# 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 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3AE9-15323 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** July 1, 2009 - **Citation:** 74 FR 31484 ## Text DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 41 [Docket ID OCC-2008-0023] RIN 1557-AC89 FEDERAL RESERVE SYSTEM 12 CFR Part 222 [Docket No. R-1300] RIN 7100-AD18 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Parts 334 RIN 3064-AC99 DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Part 571 [Docket No. OTS-2008-0025] RIN 1550-AC01 NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 717 FEDERAL TRADE COMMISSION 16 CFR Part 660 RIN 3084-AA94 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 Agencies: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); National Credit Union Administration (NCUA); and Federal Trade Commission (FTC). ACTION: Final rules. SUMMARY: The OCC, Board, FDIC, OTS, NCUA, and FTC (Agencies) are publishing these final rules to implement the accuracy and integrity and direct dispute provisions in section 312 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) that amended section 623 of the Fair Credit Reporting Act (FCRA). The final rules implement the requirement that the Agencies issue guidelines for use by furnishers regarding the accuracy and integrity of the information about consumers that they furnish to consumer reporting agencies (CRAs) and prescribe regulations requiring furnishers to establish reasonable policies and procedures for implementing the guidelines. These final rules also implement the requirement that the Agencies issue regulations identifying the circumstances under which a furnisher must reinvestigate disputes about the accuracy of information contained in a consumer report based on a direct request from a consumer. DATES: These rules are effective on July 1, 2010. FOR FURTHER INFORMATION CONTACT: OCC: Stephen Van Meter, Assistant Director, Community and Consumer Law Division, (202) 874-5750; Patrick T. Tierney, Senior Attorney, Carl Kaminski, Senior Attorney, Legislative and Regulatory Activities Division, (202) 874-5090; or Malloy T. Harris, Jr., National Bank Examiner, Compliance Policy, (202) 874-4851, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. Board: David A. Stein, Managing Counsel, Amy E. Burke, Senior Attorney, or Jelena McWilliams, Attorney, Division of Consumer and Community Affairs, (202) 452-3667 or (202) 452-2412; or Anne B. Zorc, Counsel, (202) 452-3876, or Kara L. Handzlik, Attorney, (202) 452-3852, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. FDIC: Glenn S. Gimble, Senior Policy Analyst, (202) 898-6865, Division of Supervision and Consumer Protection; Richard M. Schwartz, Counsel, (202) 898-7424, or Richard B. Foley, Counsel, (202) 898-3784, Legal Division; 550 17th St., NW., Washington, DC 20429. OTS: April Breslaw, Director, Consumer Regulations, (202) 906-6989; Suzanne McQueen, Consumer Regulations Analyst, Compliance and Consumer Protection Division, (202) 906-6459; or Richard Bennett, Senior Compliance Counsel, Regulations and Legislation Division, (202) 906-7409, at 1700 G Street, NW., Washington, DC 20552. NCUA: Linda Dent or Regina Metz, Attorneys, Office of General Counsel, phone (703) 518-6540 or fax (703) 518-6569, National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314. FTC: Clarke W. Brinckerhoff and Pavneet Singh, Attorneys, (202) 326-2252, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue NW., Washington, DC 20580. SUPPLEMENTARY INFORMATION: I. Introduction The Fair Credit Reporting Act (FCRA), which was enacted in 1970, sets standards for the collection, communication, and use of information bearing on a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. 1 In 1996, the Consumer Credit Reporting Reform Act extensively amended the FCRA. 2 The FACT Act 3 further amended the FCRA for various purposes, including improved accuracy of consumer reports. 1 15 U.S.C. 1681-1681x. 2 Public Law 104-208, 110 Stat. 3009 (Sept. 20, 1996). 3 Public Law 108-159, 117 Stat. 1952 (Dec. 4, 2003). Section 623 of the FCRA describes the responsibilities of persons that furnish information about consumers (furnishers) to CRAs. 4 Section 312 of the FACT Act amended section 623 by requiring the Agencies to issue guidelines for use by furnishers regarding the accuracy and integrity of the information about consumers that they furnish to CRAs and to prescribe regulations requiring furnishers to establish reasonable policies and procedures for implementing the guidelines (the accuracy and integrity regulations and guidelines). Section 312 also requires the Agencies to issue regulations identifying the circumstances under which a furnisher must reinvestigate disputes concerning the accuracy of information contained in a consumer report based on a direct request from a consumer (the direct dispute regulations). The Agencies are issuing these final accuracy and integrity regulations and guidelines and final direct dispute regulations to satisfy the requirements of section 312 of the FACT Act. 4 Section 623 is codified at 15 U.S.C. 1681s-2. The final rules include the accuracy and integrity regulations, which contain definitions of key terms such as “accuracy,” “integrity,” “direct dispute,” and “furnisher” and require furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information provided to a CRA. The final rules also include guidelines concerning the accuracy and integrity of information furnished to CRAs that furnishers must consider in developing their policies and procedures. The Agencies believe that the final accuracy and integrity rules and guidelines strike an appropriate balance that affords furnishers the flexibility to establish policies and procedures that are appropriate to the nature, size, complexity, and scope of each furnisher's activities while enhancing the accuracy and integrity of consumer information provided to CRAs. The final direct dispute regulations: Set forth the circumstances under which a furnisher must reinvestigate a consumer's direct dispute; provide exceptions to the requirements imposed; detail the direct dispute address and dispute notice content requirements; specify furnishers' duties after receiving a direct dispute; and establish when a furnisher may deem a direct dispute to be frivolous or irrelevant. The final direct dispute rule is designed to permit direct disputes in virtually all circumstances involving disputes about the accuracy of furnished information typically provided by a furnisher to a CRA. This approach enables consumers to submit a dispute directly to the furnisher (with certain exceptions) when the issue in dispute relates to information for which the furnisher is responsible. II. Statutory Requirements A. Accuracy and Integrity Regulations and Guidelines Section 623(e)(1)(A) of the FCRA requires the Agencies to establish and maintain guidelines for use by each furnisher “regarding the accuracy and integrity of the information relating to consumers” that the furnisher provides to CRAs. In developing the guidelines, section 623(e)(3) directs the Agencies to: • Identify patterns, practices, and specific forms of activity that can compromise the accuracy and integrity of information furnished to CRAs; • Review the methods (including technological means) used to furnish information relating to consumers to CRAs; • Determine whether furnishers maintain and enforce policies to assure the accuracy and integrity of information furnished to CRAs; and • Examine the policies and processes employed by furnishers to conduct reinvestigations and correct inaccurate information relating to consumers that has been furnished to CRAs. The Agencies also are required to update the guidelines as often as necessary. Section 623(e)(1)(B) of the FCRA requires the Agencies to prescribe regulations requiring furnishers to “establish reasonable policies and procedures for implementing the guidelines” established pursuant to section 623(e)(1)(A). Section 623(e)(2) of the FCRA provides that the Agencies must consult and coordinate with one another so that, to the extent possible, the regulations prescribed by each Agency are consistent and comparable with the regulations prescribed by each other Agency. These consistent and comparable final rules are being issued following extensive consultation and coordination among the Agencies. B. Direct Disputes Section 623(a)(8) of the FCRA directs the Agencies jointly to prescribe regulations that identify the circumstances under which a furnisher is required to reinvestigate a dispute concerning the accuracy of information contained in a consumer report on the consumer, based on a direct request by the consumer. In prescribing the direct dispute regulations, section 623(a)(8) directs the Agencies to weigh the following specific factors: • The benefits to consumers and the costs to furnishers and the credit reporting system; • The impact on the overall accuracy and integrity of consumer reports of any direct dispute requirements; • Whether direct contact by the consumer with the furnisher would likely result in the most expeditious resolution of any dispute; and • The potential impact on the credit reporting process if credit repair organizations are able to circumvent the provisions in subparagraph G of section 623(a)(8), which generally states that the direct dispute rules shall not apply when credit repair organizations provide notices of dispute on behalf of consumers. III. The Agencies' Consideration of the Statutory Accuracy and Integrity Criteria and Direct Dispute Factors The Agencies published an advance notice of proposed rulemaking (ANPR) in the Federal Register in March 2006 5 in order to obtain information pertaining to the criteria that Congress directed the Agencies to consider in developing the accuracy and integrity guidelines and the factors that Congress directed the Agencies to weigh in prescribing the direct dispute regulations. The ANPR contained detailed requests for comment on ten issues related to the statutory criteria governing the development of the accuracy and integrity guidelines and on eight issues related to the statutory factors that the Agencies must weigh when promulgating the direct dispute regulations. The Agencies also specifically requested comment on how the issues presented by the ANPR might differ depending on the type of furnisher, the types of information furnished, the frequency with which a furnisher reports information about consumers to CRAs, or the type of CRA that receives the furnished information. 5 71 FR 14419 (March 22, 2006). The Agencies collectively received a total of 197 comment letters on the ANPR, including multiple copies of the same letter sent by commenters to more than one Agency. Commenters included depository institutions, other financial services companies, trade associations, consumer reporting and credit scoring companies, a mortgage company, consumer organizations, and individual consumers. IV. The Notice of Proposed Rulemaking On December 13, 2007, the Agencies published a notice of proposed rulemaking (NPRM) in the Federal Register containing proposed rules to implement section 312 of the FACT Act. 6 The NPRM summarized key issues identified in the comment letters received on the ANPR concerning accuracy and integrity criteria and on the direct dispute factors. 7 The proposal contained the section 312 statutory requirement that each furnisher must establish reasonable policies and procedures regarding the accuracy and integrity of the information about consumers that it furnishes to a CRA. The proposal stated that the policies and procedures must be written and be appropriate to the nature, size, complexity, and scope of the furnisher's activities. The proposal provided that each furnisher would have to consider the accuracy and integrity guidelines in developing its policies and procedures and review its policies and procedures periodically and update them as necessary to ensure their continued effectiveness. 6 72 FR 70944 (December 13, 2007). 7 72 FR 70947-949 (December 13, 2007). The proposal included an appendix to each Agency's regulations containing accuracy and integrity guidelines that: (1) Set forth the nature, scope, and objectives of a furnisher's policies and procedures; (2) enumerated the accuracy and integrity duties of furnishers under the FCRA; (3) identified the steps that furnishers should take when establishing accuracy and integrity policies and procedures; and (4) detailed specific components that should be addressed in a furnisher's policies and procedures. The proposal included two approaches for defining the terms “accuracy” and “integrity,” terms that are not defined by section 312: 8 A “Regulatory Definition Approach” and a “Guidelines Definition Approach.” The Regulatory Definition Approach included definitions for both terms in regulations. The Guidelines Definition Approach defined the terms in guidelines—rather than regulations—with reference to the objectives that a furnisher's policies and procedures should be designed to accomplish. 8 In addition, the Agencies noted in the NPRM that the legislative history of the FACT Act does not resolve how the terms “accuracy” and “integrity” should be defined. See 72 FR 70949-950 (December 13, 2007). Both proposed approaches defined the term “accuracy” to mean that any information that a furnisher provides to a CRA about an account or other relationship with the consumer reflects without error the terms of and liability for the account or other relationship and the consumer's performance and other conduct with respect to the account or other relationship. The proposed Regulatory Definition Approach provided that information furnished to a CRA could be technically “accurate” yet lack “integrity” if it presented a misleading picture of the consumer's creditworthiness by omitting critical information, such as a credit limit on a revolving credit account. In contrast, the proposed Guidelines Definition Approach provided that furnished information would have “integrity” if it: (1) Is reported in a form and manner that is designed to minimize the likelihood that the information, although accurate, may be erroneously reflected in a consumer report; and (2) is substantiated by the furnisher's own records. 9 The objectives included in the Agencies' respective appendices also differed in a manner that reflected these alternative definitions. 9 Key components of the definition of “integrity” proposed under the Guidelines Definition Approach were incorporated into the Regulatory Definition Approach as objectives set forth in the proposed guidelines. Both approaches proposed consistent definitions for other key terms such as “furnisher” and “direct dispute.” Finally, the proposal included regulations that would implement section 623(a)(8) of the FCRA, which directs the Agencies jointly to prescribe regulations that identify the circumstances under which a furnisher is required to reinvestigate 10 a dispute concerning the accuracy of information about a consumer contained in a consumer report, based on a direct request by the consumer. The proposal specified the circumstances under which a furnisher must investigate a direct dispute; included certain exceptions; set forth requirements regarding a furnisher's address for receiving direct dispute notices; specified the content requirements for direct dispute notices from consumers; and addressed frivolous and irrelevant disputes, which, pursuant to section 623(a)(8)(F) of the FCRA, furnishers are not required to investigate. 10 Section 312 uses the terms “reinvestigate” and “investigate” interchangeably to apply to direct disputes. Compare 15 U.S.C. 1681s-2(a)(8)(A) with 15 U.S.C. 1681s-2(a)(8)(E). The Agencies believe that, as applied to section 312, there is no difference in the meaning of these two terms, and, therefore, have used only the term “investigate” in the final regulations and guidelines for ease of comprehension, to provide clarity to consumers who file direct disputes, and to assist furnishers with the implementation of the regulations and guidelines. In addition, the NPRM requested specific comment on the following issues: The definitions of the terms “accuracy” and “integrity” and their placement in either the regulatory text or guidelines; whether the proposed definition of “accuracy” should include updating information as necessary to ensure that the information furnished is current; whether the proposed definition of “accuracy” is appropriate to the direct dispute rule; whether the proposed direct dispute rules appropriately reflect the relevant statutory considerations or whether a more targeted approach would be more appropriate; whether to permit furnishers to provide oral notice for a direct dispute address; whether certain types of business addresses should be excluded from receiving direct dispute notices; what mechanisms should be required, if any, for informing consumers of their direct dispute rights; how the proposed direct dispute requirements would affect furnishers to smaller and specialty CRAs; and whether the guidelines should incorporate a specific record retention time period. A more detailed discussion of the provisions of the NPRM is contained in the Section-by-Section Analysis. V. Overview of the Comments Received in Response to the NPRM Each agency received the following number of comment letters: OCC—23, Board—25, FDIC—19, OTS—16, NCUA—17, and FTC—27. Many commenters sent copies of the same letter to more than one Agency. The Agencies received comments from a variety of banks, thrifts, credit unions, credit card companies, mortgage lenders, other non-bank creditors, and trade associations. The Agencies also received comments from consumer organizations and individual consumers. In general, consumer organizations supported the specificity of the Regulatory Definition Approach while industry commenters favored the flexibility provided by the Guidelines Definition Approach to permit a furnisher to adopt policies and procedures that are suitable to their specific circumstances. Consumer organization and industry commenters also differed in their opinions regarding the level of detail and applicability of the proposed guidelines. Consumer organizations generally supported more detailed guidelines that should apply to all furnishers while industry commenters generally supported less detailed guidelines that do not impose requirements on all furnishers. A number of industry commenters and most consumer organizations generally supported the proposed direct dispute regulations. The Agencies have carefully considered all comments received and have decided to modify the proposal and adopt the final rules and guidelines as described below in the Section-by-Section Analysis. VI. Section-by-Section Analysis 11 11 The OCC, Board, FDIC, OTS, and NCUA are placing the final regulations and guidelines implementing section 312 in the part of their regulations that implements the FCRA—12 CFR parts 41, 222, 334, 571, and 717, respectively. For ease of reference, the discussion in the SUPPLEMENTARY INFORMATION section uses the shared numerical suffix of each of these agency's regulations. The FTC also is placing the final regulations and guidelines in the part of its regulations implementing the FCRA, specifically 16 CFR part 660. However, the FTC uses different numerical suffixes that equate to the numerical suffixes discussed in the SUPPLEMENTARY INFORMATION section as follows: Suffix .40 = FTC suffix .1, suffix .41 = FTC suffix .2, suffix .42 = FTC suffix .3, and suffix .43 = FTC suffix .4. In addition, Appendix E referenced in the SUPPLEMENTARY INFORMATION section is the FTC's Appendix A. The following describes the three parts of these final rulemaking actions: The accuracy and integrity regulations, the accuracy and integrity guidelines, and the direct dispute regulations. A. Accuracy and Integrity Regulations Section _.40 Scope Section _.40 of the proposal set forth the scope of each Agency's regulations. Each of the Agencies has tailored this section to describe the entities to which its respective subpart applies and have adopted this section in the final rules without change. The Agencies did not receive comments on this section. Section _.41 Definitions Placement of Definitions As described in section IV of this SUPPLEMENTARY INFORMATION , the Agencies proposed two alternative approaches in the NPRM for defining the terms “accuracy” and “integrity”—a Regulatory Definition Approach and a Guidelines Definition Approach. Although the proposed definition of ”accuracy” was the same under both alternatives, the two approaches differed with respect to the substance of the definition of “integrity” and the placement of the definitions. The substantive aspects of each approach, and the significant comments the Agencies received on each, are described in the discussion of the definitions later in this section. This portion of the discussion addresses the placement of the definitions which, in the final rules, appear in the regulation text. Under the proposed Regulatory Definition Approach, the definitions for the terms “accuracy” and “integrity” appeared in the regulation text. In order to be accurate, furnished information would have to reflect without error the terms of and liability for the account or other relationship and the consumer's performance and other conduct with respect to the account or other relationship. Furnished information would have “integrity” if it did not omit any term, such as a credit limit or opening date, of that account or other relationship, the absence of which could reasonably be expected to contribute to an incorrect evaluation by a user of a consumer report about a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Under the proposed Guidelines Definition Approach, the Agencies identified four objectives pertaining to the “accuracy” and “integrity” of information furnished and placed these objectives in the guidelines, rather than the text of the regulation. Definitions for the terms “accuracy” and “integrity” were incorporated into the first two objectives. The guidelines would have defined “accuracy” in substantially the same manner as under the Regulatory Definition Approach; however, the definition of “integrity” was different from that in the Regulatory Definition Approach. Under the proposed Guidelines Definition Approach, furnished information would have “integrity” if it: (1) Is reported in a form and manner that is designed to minimize the likelihood that the information, although accurate, may be erroneously reflected in a consumer report; and (2) is substantiated by the furnisher's own records. Generally, consumer organizations supported the Regulatory Definition Approach because they believed that locating the definitions in the regulations, rather than the guidelines, would enhance the substantive requirements applicable to furnishers. They believed this, in turn, would result in more accurate consumer reports and improved assessments of consumers' creditworthiness. One industry commenter also supported this approach, stating that it would ensure that important credit terms are provided by furnishers to CRAs and thus promote correct credit evaluations of consumers by users of consumer reports. On the other hand, industry commenters generally favored the Guidelines Definition Approach. These commenters preferred a less prescriptive approach enabling furnishers' policies and procedures to reflect the nature, size, complexity, and scope of their respective business activities. The Agencies have decided to place the definitions of the terms “accuracy” (§ _.41(a)) and “integrity” (§ _.41(e)) in the text of the final regulations. This approach more clearly establishes that these definitions apply for purposes not only of the guidelines, but also to the requirement in the regulations that furnishers must establish and implement reasonable written policies and procedures regarding the “accuracy” and “integrity” of furnished information. Furthermore, the Agencies note that section 623(a)(8) of the FCRA directs the Agencies jointly to prescribe regulations that identify the circumstances under which a furnisher is required to reinvestigate a dispute concerning the accuracy of information about the consumer contained in a consumer report, based on a direct request by the consumer. In light of section 623(a)(8), the Agencies have determined that the term accuracy should be defined in the text of the regulation. Some industry commenters expressed concern that placement of the definitions in the text of the regulations would increase the risk of litigation initiated by plaintiffs asserting that furnished information failed to meet the accuracy and integrity standards included in the proposal. To address these concerns, the Agencies have, as was proposed in the NPRM, limited the applicability of defined terms in § _.41, including “accuracy” and “integrity,” to each Agency's regulations in subpart E—Duties of Furnishers of Information and the accompanying guidelines in Appendix E. The definitions do not impose stand-alone obligations on furnishers but guide and inform the duties otherwise imposed on furnishers under the regulations. The Agencies' promulgation of the definitions of the terms “accuracy” and “integrity” in § _.41 of the final regulations does not mean that they intend to use the same definitions in any other context. The Agencies further note that section 623(c) of the FCRA limits private rights of action for a furnisher's noncompliance with the rules issued pursuant to section 312 of the FACT Act, which include the definitions of “accuracy” and “integrity.” Accuracy Both the proposed Regulatory Definition Approach and the proposed Guidelines Definition Approach defined “accuracy” to mean that any information that a furnisher provides to a CRA about an account or other relationship with the consumer reflects without error the terms of and liability for the account or other relationship and the consumer's performance and other conduct with respect to the account or other relationship. In the final rules, the Agencies have revised the proposed definition of “accuracy.” Under § _.41(a) of the final rules, “accuracy” means that information that a furnisher provides to a consumer reporting agency about an account or other relationship with the consumer correctly: • Reflects the terms of and liability for the account or other relationship; • Reflects the consumer's performance and other conduct with respect to the account or other relationship; and • Identifies the appropriate consumer. This definition differs from the proposed definition in two ways. First, the phrase “without error” that was included in the proposal has been removed from the definition in the final rules. Industry commenters stated that, in general, the proposed definition of “accuracy” would create an unrealistic standard and that the “without error” standard, in particular, was unworkable. These commenters stated that adopting such a standard would effectively require providing information to a CRA with perfect precision, which the commenters asserted is not feasible and could subject furnishers to criticism and potential litigation risks even for honest mistakes that are promptly corrected. The Agencies agree that the “without error” standard could be read to imply an expectation that information be reported according to unreasonably high standards. Such an unrealistic and potentially burdensome standard could lead some furnishers to cease or limit their furnishing of information to CRAs or act as an obstacle to entities becoming furnishers. Accordingly, to address the concerns raised by the commenters, the standard has been modified to provide that accuracy means that information furnished “correctly reflects” the terms of and liability for an account or other relationship and other relevant factors. This standard reflects the goal of providing information with a high degree of precision, but provides greater flexibility than the proposed standard and should mitigate unforeseen litigation risk. The second change from the proposed definition is the addition of a reference to the consumer's identity in the definition of “accuracy.” In the final rules, “accuracy” means, among other things as noted above, that “information that a furnisher provides to a consumer reporting agency about an account or other relationship with the consumer correctly * * * identifies the appropriate consumer.” This change makes the regulatory text consistent with section I.(b)(1)(i) of the final guidelines' objectives, which provides that “[a] furnisher's policies and procedures should be reasonably designed to * * * furnish information about accounts or other relationships with a consumer that is accurate, such that the furnished information: (i) Identifies the appropriate consumer * * *.” The Agencies expect that the addition of this “consumer identity” element to the definition of “accuracy” will reinforce the objectives' goal of decreasing the incidence of data matching or other errors in which information about one consumer is mistakenly linked to another consumer's file maintained by the CRAs. Consumer and public interest organizations advocated that the definition of “accuracy” include the concepts of “completeness” and “integrity.” These commenters noted that the direct dispute rules only require furnishers to investigate disputes regarding the accuracy—and not the integrity—of furnished information. Therefore, excluding the concepts of “completeness” and “integrity” from the term “accuracy” would preclude consumers from directly disputing issues with a furnisher for lack of completeness and integrity. The Agencies believe that defining “accuracy” without incorporating concepts of “completeness” and “integrity” best comports with the text and structure of section 312 of the FACT Act and the FCRA. 12 The text of section 312 uses the terms “accuracy and integrity” as separate and distinct concepts. A similar observation applies with respect to the use of the term “completeness” in other provisions of the FCRA. The legislative history does not compel a different conclusion. Earlier versions of the legislation that became the FACT Act required the Agencies to prescribe regulations and guidelines regarding the “accuracy and completeness” of information relating to consumers. That language was also contained in the bill passed by the Senate and referred to the Conference Committee. However, the bill reported by the Conference Committee and enacted into law replaced the term “completeness” with “integrity.” 13 12 See 72 FR 70949-50. 13 Compare 149 Cong. Rec. S13990 (Nov. 5, 2003) (bill as passed by the Senate) with 149 Cong. Rec. H12198 (Nov. 21, 2003) (bill as reported by the Conference Committee). Two industry commenters stated that the final rules should not define “accuracy” at all. One of these commenters noted that neither the FCRA nor the FACT Act defines “accuracy,” and that Congress did not direct the Agencies to do so. This commenter recommended that, instead of defining those terms in this rulemaking action, the Agencies advise furnishers to look to case law for guidance on the meaning of the term “accuracy.” The Agencies believe that a definition of “accuracy” is important to achieve the purposes of this rulemaking. As a threshold matter, no express statutory direction is needed to allow the Agencies to define terms important to the implementation of section 312 of the FACT Act. Moreover, defining the term “accuracy” will assist furnishers in establishing the required reasonable policies and procedures while reducing uncertainty about their appropriate scope and content. In addition, the definition provides clear direction to consumers and furnishers regarding which issues can be disputed directly with a furnisher under § _.43 of the final rules. For these reasons the Agencies believe, and many commenters agreed, that the term “accuracy” should be defined for the purposes of the rules and guidelines implementing section 312 of the FACT Act. Using this definition in § _.43 of the rules, however, does not cause it to apply for purposes of any other provision of the FCRA or other provisions of the Agencies' rules. Consumer organizations and industry commenters raised other issues with the definition of “accuracy.” For example, one industry commenter expressed concern that the scope of the proposed definition of “accuracy” was too broad, and suggested that the Agencies limit the application of this definition to credit reports (and similar reports of financial transactions) so that it would not apply to descriptions of the characteristics of individuals or their employment histories. Neither the statutory language of section 312 of the FACT Act nor its legislative history supports limiting the scope of “accuracy” to credit reports (and similar reports of financial transactions) so that the definition would not apply to the descriptions of characteristics of individuals or their employment histories. However, to address the commenter's concern that the proposed definition of “accuracy” was too broad and difficult to apply to an “investigative consumer report,” 14 the Agencies in § _.41(c)(4) have excluded from the definition of “furnisher” certain individuals ( e.g., a neighbor, friend, or associate who may have knowledge about the consumer) who may provide information to a CRA in this context. The Agencies also note that, under § _.43(b)(1)(ii), the direct dispute rules do not apply to a furnisher if the dispute relates to the identity of past or present employers. 14 Section 603(e) (codified at 15 U.S.C. 1681a(e)) defines an “investigative consumer report” to mean a consumer report or portion thereof in which information on a consumer's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom the consumer is acquainted or who may have knowledge concerning any such items of information. However, this information does not include information on a consumer's credit record obtained directly from a consumer's creditor or from a CRA that obtained the information directly from a consumer's creditor or the consumer. In both proposed approaches, the Agencies included a guideline providing that furnishers should update information provided to CRAs as necessary to reflect the current status of the consumer's account or other relationship. In connection with the proposed definition of “accuracy,” the Agencies asked for comment on whether the definition of “accuracy” should specifically provide that, in order to be “accurate,” furnished information must be updated as necessary to ensure that it is current. Most industry commenters opposed including any updating standards in the definition of “accuracy.” They generally stated that if the final rules require updating, they should specify that updating should be consistent with standard business practices: That is, a furnisher should only be required to update information with its regular submission of data to a CRA. Several industry commenters expressed concern that the updating standard described in the Agencies' request for comment could be read to include a requirement to provide daily updates. These commenters stated that it would be impossible for some furnishers to do this and unnecessarily costly and burdensome for others. One industry commenter suggested that furnishers should be expected to “periodically update” the information, rather than to update information as necessary to ensure that the information is current. Three commenters stated that the definition of “accuracy” should not include an updating requirement at all because it is implicit in the concept of “accuracy.” Two of these commenters noted that an updating requirement already is encompassed within the FCRA and elsewhere in the guidelines. Consumer organizations stated that the definition of “accuracy” should require that information is updated so that it is, and remains, current. The Agencies recognize that the nature, size, complexity, and scope of a furnisher's activities affect the type of information it voluntarily provides to a CRA, as well as the frequency with which it updates the information. Given the voluntary nature of the reporting system, the diversity of furnishers, the differences in the types of information furnishers report to CRAs, and the disparities in the frequencies with which furnishers voluntarily update information, the Agencies believe it is more appropriate to follow a less prescriptive approach and address issues related to updating in the guidelines, rather than in the text of the regulations as an element of “accuracy.” At the same time, the Agencies believe that the overall accuracy of information is improved when, for information that a furnisher elects to provide to a CRA, it is updated to reflect the current status of an account or relationship. Therefore, section I.(b)(4) of the final guidelines states that a furnisher's policies and procedures “should be reasonably designed * * * to update the information it furnishes as necessary to reflect the current status of the consumer's account or other relationship, including * * * any transfer of an account * * * and * * * any cure of the consumer's failure to abide by the terms of the account or other relationship.” Integrity The proposed Regulatory Definition Approach provided that information furnished to a CRA may be technically “accurate” yet lack “integrity” because it presents a misleading picture of the consumer's creditworthiness by omitting critical information, such as a credit limit on a revolving credit account. The proposed Regulatory Definition Approach defined the term “integrity” to mean that any information that a furnisher provides to a CRA about an account or other relationship with the consumer does not omit any term, such as a credit limit or opening date, of that account or other relationship, the absence of which can reasonably be expected to contribute to an incorrect evaluation by a user of a consumer report about a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Under the proposed Guidelines Definition Approach, the definition of “integrity” did not address the omission of any term the absence of which could contribute to an incorrect evaluation of a consumer's creditworthiness by a user of a credit report. Instead, the proposed definition of “integrity” addressed two specific issues pertaining to furnished information. The proposed Guidelines Definition Approach defined “integrity” to mean that any information that a furnisher provides to a CRA about an account or other relationship with the consumer: (1) Is reported in a form and manner that is designed to minimize the likelihood that the information, although accurate, may be erroneously reflected in a consumer report (form and manner provision); and (2) should be substantiated by the furnisher's own records (substantiation provision). The form and manner provision included the following three examples of methods furnishers could use to comply with that provision: Reporting the furnished information with appropriate identifying information about the consumer; reporting the information in a “standardized and clearly understandable form and manner;” and including in the information a date specifying the time period to which it pertained. Thus, in addition to being placed in a different location, the guidelines definition was substantively different from that proposed in the Regulatory Definition Approach. The final rules place the definition of “integrity” in the text of the regulations, at § _.41(e), and define “integrity” to mean that information that a furnisher provides to a CRA about an account or other relationship with the consumer: • Is substantiated by the furnisher's records at the time it is furnished; • Is furnished in a form and manner that is designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; and • Includes the information in the furnisher's possession about the account or other relationship that the relevant Agency has: —Determined that the absence of which would likely be materially misleading in evaluating a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living; and —Listed in section I.(b)(2)(iii) of the guidelines. Section I.(b)(2)(iii) provides one item on this list: The credit limit, if applicable and in the furnisher's possession. Most industry commenters recommended that the Agencies adopt the definition of “integrity” in the Guidelines Definition Approach. Many of these commenters objected to the content of the definition proposed in the Regulatory Definition Approach. They said that the definition would create substantial uncertainty about what information must be furnished because furnishers may not know or be able to ascertain how other entities use credit report data. Some of these commenters said that the Regulatory Definition Approach, in effect, would impose on furnishers a burdensome “full-file” reporting requirement in order to satisfy the integrity standard. These commenters indicated that, because users of consumer reports are diverse and may evaluate consumer reports differently, defining the parameters of the information that must be furnished by reference to how third-party users of a consumer report might evaluate a consumer's creditworthiness is an unworkable, unclear, and burdensome standard that would discourage voluntary reporting under the FCRA. These commenters noted, among other things, that most credit scoring models are confidential, and that the wide variety of users of consumer reports exacerbates the difficulty of knowing what information users will consider material. One industry commenter suggested that if the Agencies choose to adopt the Regulatory Definition Approach, they should itemize the specific credit terms they believe must be reported to achieve “integrity.” Several industry commenters also asserted that the Regulatory Definition Approach conflicted with the legislative history of section 312 of the FACT Act because it equated “integrity” with “completeness.” Consumer organizations generally supported the proposed Regulatory Definition Approach. As a general matter, consumer organizations believed that this approach essentially equated “integrity” with “completeness” and would enhance the requirements applicable to furnishers, the effectiveness of the credit reporting system, and assessments of consumers' creditworthiness. 15 15 As discussed above, however, some of these commenters stated that the concept of “integrity” should be included in the definition of “accuracy.” Substantively, the final rules incorporate, in revised form, the elements of the definition of “integrity” that were included in both the proposed Regulatory Definition Approach and Guidelines Definition Approach. First, the definition of “integrity” in the final rules includes a substantiation provision. Some commenters requested that the regulations include a substantiation requirement, and the Agencies agree that the “integrity” of furnished information depends, in part, on its consistency with the furnisher's own records. A timing component has been added to the provision in the final rules requiring furnished information to be substantiated by the furnisher's records at the time it is furnished so that the information provided to a CRA reflects, and is supported by, the furnisher's records at that time. Second, the Agencies are adopting the form and manner provision as part of the definition of “integrity” to address omissions and data transmission and similar errors that may lead to information being incorrectly reflected on a credit report. This provision contemplates, for example, that information will be furnished in a form and manner that would permit a CRA to accept data regarding a consumer and link it appropriately to the consumer. Two industry commenters expressed concern about the phrase “standardized and clearly understandable form,” as used in the examples provided in connection with the guidelines' definition. These commenters stated that the Agencies should recognize that not every furnisher provides information in the same manner or format. One of these commenters suggested the phrase instead be revised to encourage furnishers to achieve standardization to the extent reasonably possible. The Agencies have not included the phrase “standardized and clearly understandable form” in the definition of “integrity” but have included it in the objectives at section I.(b)(2)(ii)(B) of the guidelines. Finally, the Agencies have modified the definition of “integrity” that was proposed under the Regulatory Definition Approach while retaining the key concept that the omission of certain information affects the integrity of that information. In light of the range and diversity of users of consumer reports, the information that such users may find relevant and material, and the use of various proprietary credit scoring models and underwriting methodologies, it could be difficult or impossible for furnishers to predict what information third parties would find relevant or material to make credit or other determinations based on consumer reports. Given these impediments, the Agencies conclude that the proposed regulatory definition of “integrity” would have created an unworkable standard because furnishers cannot be expected to identify all types of information that, if omitted, could reasonably be expected to contribute to an incorrect evaluation of a consumer's creditworthiness by a user of a consumer report. Accordingly, the Agencies have determined to retain the “material omission” concept that informed the Regulatory Definition Approach in a manner that does not place the burden of making that determination on furnishers. Under the final rules, in order to satisfy the definition of “integrity,” furnished information must include items in the furnisher's possession about the account or other relationship only if the relevant Agency has determined that its absence would likely be materially misleading in evaluating a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living; and has listed that item of information in the Agency's guidelines. Thus, each Agency, in consultation and coordination with the other Agencies, will determine, and list in its guidelines, the types of information in a furnisher's possession about a consumer's account or other relationship that the furnisher will be expected to provide to promote the integrity of the information. This list will be based on the Agency's determination that the absence of the information would likely be materially misleading in evaluating a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Consistent with this approach, the Agencies have listed in the guidelines the consumer's credit limit, if applicable and in the furnisher's possession. A consumer's credit limit was one of the items used in the proposed regulatory text to illustrate the type of information covered by the standard contained in the definition of “integrity” as proposed. As the Agencies noted in the NPRM, one key factor for evaluating the creditworthiness of an individual is credit utilization. If a creditor fails to furnish a credit limit for an account, credit evaluators must either ignore credit utilization data in the evaluation model or use a substitute measure for the credit limit, such as the highest balance (the largest amount ever owed on the account). Substituting the highest balance level for the credit limit generally results in a higher estimate of credit utilization because the highest-balance amount is typically lower than the credit limit. A higher credit utilization estimate generally leads, in turn, to a higher perceived level of credit risk for some consumers. 16 16 See Robert B. Avery, Paul S. Calem, Glenn B. Canner, Credit Report Accuracy and Access to Credit; Federal Reserve Bulletin, Summer 2004, p. 306. Therefore, the revised “integrity” provision requires that furnishers provide a credit limit to a CRA, if applicable and in the furnisher's possession, in order for the furnished information to have “integrity.” The qualifying phrase reflects the Agencies' recognition that some credit products may not have a credit limit, in which case it is appropriate for the furnisher not to provide credit limit information because a credit limit would not be “applicable.” However, if the furnisher subsequently establishes a credit limit for the consumer's account or other relationship, then the furnisher is expected to provide the information with its next regular data transmission to a CRA. Likewise, if a furnisher changes a credit limit for the consumer's account, then the furnisher also is expected to furnish that change with its next regular data transmission to a CRA. Additionally, a furnisher may have acquired a consumer account or relationship through a sale or transfer, and the credit limit data may not have been provided to the acquiring furnisher. In those instances, a furnisher also would not be expected to provide credit limit information since it is not in its possession. Consistent with the FCRA, under which the furnishing of information about consumers is voluntary, the definition of “integrity” applies only to information that the furnisher elects to provide to a CRA. Furnishers should note that they may be subject to separate obligations to furnish all available information about an account or other relationship. 17 17 Furnishers that provide information about consumers to CRAs related to mortgage loans also may be subject to requirements imposed by Freddie Mac, Fannie Mae, and the Federal Housing Administration. See Fannie Mae Servicing Guide, Part I, section 304.09 and Part VII, section 107, Freddie Mac Service Guide, section 55.4: Reports to credit repositories; and the Federal Housing Administration Servicing Handbook, section 4330.1(c) (Rev-5) (incorporating by reference the Fannie Mae Servicing Guide). Further, the Department of Housing and Urban Development has defined “Mortgages contrary to good lending practices” to include a mortgage or a group or category of mortgages entered into by a lender and purchased by Fannie Mae or Freddie Mac where it can be shown that a lender engaged in a practice of failing to report monthly on borrowers' repayment history to credit repositories on the status of each loan purchased by Fannie Mae or Freddie Mac that a lender is servicing. 24 CFR 81.2(b). The proposed definition of “integrity” that was included in the Regulatory Definition Approach also included the opening date of an account or other relationship as an example of a type of data that, if omitted, reasonably could be expected to contribute to an incorrect evaluation by a user of a consumer report of a consumer's creditworthiness. The Agencies do not have sufficient information to determine whether, and under what circumstances, the omission of an account opening date undermines the “integrity” of furnished information. Therefore, the Agencies have not incorporated any reference to account opening dates into the definition of “integrity” in the final rules and have not listed it in section I.(b)(2)(iii) of the guidelines. However, the Agencies are publishing an advance notice of proposed rulemaking in this same issue of the Federal Register for the purpose of obtaining information that would assist the Agencies in determining whether, and under what circumstances, it would be appropriate to propose any additions to the guidelines, including whether and under what circumstances the Agencies should include an account opening date as an item furnishers would be expected to provide to a CRA to promote the integrity of the information. Direct Dispute Proposed § _.41(e) defined “direct dispute” to mean a dispute submitted directly to a furnisher by a consumer concerning the accuracy of any information contained in a consumer report relating to the consumer. The Agencies have revised the definition of “direct dispute” to mean a dispute submitted directly to a furnisher (including a furnisher that is a debt collector) by a consumer concerning the accuracy of any information contained in a consumer report and pertaining to an account or other relationship that the furnisher has or had with the consumer. The definition in the final rules includes a parenthetical clause that clarifies that a “furnisher” also includes a debt collector that provides information to a CRA. This clarifying language has been added in response to a number of commenters that stated information furnished by a collection agency, which may be collecting a debt on behalf of another furnisher, should be covered by the direct dispute regulation. Section 623(a)(8)(A) of the FCRA requires the Agencies to jointly prescribe regulations that identify the circumstances under which a furnisher shall be required to investigate a direct dispute. This is accomplished in part through the definition of “direct dispute.” Under the final rules, a direct dispute includes only a dispute concerning the accuracy of information contained in a consumer report that pertains to an account or other relationship that the furnisher has or had with the consumer. This revision addresses comments made by several industry commenters that expressed concern that the scope of the proposed direct dispute definition was too broad. They suggested limiting the definition of “direct dispute” to include only those disputes about information in a consumer report that relate to information provided by the furnisher, rather than disputes about any information contained in the report. 18 18 While the final definition of direct dispute pertains to information about an account or other relationship that the furnisher has or had with the consumer rather than whether the furnisher provided the information, in response to these comments, the Agencies also have added an exception to the circumstances under which a furnisher must investigate a direct dispute. Section _.43(b)(1)(vi) of the final rule states that the investigation requirements do not apply to a furnisher if the dispute relates to information provided to a CRA by another furnisher. The Agencies note that the phrase “consumer report,” as used in the definition of “direct dispute,” includes a “file disclosure” from a CRA to a consumer. 19 19 Under section 609(a) of the FCRA, CRAs are required to provide certain information to consumers upon request. CRAs generally provide such disclosures in a different format than a consumer report they provide to a third party, and refer to them as “file disclosures,” rather than consumer reports. Furnisher Proposed § _.41(c) defined the term “furnisher” to mean an entity other than an individual consumer that furnishes information relating to consumers to one or more CRAs. The proposed definition of “furnisher” excluded entities that provide information to a CRA solely to obtain a consumer report under sections 604(a) and (f) of the FCRA, which, respectively, enumerate the circumstances under which a CRA may provide a consumer report and prohibit persons from obtaining or using consumer reports for impermissible purposes. The final regulations at § _.41(c) define “furnisher” to mean an entity that furnishes information relating to consumers to one or more CRAs for inclusion in a consumer report. The definition also provides that an entity is not a furnisher when it: • Provides information to a CRA solely to obtain a consumer report in accordance with sections 604(a) and (f) of the FCRA; • Is acting as a CRA as defined in section 603(f) of the FCRA; • Is a consumer to whom the furnished information pertains; or • Is a neighbor, friend, or associate of the consumer, or another individual with whom the consumer is acquainted or who may have knowledge about the consumer, and who provides information about the consumer's character, general reputation, personal characteristics, or mode of living in response to a specific request from a CRA. The final rules continue to exclude from the definition of “furnisher” entities that provide information to a CRA solely to obtain a consumer report in accordance with sections 604(a) and (f) of the FCRA. As discussed in the NPRM, users of consumer reports may provide information about consumers to CRAs to obtain such reports, but not for the purpose of having that information included in consumer reports. For this reason, although the user's request for the report may be reflected in the consumer report as an inquiry, furnishing information related to such an inquiry is not subject to the final regulations and guidelines. The final rules revise the wording of the definition to make clear that an entity is a “furnisher” only when it furnishes information for purposes of inclusion in a consumer report. The final rules are intended to avoid discouraging entities that use consumer reports from obtaining or using consumer reports for permissible purposes. The Agencies also have added three other exclusions from the definition of “furnisher” in response to comments indicating that the proposed definition was too broad. For example, one industry commenter urged the Agencies to exempt resellers of consumer report information because those entities already are subject to dispute requirements under section 611(f) of the FCRA. The final rules include an exemption for entities acting in the capacity of a “consumer reporting agency” as defined in section 603(f) of the FCRA. This exemption covers “resellers” acting in that capacity because, under section 603(u) of the FCRA, resellers are a type of CRA. In addition, the Agencies note that increasing numbers of consumers are self-reporting certain types of information, such as rent or utility payments, to alternative consumer reporting agencies. To address this development and encourage consumers to provide information to CRAs, the final rules explicitly exempt from the “furnisher” definition in § _.41(c)(3) a consumer who provides to a CRA information pertaining to himself or herself. Finally, the Agencies have added an exception that excludes from the definition of “furnisher” a neighbor, friend, or associate of a consumer, or another individual with whom the consumer is acquainted or who may have knowledge about the consumer, and who provides information about the consumer's character, general reputation, personal characteristics, or mode of living in response to a specific request from a CRA (excepted persons). This new exception parallels the types of information that are collected in connection with an “investigative consumer report” as described in section 603(e) of the FCRA. The Agencies believe that this exception is necessary to avoid disrupting the information collection processes that have been established for creating investigative consumer reports. These excepted persons play a crucial role by providing information used in connection with matters such as insurance applications and employment-related background checks. Identity Theft The Agencies proposed to define “identity theft” as having the same meaning as in the FTC's regulations at 16 CFR 603.2(a). Section 603.2(a), which was adopted pursuant to section 111 of the FACT Act, 20 defines the term “identity theft” to mean “a fraud committed or attempted using the identifying information of another person without authority.” 21 This definition also is used in the interagency regulations implementing section 114 of the FACT Act, relating to identity theft prevention, detection, and mitigation programs. The Agencies received no comments on the definition of “identity theft” and adopt the definition without change in the final rules. 20 Section 111 of the FACT Act provides for a definition of the term “identity theft,” and authorizes the FTC to refine that definition. See section 603(q)(3) of the FCRA; 15 U.S.C. 1681a(q)(3). 21 See 16 CFR 603.2(b) for the FTC's definition of “identifying information.” The FTC's definition of “identifying information” includes any name or number that may be used, alone or in conjunction with any other information, to identify a specific person, including any: Name, social security number, date of birth, official State or government issued driver's license or identification number, alien registration number, government passport number, employer or taxpayer identification number; unique biometric data, such as fingerprint, voice print, retina or iris image, or other unique physical representation; unique electronic identification number, address, or routing code; or telecommunication identifying information or access device (as defined in 18 U.S.C. 1029(e)). Section _.42 Reasonable policies and procedures concerning the accuracy and integrity of furnished information Policies and Procedures Proposed § _.42(a) stated that each furnisher must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information about consumers that it furnishes to a CRA. The proposal provided that the policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher's activities. The final rules retain this provision without change. Most industry commenters supported the Agencies' proposal to permit each furnisher the flexibility to adopt policies and procedures suited to their individual circumstances, but several industry commenters opposed the requirement that furnishers establish “written” policies and procedures. One industry commenter stated that not all community banks have written policies and procedures for reporting customer data. Three industry commenters suggested that some furnishers should be allowed to meet the “writing” requirement by simply acknowledging, where applicable, that the furnisher is reporting data in the Metro 2 format, the consumer data reporting industry's standard electronic format for submitting information to CRAs. One industry commenter stated that requiring written policies and procedures was reasonable and would not be unduly burdensome. Consumer organizations strongly supported the proposed requirement that policies and procedures be “written.” The final rules retain the requirement that furnishers' policies and procedures be written because the Agencies have concluded that it is necessary both to ensure effective implementation of the final rules and to enable the Agencies to assess furnishers' compliance with the rules. The Agencies do not expect that the requirement for written policies and procedures will be unduly burdensome, especially since, under the guidelines, a furnisher may incorporate any of its existing policies and procedures that are relevant and appropriate. In response to commenters' suggestions that a particular approach to the policies and procedures be deemed sufficient, the Agencies note that whether any particular set of policies and procedures are adequate to satisfy the rule, including the extent to which any particular guideline should be reflected in such policies and procedures, depends upon the nature, size, complexity, and scope of the furnisher's activities. Guidelines Proposed § _.42(b) stated that each furnisher must consider the accuracy and integrity guidelines in developing its policies and procedures and incorporate those guidelines that are appropriate. Section ._42(b) is adopted without change in the final rules. The Agencies note that furnishers should consider the guidelines in the context of the nature, size, complexity, and scope of their activities and incorporate the guidelines that are appropriate to promote the accuracy and integrity of the information about consumers that they provide to CRAs. A number of consumer organizations stated that furnishers should be required to implement all of the guidelines. As discussed in the NPRM, the Agencies recognize that there is substantial diversity among furnishers with respect to their structure, operations, and the types of business they conduct. The Agencies believe that a “one-size-fits-all” approach that requires all furnishers to implement all of the guidelines would not appropriately reflect these differences. For that reason, the final rules include, at § _.42(a), a requirement that a furnisher's policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher's activities, which permits furnishers to tailor their policies and procedures to their business activities. The Agencies expect, for example, that the written policies and procedures for a small retail entity will differ substantially from, and be significantly less complex than, those of a multi-billion dollar financial services company. Reviewing and Updating Policies and Procedures Proposed § _.42(c) stated that each furnisher must review its policies and procedures periodically and update them as necessary to ensure their continued effectiveness. Section _.42(c) is adopted without change in the final rules. Industry commenters expressed concern with the potential burden that could be imposed by the requirement to review policies and procedures periodically. One industry commenter recommended that annual reviews of policies and procedures be described as a best practice, rather than a requirement in the regulation. On the other hand, consumer organizations stated that the regulations should require all furnishers regularly to review and update their policies and procedures. These commenters added that the Agencies should require large furnishers to conduct annual audits, furnish information in the standard reporting format, and update their technology on a regular basis. The Agencies have concluded that the requirement for a furnisher to review policies and procedures periodically and to update them as necessary is essential to ensure their continued effectiveness. Section _.42(c) does not impose an audit requirement on a furnisher to conduct an official examination and verification of consumer accounts and records regarding its policies and procedures. However, the Agencies do expect a furnisher to be able to demonstrate to its regulator that it has established and implemented policies and procedures consistent with the final rules. The Agencies also expect that a furnisher would engage in a periodic review of its policies and procedures when there is a significant substantive change in its business plan or furnishing activities, or when it has identified significant deficiencies in the accuracy or integrity of the information it has provided to CRAs. A furnisher also may choose to review its policies and procedures periodically when it engages in a general review of FCRA compliance or general compliance with consumer protection laws and regulations. B. Accuracy and Integrity Guidelines The proposed accuracy and integrity guidelines appeared in the appendix to the appropriate part of each Agency's proposed regulations. In the introductory language to the proposed guidelines, the Agencies encouraged voluntary furnishing of information about consumers to CRAs, reflecting the recognition that the voluntary system of consumer reporting produces substantial benefits for consumers, users of consumer reports, and the economy as a whole. The introduction also reminded furnishers that § _.42 of the proposed regulations would require each furnisher (1) to establish and implement reasonable written policies and procedures concerning the accuracy and integrity of the information about consumers that it furnishes to CRAs and (2) to consider the guidelines in developing those policies and procedures. The introduction to the guidelines is adopted in the final rules substantially as proposed, with the addition of a sentence that reminds furnishers that § _.42 also requires each furnisher to review its policies and procedures periodically and update them as necessary to ensure their continued effectiveness. Several industry commenters objected to the use of the term “ensure” in the guidelines. These commenters asserted that, instead of expecting furnishers to “ensure” that reporting is free from errors or other defects, it would be more appropriate for the Agencies to promulgate regulations that require furnishers to have policies and procedures reasonably designed to maximize the accuracy of information furnished. The commenters argued that it would be sufficient that a furnisher's policies and procedures be reasonably designed to accomplish the objectives listed. In response to these comments, the Agencies have removed the “ensuring” language and substituted language indicating that furnishers should reasonably design their policies and procedures to achieve specified objectives. Section I—Nature, Scope, and Objectives of Policies and Procedures Nature and Scope The proposed Nature and Scope section noted that § _.42(a) of the proposed rule requires that a furnisher's policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher's activities. In the final guidelines, this provision is retained without change. Additionally, the proposed nature and scope section provided three examples of what a furnisher's policies and procedures should reflect: The types of business activities in which the furnisher engages; the nature and frequency of the information the furnisher provides to CRAs; and the technology used by the furnisher to furnish information to CRAs. This language has been revised in the final guidelines to make clear that while the examples of the nature and scope provisions are not mandatory, they are factors that a furnisher should consider when developing its policies and procedures. Objectives The proposed Objectives section of the guidelines provided that a furnisher should have written policies and procedures reasonably designed to accomplish the specified objectives. The proposal set forth alternative lists of specified objectives for the Regulatory Definition Approach and the Guidelines Definition Approach, and the wording of some of the proposed objectives in the guidelines was related to the alternative approaches for construing the term “integrity” that the Agencies proposed. In connection with the proposed Regulatory Definition Approach, the first two objectives of the guidelines provided that a furnisher should have written policies and procedures reasonably designed to ensure that the information it furnishes about accounts or other relationships with a consumer accurately identifies the appropriate consumer; accurately reports the terms of those accounts or other relationships; accurately reports the consumer's performance and other conduct with respect to the account or other relationship; and is designed to ensure that the information it furnishes about accounts or other relationships with a consumer avoids misleading a consumer report user as to the consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Under the proposed Guidelines Definition Approach, definitions of “accuracy” and “integrity” were incorporated into the first two objectives. Thus, the proposed guidelines provided that a furnisher should have written policies and procedures reasonably designed to ensure that the information it furnishes about accounts or other relationships with a consumer is accurate. The guidelines defined “accuracy” to mean that any information that a furnisher provides about an account or other relationship with the consumer to a CRA reflects without error the terms of the account or other relationship and the consumer's performance and other conduct with respect to the account or other relationship. Additionally, under the proposed Guidelines Definition Approach, the guidelines provided that a furnisher's written policies and procedures should be reasonably designed to ensure that the information it furnishes about accounts or other relationships with a consumer is furnished with integrity. The guidelines defined “integrity” to mean that any information that a furnisher provides to a CRA about an account or other relationship with the consumer is: • Reported in a form and manner that is designed to minimize the likelihood that the information, although accurate, may be erroneously reflected in a consumer report, for example, by ensuring that the information is: (a) Reported with appropriate identifying information about the consumer to which it pertains; (b) reported in a standardized and clearly understandable form and manner; and (c) reported with a date specifying the time period to which the information pertains; and • Substantiated by the furnisher's own records. The third proposed objective under both approaches stated that a furnisher's policies and procedures should ensure that the furnisher conducts reasonable investigations of consumer disputes about the accuracy or integrity of information in consumer reports and takes appropriate actions based on the outcome of such investigations. The fourth proposed objective under both approaches stated that a furnisher should have written policies and procedures reasonably designed to ensure that the furnisher updates information it furnishes as necessary to reflect the current status of the consumer's account or other relationship, including: (a) Any transfer of an account ( e.g., by sale or assignment for collection) to a third party; and (b) any cure of the consumer's failure to abide by the terms of the account or other relationship. The fifth proposed objective under the Regulatory Definition Approach stated that the information a furnisher provides about accounts or other relationships with a consumer should be reported in a form and manner that is designed to minimize the likelihood that the information, although accurate, may be erroneously reflected in a consumer report, for example, by ensuring that the information is reported with appropriate identifying information about the consumer to which it pertains, in a standardized and clearly understandable form and manner, and with a date specifying the time period to which the information pertains. The sixth proposed objective under the Regulatory Definition Approach stated that the information a furnisher provides about accounts or other relationships with a consumer should be substantiated by the furnisher's own records. The fifth and sixth proposed objectives under the Regulatory Definition Approach incorporated the two-part definition of “integrity” used in the Guidelines Definition Approach. 22 22 Comments received regarding the definitions of “accuracy” and “integrity” and their placement in either rules or guidelines and the Agencies' responses to the comments are discussed earlier in this SUPPLEMENTARY INFORMATION . The final guidelines have four objectives. The first two objectives address how information should be furnished with “accuracy” and “integrity,” terms that are defined in the regulations at §§ _.41(a) and (e), respectively, and described earlier in this Section-by-Section Analysis. The first objective states that a furnisher's policies and procedures should be reasonably designed to promote the furnishing of information about accounts or other relationships with a consumer that is accurate, such that the information: • Identifies the appropriate consumer; • Reflects the terms of and liability for those accounts or other relationships; and • Reflects the consumer's performance and other conduct with respect to the account or other relationship. This first objective is substantially similar to what the Agencies proposed, but has been revised to conform to the definition of “accuracy” that has been adopted in § _.41(a) of the regulations. The second objective has been revised to conform to the final definition of “integrity” that has been adopted in § _.41(e) of the regulations and incorporates language that was proposed in the fifth and sixth objectives of the Regulatory Definition Approach and the second objective of the Guidelines Definition Approach. The third objective provides that a furnisher's policies and procedures should be reasonably designed to promote the conduct of reasonable investigations of consumer disputes and the taking of appropriate actions based on the outcome of such investigations. This objective is similar to an objective included in both the proposed Regulatory Definition Approach and the proposed Guidelines Definition Approach. The fourth and final objective provides that a furnisher's policies and procedures should be reasonably designed to promote the updating of the information furnished as necessary to reflect the current status of the consumer's account or other relationship, including, for example: • Any transfer of an account ( e.g., by sale or assignment for collection) to a third party; and • Any cure of the consumer's failure to abide by the terms of the account or other relationship. The Agencies do not expect that furnishers should update information any more frequently than already is required by section 623(a)(2) of the FCRA. The final objective related to updating is substantively the same as what the Agencies proposed. One industry commenter expressed concern that, under the proposal, the obligations of an account seller with respect to updating account information are unclear. This commenter stated that once an account is sold, the seller has no ability to update the account to reflect its current status, beyond noting that the account has been transferred. This commenter stated that the obligation to prevent future problems with providing information to a CRA about an account that was sold must rest with the acquiring party, not the selling party. The Agencies expect furnishers to provide information to a CRA prior to the transfer of an account to a third party consistent with the furnisher's policies and procedures regarding accuracy and integrity. However, the Agencies do not expect that after transferring an account to a third party a furnisher would update the current status of the account beyond providing information to a CRA that the account has been transferred. Another industry commenter stated that the proposal could be viewed as requiring furnishers to update information regularly based on every type of event that may occur following a charge-off of an account. This commenter stated that furnishers typically cease to routinely furnish information about an account at the time of a charge-off. The commenter noted that although most furnishers will, as appropriate, update information provided to CRAs at the time a charge-off is paid in full or a settlement is reached after charge-off, many furnishers do not report interim changes based on a payment schedule agreed to as part of recovery efforts, nor do they report a revised status based on bankruptcy proceedings that take place after a charge-off. This commenter stated that the final rules should make clear that furnishers do not have a duty to report changes to account status once regular reporting ceases, provided that the data furnished was accurate at the time it was furnished. The Agencies expect that, to the extent that a consumer cures a failure to abide by the terms of the account or relationship, a furnisher should, consistent with section I.(b)(4) of the guidelines, provide an update of the cured status to a CRA. For example, if a consumer pays off the full balance owed on a charged-off account, a furnisher should provide an update to the CRA with the furnisher's next regular reporting cycle that the account has a zero balance. A furnisher would not, however, have to request that the CRA delete the information that the account was a charge-off. Proposed Section II—Accuracy and Integrity Duties of Furnishers Under the FCRA Proposed section II of the guidelines reminded furnishers of their statutory duties relating to the accuracy and integrity of the information about consumers they provide to CRAs. It stated that a furnisher's policies and procedures should address compliance with all applicable requirements imposed on the furnisher under the FCRA and listed certain of those requirements, including the duty to investigate direct disputes as required by proposed § _.43 and section 623(a)(8) of the FCRA. It also listed requirements such as the duty to provide to CRAs corrections or additional information necessary to make furnished information complete and accurate under the circumstances specified under section 623(a)(2) of the FCRA. A number of commenters objected to proposed section II of the guidelines by stating that the summarized list of FCRA requirements would have created uncertainty regarding furnishers' obligations under the FCRA. The Agencies have removed proposed section II from the final guidelines in response to these comments and have renumbered subsequent sections accordingly. Additionally, in section III.(m) of the final guidelines, the Agencies have included, as a specific component that a furnisher's policies and procedures should address, “[c]omplying with applicable requirements under the Fair Credit Reporting Act and its implementing regulations.” Section II—Establishing and Implementing Policies and Procedures The proposed guidelines identified three steps that furnishers should take when establishing and implementing accuracy and integrity policies and procedures. First, a furnisher should identify its practices or activities that can compromise the accuracy and integrity of information about consumers furnished to CRAs. A furnisher could satisfy this step by, for example: • Reviewing its existing practices and activities; • Reviewing historical records relating to accuracy or integrity or to disputes, or other information relating to the accuracy and integrity of information provided by the furnisher to CRAs and the types of errors, omissions, or other problems that may have affected the accuracy and integrity of such information about consumers; and • Obtaining feedback from CRAs, consumers, the furnisher's staff, or other appropriate parties. As outlined above, the second clause of this proposed guideline encouraged furnishers, among other things, to “review historical records relating to accuracy or integrity of disputes.” Some commenters noted that, for some accounts ( e.g., purchased accounts), such historical records may not be available. In response to these comments, the Agencies have revised the second clause to clarify that it is referring only to a furnisher's review of historical records of its own account activities. The third clause of the proposed guideline encouraged furnishers to obtain feedback from CRAs, consumers, the furnisher's staff, or other appropriate parties. A number of commenters objected to this element of the guideline on the grounds that it would cost furnishers a fee to obtain information from CRAs, and that the CRAs did not always provide information requested by furnishers. These commenters also were concerned that furnishers would be required to survey consumers to obtain the relevant feedback, which, they stated, would be another costly undertaking. With respect to this third clause, the Agencies have revised the final guidelines to encourage furnishers to consider any feedback they may receive from CRAs, consumers, or other appropriate parties. There is no requirement that furnishers affirmatively seek out such information, but the Agencies expect furnishers to review any such feedback in their possession, including reports or “score cards” that furnishers may receive from a CRA regarding dispute histories processed through communication channels such as e-OSCAR. 23 23 e-OSCAR is a Web-based system that permits furnishers and CRAs to create and respond to consumer credit history disputes and to send “out-of-cycle” credit history updates to CRAs. See http://www.e-oscar.org/about.htm (last visited March 3, 2009). The fourth clause of the final guideline does recommend, however, that furnishers take affirmative action to obtain feedback from their staff in order to identify practices or activities of the furnisher that can compromise accuracy or integrity. The final guideline also includes a fifth clause, which states that, when establishing and implementing policies and procedures, a furnisher should consider their potential impact on consumers. Consideration of these impacts should result in increasing the accuracy and integrity of consumers' information provided by furnishers to CRAs. The Agencies proposed that the second step that a furnisher should take when establishing and implementing accuracy and integrity policies and procedures is to evaluate the effectiveness of its existing policies and procedures regarding the accuracy and integrity of information about consumers furnished to CRAs and consider whether additions or modifications to the policies and procedures or the implementation of such policies and procedures are necessary. Commenters raised no issues with respect to this provision, and it is adopted without change in the final guidelines. The Agencies proposed that a furnisher's third step should be to evaluate the effectiveness of specific methods (including technological means) the furnisher uses to provide information about consumers to CRAs, and how those methods may affect accuracy and integrity, and determine whether changes to those methods should be made to enhance the accuracy and integrity of that information. Commenters raised no issues with respect to this provision, and it is adopted without change in the final guidelines. Section III—Specific Components of Policies and Procedures The proposed guidelines described specific components that should be addressed in a furnisher's policies and procedures. These components included: • Establishing and implementing a system for furnishing information about consumers to CRAs that is appropriate to the nature, size, complexity, and scope of the furnisher's business operations. • Using standard data reporting formats and standard procedures for compiling and furnishing data, where feasible, such as the electronic transmission of information about consumers to CRAs. • Ensuring that the furnisher maintains its own records for a reasonable period of time, not less than any applicable recordkeeping requirement, in order to substantiate the accuracy of any information about consumers it furnishes that may be subject to a direct dispute. • Establishing and implementing appropriate internal controls regarding the accuracy and integrity of information about consumers furnished to CRAs, such as by implementing standard procedures, verifying random samples, and conducting regular reviews of information provided to CRAs. • Training staff that participates in activities related to the furnishing of information about consumers to CRAs to implement the policies and procedures. • Providing for appropriate and effective oversight of relevant service providers whose activities may affect the accuracy and integrity of information about consumers furnished to CRAs to ensure compliance with the policies and procedures. • Furnishing information about consumers to CRAs following mergers, portfolio acquisitions or sales, or other acquisitions or transfers of accounts or other debts, in a manner that prevents re-aging 24 of information, duplicative reporting, or other problems affecting the accuracy or integrity of the information furnished. 24 Re-aging of an account occurs when an account is sold or transferred to a third party that resets the account opening date to the date the account was received by the third party. Re-aged accounts may result in adverse credit information staying on a consumer's credit report longer than what is permissible by the FCRA, which for accounts that are placed in collection or charged off is typically no more than seven years. See section 605 of the FCRA. • Attempting to obtain the information listed in §_.43(d) (direct dispute notice content requirements) from a consumer before determining that the consumer's dispute is frivolous or irrelevant. • Ensuring that deletions, updates, and corrections furnished to CRAs are reflected in business systems to avoid furnishing erroneous information. • Conducting investigations of direct disputes in a manner that promotes the efficient resolution of such disputes. • Ensuring that technological and other means of communication with CRAs are designed to prevent duplicative reporting of accounts, erroneous association of information with the wrong consumer(s), and other occurrences that may compromise the accuracy and integrity of information contained in consumer reports. • Providing CRAs with sufficient identifying information in the furnisher's possession about each consumer about whom information is furnished to enable the CRA properly to identify the consumer. • Conducting a periodic evaluation of its own practices, CRA practices of which the furnisher is aware, investigations of disputed information, corrections of inaccurate information, means of communication, and other factors that may affect the accuracy and integrity of information furnished to CRAs. Commenters raised few issues about the content of the proposed components, and most are adopted without change in the final guidelines. However, the Agencies have adopted some technical and other changes to the proposed components, as described below. 25 25 For the reasons discussed above, and in response to commenters' suggestions, the Agencies have removed the language recommending that a commenter “ensure” a particular result where it appeared in the specific components. The Agencies agree that this terminology is less appropriate for guidelines than language focused on the matters that furnishers' policies and procedures should address. Most significantly, the Agencies have removed from the final guidelines the component encouraging a furnisher to obtain the information listed in proposed § _.43(d) of the regulations (direct dispute notice content requirements) from a consumer before determining that the consumer's dispute is frivolous or irrelevant. The Agencies have determined that adoption of this component is inconsistent with section 623(a)(8) of the FCRA, which, among other things, provides that a furnisher must notify the consumer of a determination that a dispute is frivolous or irrelevant, and that a dispute would be considered frivolous or irrelevant when a consumer does not provide sufficient information to investigate the disputed information. Some commenters suggested that the proposed component relating to furnishing information after mergers and other transactions should more specifically direct furnishers to (1) instruct CRAs to delete accounts after sale or transfer to decrease the incidence of duplicate accounts and (2) follow industry standard reporting guidelines not to change account numbers, ID numbers, portfolio types, or account opening dates. Some commenters noted that the problems of duplicative reporting and re-aging of account information are common for accounts that have been sold or placed with debt collectors. Section III.(g) of the final guidelines encourages furnishers to provide information about consumers to CRAs following acquisitions or transfers of accounts or other obligations in a manner that prevents re-aging of information, duplicative reporting, or other problems similarly affecting the accuracy or integrity of the information furnished. The final rules use the broader term “obligations” rather than “debts,” as was proposed, because acquired or transferred information may relate to not only debts that arise from agreements, but also other obligations such as court-ordered judgments. The Agencies believe that it is sufficient for a furnisher to address these issues in its policies and procedures, as applicable, in a manner it determines will be effective and appropriate to the nature, size, complexity, and scope of its activities. With respect to the third proposed component, which focused on maintaining relevant records, the Agencies requested comment on whether a specific time period for recordkeeping should be incorporated in the final regulations. Most industry commenters opposed any new recordkeeping requirements. However, two industry commenters stated that they would not oppose guidelines governing the length of time furnishers should retain records in truncated formats, so long as the standard did not apply to original documents. One industry commenter requested that the Agencies clarify in the final rules that any recordkeeping requirement would not require a furnisher to maintain data other than data it would maintain in the normal course of business. This commenter stated that the final rules should require only that record retention practices be reasonable (and not require a furnisher to maintain records indefinitely). Consumer organizations supported the addition of a recordkeeping requirement. These commenters generally recommended that the Agencies require records to be kept, at a minimum, as long as information about an account or other relationship with a consumer is furnished to a CRA. These commenters stated that if furnishers fail to keep records to substantiate furnished information, they should report the results of a dispute as unverifiable and instruct the CRA to delete the information. The Agencies have addressed the recordkeeping issue by evaluating both the need for additional recordkeeping requirements and the potential adverse consequences of imposing such requirements. First, in their experience assisting consumers with disputes, the Agencies have found that the vast majority of consumer disputes involve recent transactions with furnishers and that furnishers generally have records available to perform reasonable investigations of the disputes. Because of this, the Agencies believe that any benefits from adopting the extended recordkeeping requirement proposed by consumer organizations would likely be outweighed by the significant administrative and cost burdens such a requirement would impose on furnishers. Such a recordkeeping requirement also might create an incentive for furnishers to cease reporting information to CRAs, which would adversely affect the quality of the credit reporting system. The final rules do not impose any additional recordkeeping requirements on furnishers, and the final guidelines at section III.(c) pertaining to the maintenance of records has been adopted without substantive change. As noted in the NPRM, and adopted in section III.(c) of the guidelines, a furnisher's policies and procedures should address maintaining records for a reasonable period of time, not less than any applicable recordkeeping requirements, for example, recordkeeping requirements contained in regulations implementing the Truth in Lending Act, the Equal Credit Opportunity Act, 26 or any other agency-specific requirement. 27 26 See 12 CFR 226.25(a) and 12 CFR 202.12(b). 27 See, e.g., 12 CFR 563.170(c) (savings associations must retain accurate and complete records of all business transactions) and OTS Examination Handbook § 310 (savings associations should retain original business transaction records until the savings association has two regular examinations and has resolved any supervisory matters raised in the examinations). C. Final Regulations Concerning Direct Disputes Section _.43 Direct Disputes The third component of this rulemaking comprises the Agencies' final regulations implementing section 623(a)(8) of the FCRA, which directs the Agencies jointly to prescribe regulations that identify the circumstances under which a furnisher is required to reinvestigate a dispute concerning the accuracy of information contained in a consumer report on a consumer, based on a direct request of a consumer. The statute sets forth procedural and other requirements applicable to such reinvestigation. As noted in the NPRM, a number of furnishers have indicated that they already voluntarily investigate direct disputes as a matter of good customer relations and sound business practices. The Agencies encourage all furnishers, as a best practice, to conduct voluntary investigations of consumer disputes and enhance the accuracy and integrity of the information about consumers they provide to CRAs. 28 As noted above, the accuracy and integrity guidelines adopted by the Agencies contemplate that furnishers' policies and procedures will address the reasonable investigation of all consumer disputes, whether or not legally required. The guidelines state that conducting such investigations (and taking any appropriate remedial actions) should be an objective of furnishers' accuracy and integrity policies and procedures. 28 The Agencies note that many entities, including depository institutions and their affiliates, also investigate disputes about information they furnish to CRAs that consumers raise through the consumer complaint processes established by the Agencies. See generally Board, “How do I file a Complaint?,” http://www.federalreserveconsumerhelp.gov/complaintinfo.cfm?info=1 (last visited March 3, 2009); FDIC, “How to file a Written Complaint,” http://www.fdic.gov/consumers/questions/consumer/complaint.html (last visited March 3, 2009); OTS, “How to Resolve a Consumer Complaint” (May 2008), http://www.ots.treas.gov/docs/4/480924.pdf (last visited March 3, 2009); and OCC, “Assistance for Customers of National Banks” (April 2005), http://www.occ.gov/customer.pdf (last visited March 3, 2009). Section _.43(a) General Rule The proposed general rule required a furnisher to investigate a direct dispute if it relates to: • The consumer's liability for a credit account or other debt with the furnisher, such as direct disputes relating to whether there is or has been identity theft or fraud against the consumer, whether there is individual or joint liability on an account, or whether the consumer is an authorized user of a credit account; • The terms of a credit account or other debt with the furnisher, such as direct disputes relating to the type of account, principal balance, scheduled payment amount on an account, or the amount of the reported credit limit on an open-end account; • The consumer's performance or other conduct concerning a credit account or other debt with the furnisher, such as direct disputes relating to the current payment status, high balance, date a payment was made, the amount of a payment made, or the date an account was opened or closed; or • Any other information contained in a consumer report regarding an account or other relationship with the furnisher that bears on the consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living attributed to the furnisher on the consumer report. Section _.43(a) of the final rules differs from the proposal in two respects. First, the Agencies have revised the introductory language of the provision to state that a furnisher must conduct a “reasonable investigation” of a direct dispute if it relates to one of the enumerated circumstances. The Agencies have added the term “reasonable” because it is consistent with courts' interpretation of a similar duty imposed on furnishers that receive a notice of dispute from a CRA. 29 In the Agencies' view, a furnisher's investigation resulting from a direct dispute would be required to meet the same standard of reasonableness as it would if the notice of dispute were received through a CRA. Accordingly, this revision clarifies the nature of furnishers' direct dispute reinvestigation duties, consistent with suggestions made by some commenters. 29 See Johnson v. MBNA America Bank, N.A., 357 F.3d 426 (4th Cir. 2004); Schaffhausen v. Bank of America, N.A., 393 F.Supp.2d 853 (D. Minn. 2005). Second, the final direct dispute rule clarifies, in response to commenters' suggestions, that debt collectors that are furnishers are subject to the rules. The final rules add a parenthetical clause to the definition of “direct dispute” to explicitly cover debt collectors. 30 30 An industry commenter representing debt collectors raised concerns about a potential conflict between the Fair Debt Collection Practices Act (FDCPA) and the § _.43 direct dispute rule as it applies to debt collectors. The direct dispute rule requires furnishers of information to CRAs to report the results of a direct dispute to the consumer (§ _.43(e)(3)) or notify the consumer if the furnisher determines the dispute is frivolous or irrelevant (§ _.43(f)(2)). Section 805(c) of the FDCPA provides that if a consumer has notified a debt collector in writing that “the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate with the consumer with respect to such debt” (with some exceptions not applicable to the § _.43 direct dispute rule). The concern raised by the commenter is that if a consumer has written the debt collector to cease communication, but at some future time, or at the same time, submits a direct dispute about information the debt collector has provided to a CRA, the debt collector may risk violating the FDCPA prohibition on contacting the consumer when it provides the notices required by the § _.43 direct dispute rule. The purpose of the notices required by the direct dispute rule is either to report the results of a direct dispute to the consumer or to notify the consumer if the furnisher determines the dispute is frivolous or irrelevant. Contemporaneously with the publication of this final rule, the FTC is publishing an advisory opinion stating that a notice provided to the consumer solely for the purpose of complying with the § _.43 direct dispute rule (the FTC rule is 16 CFR 660.4), without conveying any other message, does not violate section 805(c) of the FDCPA. In addition, the Agencies will enforce section 805(c) of the FDCPA consistent with such advisory opinion. The final direct dispute rules are designed to permit direct disputes in virtually all circumstances involving disputes about the accuracy of furnished information typically provided by a furnisher to a CRA. The Agencies believe that the approach adopted by the final rules enables consumers to submit a dispute directly to the furnisher (with certain exceptions) when the issue in dispute relates to information pertaining to the consumer's account or other relationship with that furnisher. A number of industry commenters supported the general approach of the direct dispute proposal. A few industry commenters suggested that the direct dispute provision should be narrower than the proposed rule, such as by limiting the direct dispute right to disputes related to identity theft. The final rules do not narrow the types of disputes that a furnisher must investigate. The Agencies have concluded that the broader approach of the proposal and final rules is more consistent with the statutory considerations that the Agencies must weigh pursuant to section 623(a)(8)(B) of the FCRA, including whether direct contact with a furnisher would likely result in the most expeditious resolution of direct disputes. The Agencies believe that the expeditious dispute resolutions likely to be afforded by a direct dispute right should not be limited to a narrow class or limited types of disputes. Also, it may be impossible for a consumer to tell whether an error is the result of identity theft or some other cause. Consumer organizations urged the Agencies to require furnishers to communicate to consumers the process for filing a direct dispute with the furnisher and to provide such information on their Web sites. The direct dispute rule-writing authority, at section 623(a)(8)(A) of the FCRA, does not include establishing a requirement for furnishers to notify consumers about the process for filing a direct dispute. However, the Agencies encourage furnishers, as a best practice, to provide consumers with appropriate information regarding the process for filing a direct dispute, for example by posting such information on their Web sites, as applicable. In addition, the Agencies note that section 609(c)(2) of the FCRA requires the FTC to promulgate, and CRAs to disseminate with their provision of file disclosures to consumers, a “General Summary of Consumer Rights.” When the FTC next updates the General Summary of Consumer Rights to reflect the additional rights provided to consumers by the FACT Act and its implementing rules, 31 it will include consumers' direct dispute rights in the summary. 31 The first update of that Summary (16 CFR 698, Appendix F) was published on November 30, 2004 (69 FR 69788-789). Section _.43(b) Exceptions The proposed exceptions related primarily to information with respect to which any consumer dispute would be more appropriately directed to the CRA, such as information derived from public records, which may be obtained directly from public sources, 32 and information about requests for consumer reports (“inquiries”). 32 The public records exception applies only to information “derived” by the CRA from public records. It would not exempt a consumer's dispute concerning the accuracy of a furnisher's reference to a particular account being included in bankruptcy, for example. A consumer report may include identifying information about a consumer ( e.g., name, address), trade line information ( e.g., name of creditor, payment history, loan amount), past and present employer information, and public record information ( e.g., information received from courts or other governmental authorities that are related to bankruptcies, judgments, or liens). Any given furnisher is the source of some, but not all, of the information included in a consumer report. The Agencies believe that a furnisher should be responsible for investigating disputes only about information regarding an account or other relationship between the furnisher and the consumer. The standard appropriately balances the benefits to consumers with the costs of furnishers as required by section 623(a)(8)(B)(i) of the FCRA. Accordingly, the proposal stated that a furnisher would have to investigate direct disputes only with respect to the types of information that it typically provides to CRAs. In most cases, the information subject to the proposed direct dispute rule would be a part of a furnisher's trade line entry or entries on a consumer report. Proposed § _.43(b)(1) excepted from the general investigation requirement any direct dispute that relates to: • The consumer's identifying information (other than a direct dispute relating to a consumer's liability for a credit account or other debt with the furnisher, as provided in § _.43(a)(1)), 33 such as name(s), date of birth, Social Security number, telephone number(s), or address(es); 33 A direct dispute that relates both to identifying information and a consumer's liability for a credit account or other debt with the furnisher, such as in cases of identity theft, must be investigated by a furnisher pursuant to § _.43(a)(1). • The identity of past or present employers; 34 34 For this category of information concerning the identity of past or present employers, the Agencies believe that direct contact by the consumer would be unlikely to result in the most expeditious resolution of an employer identity-related dispute. For example, consumer reports sometimes contain certain “employment history” information, which is typically obtained from sources other than employers (such as credit applications). In those cases, an identified employer would be unable to correct disputed information because it was provided by another source. • Inquiries or requests for a consumer report; • Information derived from public records, such as judgments, bankruptcies, liens, and other legal matters (unless provided by a furnisher having a relationship with the consumer); or • Information related to fraud alerts or active duty alerts. Commenters generally supported these exceptions and the final regulation adopts these exceptions without substantive change. In response to comments, the Agencies are including one additional exception. A number of commenters suggested that a furnisher should have to investigate only information that it provides to a CRA and not information provided by third parties that may be compiled and reported by a CRA. In this regard, the Agencies note that a furnisher would not likely have access to third party information that would be necessary to perform the investigation. Accordingly, the Agencies have added a new exception at § _.43(b)(1)(vi), which states that the general direct dispute investigation requirement does not apply to information provided to a CRA by another furnisher. Proposed § _.43(b)(2) also excepted from the investigation requirement any direct dispute if the notice of dispute is submitted by, is prepared on behalf of the consumer by, or is submitted on a form supplied to the consumer by, a credit repair organization (CRO) as defined in 15 U.S.C. 1679a(3), 35 or an entity that would be a CRO but for 15 U.S.C. 1679a(3)(B)(i), which excludes tax-exempt section 501(c)(3) organizations. This proposed exception was derived directly from an exception set forth in the statute. 36 35 Under this provision of the Credit Repair Organizations Act, the term “credit repair organization”—means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of—(i) improving any consumer's credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i). 36 See 15 U.S.C. 1681s-2(a)(8)(G). Many industry commenters noted that it is very difficult to determine with certainty whether a dispute is prepared or otherwise assisted by a CRO. These commenters also noted that the narrow scope of the proposed CRO exception would subject the furnishers to litigation risks. To remedy this problem, these commenters requested that the CRO exception be modified to apply whenever a furnisher reasonably believes the dispute has been submitted by, prepared on behalf of the consumer by, or submitted on a form supplied to the consumer by, a CRO. The Agencies agree that it would be unnecessarily restrictive to require furnishers to determine with certainty that a CRO participated in the preparation or submission of a dispute. Such a standard would not accomplish the purpose of the statutory exception. Thus, the § _.43(b)(2) CRO exception has been revised to incorporate a “reasonable belief” standard. Section _.43(c) Direct Dispute Address Section 623(a)(8)(D) of the FCRA requires a consumer to provide a direct dispute notice “at the address specified” by the furnisher. The Agencies proposed to provide guidance about how this address should be specified by furnishers and effectively communicated to consumers. Accordingly, proposed § _.43(c) stated that a furnisher must investigate a direct dispute only if a consumer submits a direct dispute notice to the furnisher at: • The address of the furnisher provided by a furnisher and set forth on a consumer report relating to the consumer ( e.g., on the consumer file disclosures CRAs are required to provide to consumers under section 609(a) of the FCRA); • An address clearly and conspicuously specified by the furnisher for submitting direct disputes that is provided in writing or electronically (if the consumer has agreed to the electronic delivery of information from the furnisher); or • Any business address of the furnisher, if the furnisher has not so specified and provided an address for submitting direct disputes. Thus, a consumer always would be able to submit a direct dispute to the appropriate address of the furnisher appearing on the consumer report. The consumer also would be able to submit a direct dispute to any other business address of the furnisher but only if the furnisher has not separately specified an address for receiving notices of direct disputes on a consumer report or by other written or electronic communication. A furnisher choosing to specify an address for direct dispute notices would have to do so in a manner that is both reasonably understandable and designed to call the consumer's attention to the fact that the address is the one to use for submitting direct disputes about the accuracy of information in a consumer report. The Agencies also noted in the proposal that a furnisher that specifies an address for this purpose will not be deemed to have specified an address for purposes of section 623(a)(1)(B) of the FCRA, relating to the general duty to provide accurate information to the CRAs. The final rules adopt the proposed direct dispute address provision at § _.43(c). Section _.43(c)(3) of the NPRM would have required a furnisher to investigate a direct dispute submitted by a consumer at any business address of the furnisher if it had not specified and provided an address pursuant to proposed §_.43(c)(2). Some commenters stated that this obligation would be burdensome and may delay efficient resolution of the consumer's dispute. In response to these comments, the final rules only require a furnisher to investigate a direct dispute submitted by a consumer to any of its business addresses if the furnisher did not either (1) provide a direct dispute address that is set forth on a consumer report relating to the consumer or (2) clearly and conspicuously specify a direct dispute address and provide it to the consumer either in writing or electronically (if the consumer has agreed to the electronic delivery of information from the furnisher). The Agencies specifically requested comment on whether there are circumstances under which it would not be appropriate for a consumer to submit a direct dispute notice to the address of the furnisher set forth on the consumer report, and on whether proposed § _.43(c)(3) should exclude certain types of business addresses, 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. Consumer organizations generally recommended that a direct dispute should be accepted at any business address of a furnisher in all circumstances. The Agencies note that the language of section 623(a)(8)(D) states that a consumer “ * * * shall provide a dispute notice directly to [a furnisher] at the address specified by the [furnisher] for such notices. * * * ” Permitting consumers to use any business address of a furnisher would not be consistent with this statutory provision. Most industry commenters stated that it would be appropriate only to receive direct disputes at the address a furnisher specifies for that purpose. Some of these commenters also stated that, at a minimum, a furnisher should not have to respond to direct disputes if the CRA supplies the wrong address on the consumer report. Industry commenters opposed the idea that direct disputes should be accepted “at any business address” of the furnisher, noting that such a requirement would be extremely difficult to implement, produce inefficient resolutions of consumer disputes, and be costly. The Agencies believe that it will benefit consumers and be operationally feasible to allow consumers to submit a direct dispute notice to the address of the furnisher specified on the consumer report (or otherwise specified by the furnisher). The Agencies understand that in a large majority of cases, the consumer report includes an address supplied by the furnisher. 37 In addition, the Agencies believe that allowing consumers to submit direct dispute notices to the address of the furnisher set forth on the consumer report will increase the likelihood that the consumers will know where to send that notice (because it will appear on the same document containing the disputed information) and will encourage consumers to obtain and review their consumer reports prior to submitting a notice to a furnisher. As the Agencies noted in the proposal, a furnisher will not be in violation of this provision for failure to investigate a dispute submitted to the address set forth on the consumer report if that address is incorrect due to an error by the CRA and does not reflect any business address of the furnisher. 37 As noted in the proposal, allowing consumers to submit direct dispute notices to the address of the furnisher set forth on the consumer report is consistent with existing Federal and some State laws because these laws already impose related obligations. Section 611(a)(6)(B)(iii) of the FCRA requires the CRA to provide, upon the consumer's request, the business name and address, and phone number if reasonably available, of any furnisher the CRA contacts in connection with information reinvestigated in response to a consumer complaint filed with the CRA. California law requires that, upon request of the consumer, the CRA must provide the consumer with the “names, addresses and, if provided by the sources of information, the telephone numbers identified for customer service for the sources of information” (emphasis added). Cal. Civil Code § 1785.10(c). It is the Agencies' understanding that CRAs commonly include the furnisher's business name, address, and telephone number on the consumer report (where the furnisher provides it) so that consumers know how to contact the furnisher about a dispute upon receipt of the consumer report without the need to request that information from the CRA. The final rules also permit a consumer to submit a direct dispute notice to any business address of the furnisher, but only if the furnisher has not specified an address for receiving notices of direct disputes on a consumer report or by other written or electronic notice to the consumer. Thus, [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3AE9-15323. Public record. Not legal advice.