New rules bring merchants new credit reporting burdens

New rules bring merchants new credit reporting burdens

If a consumer contacts your company with a complaint about information that you have supplied to a credit bureau, you will be obligated to investigate under new federal rules that take effect on July 1.

Merchants of all sizes will have to be more careful about the accuracy of the information they supply to credit bureaus as a result of the rules, which put into action parts of the Fair and Accurate Credit Transaction Act (FACTA) of 2003. You must also notify the bureau about the resolution of your investigation, should you uncover data that has been reported inaccurately.

Credit card issuers and mortgage lenders already face some requirements that they investigate information that consumers have disputed about their accounts or payments. "These new rules would impose broader obligations on all companies that furnish information to credit bureaus," says Washington D.C.-based attorney Andrew Smith.

Companies that supply this information are now obligated to develop written policies to ensure that the information they supply is accurate.  "The regulations require that your policy be appropriate to the size and complexity of your operations," says Smith. Credit bureaus are encouraging companies to use standardized reporting formats, such as the "Metro 2-format" to submit information needed to update consumers' credit reports, he says.

Companies must also ensure that the information they supply to credit bureaus has "integrity," says Smith. For instance, when you make a report about a consumer to a credit bureau, you must adequately identify the consumer, furnish information in clear and understandable way in the standardized format you use and specify the time period to which it relates. You must also report the credit limit on the consumer's account. "One of the purposes of these requirements is to prevent someone who obtains a report from misunderstanding a person's credit history," he says.

A quicker way to solve disputes?
Some say that the new rules could potentially speed the resolution of consumer complaints about information in their credit report. When credit bureaus receive a complaint from a consumer and send it to a lender or merchant for investigation, they currently use a code number to describe it, says Raemon Polk, executive vice president of L2C, a credit reporting agency. For instance, one code means that the consumer claims the account was closed. "Often, the furnishers don't have a lot of information to go on," Polk says.

Receiving a letter and supporting information from a consumer may make it easier to investigate a complaint than if a credit bureau contacts your company and asks you to look into a dispute, he says. "The hope is that with consumers able to go back to the furnishers, they can get more real information in front of them and help them determine if there was an error," he says.

Consumers' obligations
Come July 1, if consumers want to notify a lender or company that the information it has sent to a credit bureau is inaccurate, there are three sets of information that the law requires they submit in a letter, says Polk.

1. Enough data to identify the account. That means both the consumer's name and account number, he says.
2. The information the consumer is disputing and the basis for the dispute. For instance, if the consumer says he is disputing a report that he paid his Visa bill late, he must mention the dates on which the charges in question occurred and why he thinks they are wrong.
3. Backup material that supports his position, such as electronic banking records or proof of payments, such as cancelled checks.

If you clearly specify an address where consumers can send letters about disputes, consumers must use it, says Smith. If you don't make one available, they can send the letters to any address where your company does business, and you will still be obligated to investigate their disputes, says Smith.

When a consumer has provided the recommended information, you must conduct what the law describes as a "reasonable" investigation and report back to the consumer on the outcome within 30 days, according to Smith. If the consumer submits additional information, you get another 15 days to investigate, he says.

If the consumer does not submit all required pieces of information, you can consider the dispute frivolous and don't have to investigate, adds Smith. You can also reject a complaint as frivolous if it is the same as a previous one the consumer has submitted, says Smith. You must notify the consumer that you have deemed the complaint frivolous within 5 days of receiving the information you sent, he says.

What happens if a consumer contacts your company to complain about material it has supplied to a credit bureau and you don't investigate? The law allows for "administrative action," meaning that the FTC, state attorneys general or bank regulators could potentially bring a case on behalf of consumers, says Smith. "That's not trivial," says Smith. The government can collect civil penalties of $3,500 for each violation, he says. "That can add up quickly," he says.

Some in the credit reporting community worry that companies will remove offending information from credit reports, rather than take time to investigate disputes, says Smith. This could, over time, compromise the quality of the nation's credit reporting system, he says.

Attorney Lance Raphael, senior partner at The Consumer Advocacy Center PC in Chicago, says that it doesn't appear that the new rules will empower consumers much. Currently, if a consumer complains to a credit bureau about information in his credit report and the furnisher fails to conduct an adequate investigation, the consumer can sue the furnisher. The new rules do not seem to bring the consumer who contacts a furnisher directly any additional legal rights on this front, he says.  "If you have a law you want enforced, put a private right of enforcement and penalty in it," he says. He says FACTA also seems to preempt states from issuing tougher laws along the same lines to protect consumers.

Published: February 17,2023