CUNA Regulatory Comment Call


December 18, 2007

Proposed FACT Act Rules and Guidelines on the Accuracy of Credit Information

EXECUTIVE SUMMARY

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:

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:

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:

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:

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

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

  • 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:

    The dispute notice must include the following:

    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 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.

    QUESTIONS TO CONSIDER REGARDING THE PROPOSED RULES AND GUIDELINES ON THE ACCURACY OF CREDIT INFORMATION
    (The Agencies have specifically requested comment on the issues raised in these questions.)

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













    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?













    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?













    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?













    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?













    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?













    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?













    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?













    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?













    10. Other comments?













    Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
    Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
    Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
    Lilly Thomas • Assistant General Counsel • (202) 508-6733 • lthomas@cuna.com
    Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com