Feds propose new right for consumers in credit disputes

It will become a bit easier for consumers to dispute changes in their credit reports directly with banks or companies, according to a newly released federal regulation.

That regulation would formalize a now-informal practice, giving consumers a firm right to argue directly with companies that provide negative information to the credit bureaus. The bureaus compile information, positive and negative, into credit reports that dictate whether consumers can borrow money and at what rate.

The proposal issued Nov. 29 would also force lenders and companies to adopt guidelines to insure the "accuracy and integrity" of information they supply to consumer reporting agencies.

According to a study published by the Government Accountability Office in 2003, the most frequent credit report disputes were related to the inclusion of someone else's information in the consumer's and data reflecting incorrect payment history or incorrect late payments.

With the existing law, "in some situations, consumers were caught in an endless loop" when disputing credit report information, says Rebecca Kuehn, assistant director of the Division of Privacy and Identity Protection in the Federal Trade Commission's Bureau of Consumer Protection.  They would go back and forth between the credit bureaus -- Experian, Equifax and TransUnion -- and the lenders and other companies that provide information to the bureaus.

New right: direct contact
The new rules would give consumers the legal right to directly contact the furnisher (or provider) of erroneous information to get it corrected. Although many large banks now voluntarily address consumer disputes as a customer service, current law says that the legally correct way to resolve disputes is through the credit bureaus.

The proposal would make it a legal requirement for the furnisher to investigate any possible credit report errors.  In other words, as a company you would have to "deal with your own customers' complaints about information that was provided to the credit reporting agencies," Kuehn says.   

With the new right comes a responsibility: Consumers need to provide the furnisher with personal contact and account information, the nature of the item in dispute and any necessary supporting documentation (such as a copy of the consumer report containing the inaccurate information). Additionally, consumers would need to avoid making duplicate requests for investigation of information that is "substantially the same" as a dispute submitted previously either directly to the furnisher or to a consumer reporting agency.

Not providing the information would allow the lenders to ignore the complaint.

'Accuracy and integrity'

The other part of the proposed rule change would force furnishers to implement rules to ensure the "accuracy and integrity" of information shared with credit bureaus. These include use of standard reporting formats, means of collecting and compiling data, training staff in proper procedures for transmitting data to credit bureaus and instituting internal controls to test the accuracy of the information provided to credit bureaus.

Reaction to the proposal, which would create a new section within the Fair and Accurate Credit Transactions Act (FACTA) of 2003, was mixed.  

Evan Hendricks, editor of the newsletter "Privacy Times" and the author of "Credit Scores and Credit Reports," was underwhelmed. "It's long overdue and it's a baby step," he says. "It's long overdue because the act was passed in 2003. The baby step is that it's going to improve consumers' ability to dispute directly, but their right to do so is not enforceable."

Banking industry officials had opposed the rule, saying excessive regulation would discourage lenders from reporting any information to the credit bureaus.

When it comes to the proposed changes, "any effort to ensure that consumers have accurate information reflected on their credit reports is a step in the right direction. The credit report and associated credit score will have a negative or positive influence on many areas of a consumer’s life," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, a national accrediting agency for credit counseling firms. "Giving consumers the power to correct discrepancies should enhance the likelihood of an accurate report being distributed," Cunningham says.

The rule will not go into effect until after a comment period, which runs 60 days. Comments should refer to "Procedures to Enhance the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies under Section 312 of the Fair and Accurate Credit Transactions Act, Project No. R611017."


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Updated: 03-24-2019