the consumer is disputing and an explanation of the basis for the dispute.
• All supporting documentation or other information reasonably required by the furnisher to substantiate the basis of the dispute. This may include a copy of the credit report that includes the disputed information, a police report, a fraud or identity theft affidavit, a court order, or account statements.

A furnisher will not be required to investigate a direct dispute if the furnisher reasonably determines that the dispute is frivolous or irrelevant. A dispute may be frivolous or irrelevant if:

• The consumer did not provide sufficient information to investigate the disputed information, as described above. The furnisher should, however, make a good faith effort to obtain this information.
• The dispute is substantially the same as a dispute previously submitted by or on behalf of the consumer, either to the furnisher directly or to the credit bureau, and is a dispute with respect to which the furnisher has already completed its investigation duties.
• The furnisher is not otherwise required to investigate the dispute.

The furnisher must notify the consumer if a determination is made that the dispute is frivolous or irrelevant no later than five business days after making this determination. The notice must be delivered by mail or other means, if authorized by the consumer. The notice must include the reasons for the determination and identify the information required to investigate the dispute.

1. Should the definition of “accuracy” specifically provide that accuracy includes updating information as necessary to ensure the information is correct?
   
   

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2. The Regulatory Definition approach and the Guidelines Definition approach provide different definitions of “integrity.” Which definition do you prefer and how would that impact the quality of the information, the burdens on furnishers, and the benefits to consumers?
   
   

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3. Should the definition of “accuracy” and “integrity” be in the rules or in the guidelines? If the term “accuracy” is defined in the guidelines under the Guidelines Definition approach, should the definition also apply to the provisions of the rule regarding direct disputes?
   
   

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4. The required policies and procedures to ensure the accuracy and integrity of information provided to credit bureaus must be in writing. What effects or burdens will this impose on credit unions and smaller furnishers of information to credit bureaus?
   
   

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5. In the guidelines, one of the components of the policies and procedures is that the furnisher maintains its own records for a reasonable period of time, no less than any applicable recordkeeping requirement, in order to substantiate the accuracy of any information that may be subject to a direct dispute by the consumer. Should a time period be specified?
   
   

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6. For the provisions of the rule that identify the circumstances in which a furnisher is required to investigate a dispute, based on a direct request by the consumer, these provisions permit “direct disputes” in nearly all situations with respect to the types of information typically provided by the furnisher to the credit bureau, while providing certain exceptions for disputes that should more appropriately be directed to credit bureaus. This is based on an expectation that consumers should be able to submit disputes to the furnisher if it relates to information for which the furnisher is responsible. Is this the correct approach? Would a more targeted approach be more appropriate?
   
   

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7. Are there circumstances in which it would not be appropriate for a consumer to submit a direct dispute notice to the address of the furnisher that is provided on the credit report? Should certain types of addresses be specifically excluded under the rule, such as a business address that is used for reasons other than for receiving correspondence from consumers, or business locations where business is not conducted with consumers? Should furnishers be permitted to notify consumers orally of the address for direct disputes and, if so, how can oral notices be provided clearly and conspicuously?
   
   

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8. The FTC plans to inform consumers of their right to assert disputes directly with furnishers by updating its General Summary of Consumer Rights, a publication that credit bureaus provide to consumers. Are there other means in which this information should be provided?
   
   

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9. What impact will the rules and guidelines have on your current resources, including personnel? Is there an alternative approach that would be preferable, which would achieve the same goals? Are there other ways in which the burdens may be minimized?
   
   

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10. Other comments?
    
    

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