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Credit report error? You can go directly to the merchant

A 2010 federal rule change gives consumers another way to dispute mistakes

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Consumers have gained a new right: As of the summer of 2010, if a merchant inserts an error into your credit report, you can force them to investigate the problem.

But you have to follow the proper procedures, or risk getting blown off as "frivolous." How to dispute a credit report error with a merchant

Beginning July 1, if you contact a company with a complaint about credit report errors it has supplied to a credit bureau, it will be required to conduct an investigation under the rules that put into action parts of the Fair and Accurate Credit Transaction Act of 2003. The company must notify the credit bureau about the resolution of its investigation, should it uncover data that has been reported inaccurately.

Before the rule change, finalized in July 2009 by the federal banking regulators, consumers had no formal right to dispute credit report errors directly with the furnisher of that information. The idea behind the rule change is to increase the accuracy of credit reports, which are used to determine whether a consumer gets a loan, a job, or insurance, and at what cost.

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 credit reporting rules would impose broader obligations on all companies that furnish information to credit bureaus," says attorney Andrew Smith with Morrison and Foerster in Washington, D.C.

Under the new rules, companies must also ensure that the information they supply to credit bureaus about you has "integrity," says Smith. For instance, if they make a report about you to a credit bureau, they must adequately identify you, supply information in a clear and understandable way in a standardized format, and specify the time period to which it relates. They must also report the credit limit on your 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.

Still, some say that the changes to the FACT Act could potentially make it easier for consumers to receive a more thorough examination of disputed information in their credit reports and to have mistakes corrected more quickly. When credit bureaus receive a complaint about a credit report error from a consumer and send it to a lender or merchant for investigation, they typically use a code number to describe it, says Polk. For instance, one code means that the consumer claims an account was closed. "Often, the furnishers don't have a lot of information to go on," he says.

Consumers may find that a merchant or lender can resolve disputes more easily by using detailed information they have sent directly in a letter, rather than relying on the code from the credit bureau, says Polk. "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.

How to dispute credit report errors If you want to notify a lender or company that information it has sent to a credit bureau is inaccurate, there are three pieces of information you must submit in a letter, says Raemon Polk, executive vice president of L2C, a credit reporting agency.

  1. Enough information to identify your account. That means giving both your name and account number, he says.
  2. The information you are disputing and the basis for the dispute. For instance, if you are disputing that you paid your Visa bill late, you would mention the dates on which the charges in question occurred and why you are disputing this.
  3. Information that supports your position, such as electronic banking records or proof of payments, such as canceled checks.

If a company provides an address where consumers can send such complaints, you must use it, Smith says. If it doesn't give you one on its website or elsewhere, you can send the letter to any address where it receives mail and it will still be obligated to investigate your dispute.

When you have provided the recommended information, the company that reported the information to the bureau -- known in the business as the furnisher -- must conduct what the law describes as a "reasonable" investigation and report back to you on the outcome within 30 days, according to Smith. Should you submit additional information, the furnisher gets another 15 days to investigate, he says.

If you don't supply the required information, the company doesn't have to investigate it and can consider your complaint "frivolous," adds Smith. The firm can also dismiss a complaint as frivolous if it is the same as a previous one you have submitted, says Smith. It must notify you that it has deemed a complaint frivolous within five days of receiving the information you sent.

What if the company doesn't act?
What happens if you contact a company to complain about material it has supplied to a credit bureau and it doesn'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.

However, attorney Lance Raphael, senior partner at The Consumer Advocacy Center PC in Chicago, doubts 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 the furnisher directly any additional legal rights on that front, he says.

See related: 5 key federal laws that protect cardholders, Customers get new path to dispute credit report errors

Published: March 1, 2010


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