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Consumers get new path to dispute credit report errors

Rules would allow direct challenges to merchants in credit disputes

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Under a set of newly introduced guidelines, consumers would gain the right to take up disputes over credit report inaccuracies directly with the businesses that supplied the questionable data to credit reporting agencies.

Those guidelines -- jointly issued by several government agencies on July 1, 2009, and taking effect exactly one year from that date -- contain two rules: one governing how consumers can dispute inaccurate credit report information; the second addressing what is known as the "accuracy and integrity" of the information provided to credit bureaus.

The participating agencies responsible for the rules include the Federal Reserve, the Federal Deposit Insurance Corporation, the Federal Trade Commission (FTC), the National Credit Union Administration, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision. Consumers are asked to share their own thoughts on possible additions to the guidelines during a comment period that runs through Aug. 31, 2009, by visiting the FTC's website.  

Direct challenge
The first rule provides consumers with a direct means for challenging errors that appear on their credit reports. Currently, borrowers need to send a dispute to the credit bureau that issued the credit report. That bureau then contacts the business that supplied the inaccurate information, with the business then responding to the credit bureau, which in turn contacts the borrower.  

"What this does is give the consumer a direct avenue to the business that provided the information," says Rebecca Kuehn, assistant director with the division of privacy and identity protection at the FTC. Kuehn stresses that businesses generally want to address any problems their consumers discover. "Most businesses want to handle their consumers' disputes. Otherwise they wouldn't be their consumers much longer," she says.  

'Accuracy and integrity' rule
The second rule, known as the "accuracy and integrity rule," aims to encourage businesses to supply information that is correct and accurately reflects the consumer's borrowing history to the credit bureaus. "The statute for the Fair and Accurate Credit Transaction Act defined that reports to bureaus must be accurate and with integrity. So these guidelines define what that means and defines when they become effective," says Kevin Mukri, spokesman for the OCC.

What this does is give the consumer a direct avenue to the business that provided the information

-- Rebecca Kuehn    
Federal Trade Commission    

That includes the requirement for businesses to supply information that, if left out, could give the wrong impression about how creditworthy -- or not -- a borrower might be. The FTC's Kuehn says one piece identified and listed in the guidelines would require lenders that establish a credit limit to provide that limit amount to the credit bureaus. "Under the rules, entities that furnish information about consumers to consumer reporting agencies generally must include a consumer's credit limit in the information provided," according to a Fed press release on the guidelines.

Currently, the absence of credit limits can wreak havoc with credit scoring models. Say you owe $2,000 on a credit card that has a credit limit of $20,000 --that gives you a strong debt-to-limit -- how much you've borrowed versus how much you could borrow. However, if the bank doesn't provide your credit limit to the bureau, the scoring model may assume a $2,000 balance (past or present) to be the credit limit on the card. That would make for a much higher debt-to-limit ratio -- and suggest a much riskier borrower: The credit scoring formulas like it when you don't max out.

The accuracy and integrity rule essentially says to businesses that supply information to credit bureaus, "Furnishers, you need to look at these guidelines and develop written policies and procedures," Kuehn says.

See related: How to dispute credit report errors

Updated: July 6, 2009


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