Federal Trade Commission
Board of Governors of the Federal Reserve System

Report to Congress on the
Fair Credit Reporting Act Dispute Process

Submitted to the Congress pursuant to section 313(b) of the Fair and Accurate Credit Transactions Act of 2003
August 2006	Printable version (1.33 MB PDF)

Table of Contents

Executive Summary

The Federal Trade Commission ("FTC") and the Board of Governors of the Federal Reserve System ("Board") submit this report pursuant to section 313(b) of the Fair and Accurate Credit Transactions Act of 2003 ("the FACT Act"). The report discusses the steps that consumer reporting agencies ("CRAs") and furnishers of information to CRAs ("furnishers") take after receiving a consumer dispute about the accuracy or completeness of information in the consumer's file. The report first provides background information and describes the Fair Credit Reporting Act's ("FCRA's") dispute provisions. The core portion of the report, titled "The Dispute Process," addresses (1) how the consumer submits a dispute to the CRA, (2) how the CRA forwards the dispute to the furnisher, (3) how the furnisher investigates the dispute and replies to the CRA, and (4) how the CRA reviews the furnisher's response and conveys the results of the reinvestigation to the consumer. The report also discusses the dispute process when consumers submit disputes directly to furnishers. The Board issued a request for public comment, and the report summarizes commenters' overall views on the dispute process.

The report finds that, although the materials that the FTC and the Board reviewed indicated that most disputes seem to be processed within the statutory time frame, there is disagreement as to the adequacy of the CRAs' and furnishers' investigations.

The FACT Act imposes a number of new requirements to enhance the consumer dispute process. These provisions are still being implemented. As a result, this report is based solely on compliance with the pre-FACT Act FCRA dispute process and recommends no additional administrative or legislative action at this time. The FTC and the Board believe that the FACT Act requirements should be given time to take effect before legislators and regulators consider making additional changes to the dispute process. The FTC and the Board will continue to monitor the performance of the dispute process, explore possible enhancements, and make recommendations for action, if appropriate.

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I. Introduction

The Federal Trade Commission ("FTC") and the Board of Governors of the Federal Reserve System ("Board") submit this report pursuant to section 313(b) of the Fair and Accurate Credit Transactions Act of 2003 ("the FACT Act").¹ Section 313(b) of the FACT Act, enacted on December 4, 2003, mandates that the FTC and Board jointly study

[t]he extent to which, and the manner in which, consumer reporting agencies and furnishers of consumer information to consumer reporting agencies are complying with the procedures, time lines, and requirements under the Fair Credit Reporting Act for the prompt investigation of the disputed accuracy of any consumer information, the completeness of the information provided to consumer reporting agencies, and the prompt correction or deletion, in accordance with such Act, of any inaccurate or incomplete information or information that cannot be verified.

Section 313(b) also requires that the FTC and the Board submit a joint report on the results of the study. In preparing the report, the two agencies must consider information relating to complaints filed with the FTC and referred to the nationwide consumer reporting agencies under section 611(e) of the Fair Credit Reporting Act ("FCRA").² Lastly, section 313(b) requires that the report include any recommendations that the Board and the FTC jointly determine to be appropriate for legislative or administrative action.

In preparing this report, the FTC and the Board drew upon information provided by various sources. The Board issued a request for public comment on the topics required by section 313(b).³ The two agencies reviewed over 120 comment letters received from consumers,⁴ consumer advocates,⁵ creditors and their trade associations,⁶ consumer reporting agencies ("CRAs") and their trade associations,⁷ and mortgage industry trade associations.⁸ The comment letters are available on the FTC's website, at www.ftc.gov/os/statutes/fcrajump.htm. The FTC and the Board also met with consumer advocates and groups representing CRAs and furnishers. In addition, the FTC and the Board reviewed consumer complaint information maintained within their own databases and those of several other federal financial regulators.⁹ The Board reviewed information gained through examinations for FCRA compliance by several federal financial regulators. Finally, the FTC and the Board reviewed the existing literature, including studies, reports, and industry manuals, as well as research conducted by the Board's staff economists.

This report summarizes the information provided by these sources. Part II discusses the role of CRAs and furnishers in the dispute process, describes consumer reports, and explains the relevant provisions of the FCRA. Because the process by which information is furnished to CRA databases is important to understanding the dispute process, Part III of this report discusses reporting responsibilities and the systems through which furnishers report information to CRAs. Part IV discusses the various steps that consumers, CRAs, and furnishers take during the dispute process, the systems used to exchange information between CRAs and furnishers when consumers dispute information contained in their consumer files, as well as commenters' overall views on how well the dispute process is working. Part V of the report discusses FCRA enforcement by the FTC, the Board, and other federal agencies; consumer complaints reviewed by the Board and several other federal agencies; and the complaint-referral program that the FTC has entered into with CRAs in compliance with FCRA section 611(e). Finally, Part VI contains the report's conclusions.

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II. Background

A. The Actors

The FCRA dispute process involves CRAs and those who furnish information to the CRAs. The largest CRAs are three nationwide "repositories" of consumer credit information: Equifax Information Services, LLC ("Equifax"), Experian Information Solutions, Inc. ("Experian"), and TransUnion LLC ("TransUnion").¹⁰ Each repository has records on as many as 1.5 billion credit accounts held by approximately 210 million individuals.¹¹ According to the Consumer Data Industry Association (CDIA), the repositories receive approximately 4 billion updates of information each month from more than 30,000 furnishers,¹² and normally update their credit records within one to seven days of receiving new information.¹³ The repositories issue more than 1 billion consumer reports each year, the vast majority of which go to creditors, employers, and insurers.¹⁴ In 2003, the most recent year for which figures are available, the repositories issued 57.4 million consumer file disclosures, i.e., reports sent to consumers at their request.¹⁵

The term "consumer reporting agency" in the FCRA covers many entities other than the three repositories.¹⁶ For example, the repositories report that approximately twenty companies, traditionally referred to as "service bureaus" or "affiliates," have contractual relationships with one of the repositories under which the affiliate owns consumer data in certain areas of the country but stores the data on the repository's computer.¹⁷ Other entities that fall within the definition of "consumer reporting agency" include those that collect and report specialized information, such as check writing histories, rental records, employment histories, and medical information.¹⁸

Another category of CRAs, "resellers," purchase consumer information from one or more of the repositories, provide further input to the consumer report, including merging files from multiple repositories or adding information from other data sources, and then resell the report.¹⁹ While this report briefly describes the changes in reseller dispute duties under the FACT Act and includes comments from their trade representatives, the focus of the report with respect to CRAs will be on the repositories, which own and maintain the vast majority of the data held by CRAs.

Unlike "consumer reporting agency," the term "furnisher" is not defined in the FCRA. As the term is generally understood, however, furnishers are entities that provide information about their customers to CRAs, including information about customers' payments on their accounts. Examples of furnishers include banks, thrifts, credit unions, savings and loan institutions, mortgage lenders, credit card issuers, collection agencies, retail installment lenders, and auto finance lenders.²⁰ The FCRA does not require furnishers to report to CRAs, but, as discussed below, if they do report, they must comply with certain provisions of the statute. According to CDIA, the majority of furnishers report full account payment information, both "positive" information that the account is current and "negative" information, such as delinquencies and accounts placed for collection.²¹ Some types of accounts are typically reported only when the payment history turns negative, such as when the debt is transferred to a debt collector. The most common examples of these accounts are those related to medical debts, telecommunications, and power companies.²²

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B. Consumer Reports

Full consumer reports issued by the repositories, commonly referred to as "credit reports," generally contain five types of information:²³

• Identification Information: Information such as the name of the individual, current and previous residential addresses, and Social Security number.
• Trade Line Information: Detailed information reported by creditors and other furnishers on each current and past loan, lease, or other debt (such as utility and medical debts).
• Public Record Information: Information derived from financial-related public records, such as records of bankruptcies, foreclosures, tax liens, garnishments, and other civil judgments.
• Collection Account Information: Information reported by collection agencies regarding credit accounts and other debts.
• Inquiry Information: Identities of individuals or companies that have requested information from an individual's credit file; the date of inquiry; and an indication of whether the inquiry was by the consumer, for the review of an existing account, or to help the inquirer decide on a potential future account or relationship.

Although Equifax, Experian, and TransUnion are for-profit businesses that compete with one another on, among other things, the completeness of the information in their databases, many items in a consumer's files are common to all three repositories. This is due in large part to the standard formats that furnishers use to report information to the repositories.²⁴ Nonetheless, some differences remain across repositories. Some furnishers, including some smaller banks and many debt collection agencies, do not report to all three repositories.²⁵ Differences also can arise from the repositories' treatment of public record information. Because some public record information is accessible only by visiting courthouses and other government buildings in person, the repositories sometimes hire contractors to gather the information.²⁶ When repositories use different contractors, the contractors sometimes report the same public record information differently, causing additional variations among repository databases.²⁷ Yet another reason that repositories' databases differ is that the repositories often receive and process information from furnishers at different times during the same reporting cycle.²⁸

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C. FCRA Dispute Duties

The FCRA imposes dispute duties on both CRAs and furnishers. If a consumer disputes the completeness or accuracy of an item contained in his or her file directly with the CRA,

• the CRA must complete a reinvestigation within thirty days after receiving the notice of dispute from the consumer;²⁹
• in conducting the reinvestigation, the CRA must review and consider all relevant information submitted by the consumer; and³⁰
• within five business days of receiving the dispute, the CRA must notify the furnisher of the dispute, and include all relevant information that the CRA received from the consumer.³¹

After receiving a dispute from a CRA, a furnisher must take the following steps:³²

• conduct an investigation with respect to the disputed information;
• review all relevant information provided by the CRA;
• report the results of the investigation to the CRA;
• if the investigation finds that the information is incomplete or inaccurate, report those results to all nationwide CRAs to which the furnisher reported the information; and
• complete the investigation before the end of the thirty-day period that the CRA has to complete its reinvestigation.

If the CRA finds during the reinvestigation that a disputed item is inaccurate, incomplete, or cannot be verified, the CRA must delete or modify the item.³³ No later than five business days after the completion of a reinvestigation, a CRA must provide written notice to the consumer of the results of the reinvestigation.³⁴ The notice must include

• a statement that the reinvestigation is completed;
• a consumer report based on the consumer's file (if the file has been revised as a result of the reinvestigation);
• a notice that the CRA will provide a description of the procedure used to determine the accuracy and completeness of the disputed item to the consumer at the consumer's request;
• a notice that the consumer has the right to add a statement to his or her file disputing the accuracy or completeness of the information; and
• a notice that the consumer has the right to request that the CRA furnish notification that the item had been deleted, or the consumer's statement of dispute, to certain persons designated by the consumer who had previously received a consumer report that contained the deleted or disputed information.

The FACT Act amended the FCRA in a number of ways that affect the consumer dispute resolution process.³⁵ One of the changes requires the FTC, the Board, and other federal agencies to promulgate guidelines and regulations requiring creditors to establish reasonable procedures regarding the accuracy of the data they report to CRAs.³⁶ A second change also requires joint regulations identifying the circumstances under which furnishers, for the first time, must investigate certain disputes received directly from consumers.³⁷ A third FACT Act change requires that, in disputes received from a CRA, if information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after the furnisher completes the investigation, the furnisher must promptly delete, modify, or permanently block the reporting of that information, as appropriate based on the results of the investigation.³⁸ The FACT Act amendments also require financial institutions that furnish information to nationwide CRAs to notify consumers in writing if they furnish, or may furnish, negative information about the consumers to a CRA.³⁹ Because these and other provisions of the FACT Act have not become effective or have only recently become effective, this report focuses on the dispute process as it existed under the FCRA prior to the FACT Act amendments.

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III. The Reporting Process

This section provides an overview of the process through which furnishers report information to the CRAs. According to CDIA, more than 30,000 furnishers provide approximately 4 billion updates of information to the repositories each month.⁴⁰ In general, financial services providers such as banks, credit unions, and consumer finance companies provide the majority of positive and negative account information in CRA files.⁴¹

A. Reporting Requirements

The FCRA does not require furnishers to report to CRAs. Some entities that choose to furnish, however, are required by the FCRA to report certain information. For example, a furnisher must notify a CRA if the consumer voluntarily closes a credit account that the furnisher has been reporting to that CRA.⁴² The FCRA also requires a furnisher that provides information to a CRA regarding a delinquent account being placed for collection, charged off, or subjected to similar action, to notify the CRA of the month and year that the delinquency began.⁴³

Some entities are required to furnish certain information due to contractual or other requirements. For example, the Mortgage Bankers Association (MBA) stated that "[m]ost mortgage companies … are required by investors and government entities, such as Fannie Mae, Freddie Mac, and [the U.S. Department of Housing and Urban Development], to report 'full file' credit information," including both positive and negative information and the exact status of each mortgage serviced as of the last business day of each month, to each of the repositories.⁴⁴

Nevertheless, because the FCRA generally does not require reporting, some furnishers choose not to report at all, to report only negative information, or to omit a key element of data such as a credit limit.⁴⁵ Others report data on some of their credit products and not others.⁴⁶ Commenters proffered a variety of reasons why some furnishers choose not to report or to report only certain kinds of information. CDIA reported that "[s]ome lenders omit the reporting of very elite customers out of concern that other lenders will attempt to compete for this market of consumers."⁴⁷ Other lenders choose not to report their subprime portfolios for the same reason.⁴⁸ Some regulated entities, such as telephone companies, are limited by regulations as to the types of information they may report to CRAs.⁴⁹ Some of these companies, for example, are permitted to report only information about accounts that are in past due or charged-off status.⁵⁰ Some entities choose not to report to all the repositories in light of the potential liability imposed on furnishers by the FCRA dispute provisions as well as the costs involved in furnishing.⁵¹ These costs may include those associated with reporting, handling investigation requests, establishing policies and procedures to ensure compliance with the FCRA, and performing audits of reporting systems and information reported.⁵²

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B. Reporting Formats

Most furnishers use one of two standard formats to report credit information to the repositories. In the mid-1970's, the credit reporting industry developed the Metro format, which was designed to ensure greater precision in the data reported to the CRAs.⁵³ In 1997, CDIA introduced the Metro 2 format.⁵⁴ Metro and Metro 2 each provide a standard format, including standard codes, that can be used for virtually any consumer credit transaction. According to CDIA, Metro 2 is "an updated and more robust version of Metro, and provides for complete and accurate reporting."⁵⁵ For example, unlike the Metro format, Metro 2 allows a furnisher to report complete identification information for each consumer, including co-debtors and co-signers, which makes it more likely that CRAs will match the reported item to the correct consumer's file.⁵⁶ The repositories currently receive over 99% of all data from furnishers in either the Metro or Metro 2 format.⁵⁷ Approximately 31% of these furnishers--representing approximately 50% of all data furnished to the repositories--now report through Metro 2.⁵⁸ The repositories hope to convert the rest of the furnishers to Metro 2.⁵⁹

Repositories also obtain information from courts, city halls, tax offices, and motor vehicles departments.⁶⁰ For those public record sources that are not yet available electronically, the repositories often hire contractors to manually collect the information. This information is then added to the repositories' databases for inclusion in future consumer reports.⁶¹

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IV. The Dispute Process

In the consumer dispute process, a consumer first reviews his or her credit report and identifies information in the report that he or she believes is incomplete or inaccurate. The consumer then communicates a dispute to the CRA, which conveys the dispute to the furnisher of the information. The furnisher investigates the dispute and reports back to the CRA the results of its investigation. Finally, the CRA communicates the outcome of the reinvestigation to the consumer. In some cases, consumers communicate a dispute directly to the furnisher.⁶² This section will discuss each step of the dispute process, as well as the commenters' overall views on how well the current process is working.

A. Consumer Reviews Consumer Report and Conveys Dispute to CRA

In a 2004 Government Accountability Office (GAO) survey of 1578 consumers, 58% of consumers had seen their credit report at some point, and 45% of this subgroup had viewed their report within the previous year.⁶³ Of the 58% who had viewed their report at some point, 53% said they had ordered their report themselves, and 47% said someone else (e.g., a mortgage company, financial institution, or car dealership) had ordered their report and given it to them.⁶⁴ CDIA reported that the repositories issued 57.4 million file disclosures (i.e., reports sent to consumers at their request) in 2003.⁶⁵ If a consumer requests a credit report from one of the nationwide CRAs, the CRA must provide the consumer with a toll-free telephone number at which personnel are accessible to consumers during normal business hours.⁶⁶

The 58% of consumers in the GAO study who had seen their credit report at some time gave the following as the reasons their credit report had been ordered:⁶⁷

A consumer who believes that an item reported in a credit report is inaccurate or incomplete may contact the CRA by mail, online, by telephone, or in person to dispute the item.⁶⁸ According to CDIA, of the 57.4 million file disclosures issued to consumers by the repositories in 2003, 21.8% (12.5 million) led to a reinvestigation by one of the repositories.⁶⁹ Approximately 18% of the consumers interviewed in the GAO survey said that they disputed information in their credit file at some point.⁷⁰ The consumers surveyed by GAO reported the following reasons for their disputes:⁷¹

To understand how often credit accounts are disputed, the Federal Reserve Board reviewed data provided by one of the three repositories as of June 30, 2003.⁷² The data are broken out by percentage of accounts in dispute. The Board found that 0.18% of credit accounts had a pending dispute.⁷³ Most of the disputes related to open accounts (85.4% of the pending disputes related to open accounts and 14.6% related to closed accounts).⁷⁴ Of those credit accounts in dispute, 89.9% were credit card accounts.⁷⁵

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B. CRA Processes Dispute

As discussed above, when a consumer submits a dispute to a CRA, the CRA generally must reinvestigate within thirty days.⁷⁶ As part of the reinvestigation, the CRA must review and consider all relevant information submitted by the consumer.⁷⁷ Although the FCRA before the FACT Act did not specifically state that a CRA's reinvestigation had to be "reasonable," courts generally imposed a reasonableness standard. Under the FACT Act, the FCRA now expressly requires that a CRA's reinvestigation be reasonable.⁷⁸ Whether a particular CRA's actions constitute a "reasonable" reinvestigation varies depending on the circumstances surrounding the dispute.⁷⁹

The joint comment letter submitted by the National Consumer Law Center, Consumer Federation of America, Consumers Union, Electronic Privacy Clearinghouse, and U.S. Public Interest Research Group ("the consumer groups") asserted that CRAs fail to conduct meaningful reinvestigations and merely "parrot" information received from furnishers as "verified," without independently investigating the accuracy and completeness of such information.⁸⁰ CDIA, on the other hand, maintained that the repositories meet their obligations to perform reinvestigations. According to CDIA, in some cases the CRA makes the correction without even submitting the dispute to the furnisher. CDIA asserted that the repositories "examine the information provided by a consumer, and where that information demonstrates that the account should be changed or deleted, the account is changed or deleted."⁸¹ Similarly, TransUnion claimed that, "if the documentation [provided by a consumer] can be reasonably verified as being authentic, the account is automatically updated based on the documentation, in lieu of sending" a dispute to the furnisher.⁸²

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C. CRA Forwards Dispute to Furnisher

Assuming the CRA does not resolve the dispute itself, the CRA must provide notice of the dispute to the entity that furnished the disputed information, along with "all relevant information regarding the dispute that the CRA has received from the consumer," within five business days after receiving the consumer's dispute.⁸³

1. How CRA Conveys Dispute to Furnisher

When a consumer contacts a CRA to dispute information on the consumer's credit report, the consumer generally is asked to provide the name of the furnisher that reported the disputed item, the account number relating to the disputed information, the reason for the dispute, and certain identifying information (e.g., date of birth, Social Security number, and current address).⁸⁴ A CRA employee typically fills out a consumer dispute verification ("CDV") form based on the information the consumer provides. The CRA either sends the CDV to the furnisher via mail or fax, or electronically in the form of an Automated Consumer Dispute Verification ("ACDV"). (An example of an ACDV form is attached as appendix C.) After investigating the disputed information, the furnisher fills in relevant portions of the CDV or ACDV and returns it to the CRA.

CRAs and furnishers also communicate through Universal Data Forms ("UDFs"). Like CDVs and ACDVs, UDFs are used by furnishers to notify CRAs that information the furnisher has reported should be deleted or modified in some way. Unlike CDVs and ACDVs, however, UDFs are initiated by furnishers, rather than by CRAs. For example, if a consumer contacts a furnisher directly to dispute the accuracy of an item that the furnisher has reported to a CRA, and the furnisher determines that the information is inaccurate, the furnisher generally would use a UDF to notify the CRA of the inaccuracy.⁸⁵ UDFs sent electronically are referred to as Automated Universal Data forms ("AUDs").

The credit reporting industry's current electronic dispute processing system is known as e-OSCAR⁸⁶ ("Online Solution for Complete and Accurate Reporting"). The system is web-based and permits furnishers to receive and send ACDVs, and send AUDs, over the Internet.⁸⁷ On the ACDVs they send through e-OSCAR, CRAs provide the furnisher with identifying information about the consumer in the CRA's file; one or two codes summarizing the consumer's dispute; and, if the CRA deems it necessary, a free-form narrative field that supplements the dispute codes.⁸⁸ CRAs select the dispute codes from among twenty-six offered by the e-OSCAR system, such as "Not his/hers" and "Claims account closed." CDIA provided the full list of codes to the FTC and the Board but declined to release the list for use in this report, citing concerns that the codes are confidential and that credit repair organizations would misuse their knowledge of the dispute codes to have accurate information removed from consumers' files.⁸⁹

According to CDIA, as of December 2004, e-OSCAR had nearly 15,400 registered users⁹⁰ and more than 83% of all disputes were being processed on the e-OSCAR system.⁹¹ The remaining disputes currently are processed through paper CDVs. When a consumer contacts a repository to dispute an item reported by a furnisher that does not participate in e-OSCAR, the repository submits a paper CDV by mail or fax to the furnisher that reported the disputed data. The furnisher investigates the disputed data and returns the paper CDV to the repository, which then uses the information to update the consumer's file as necessary.⁹² Some CRAs convey disputes to furnishers through telephone calls. While repositories generally do not use this method,⁹³ resellers often do, conducting three-way calls with the consumer and the furnisher that reported the disputed item.⁹⁴ According to the National Credit Reporting Association (NCRA), a trade association that represents many resellers, resellers generally are willing to provide disputes to furnishers by whatever means the furnisher demands.⁹⁵

Each of the three repositories, however, has announced plans to stop accepting paper-based disputes and require all furnishers to participate in e-OSCAR.⁹⁶ MBA commented that it is unclear whether all mortgage servicers or other creditors have access to e-OSCAR.⁹⁷ Several furnishers have responded to the repositories' plans to stop accepting paper-based disputes by stating that they will refuse to pay the fee to use e-OSCAR.⁹⁸ As a result, these furnishers argue, any disputed information that they report will be deleted because the furnisher has no other way to respond to the dispute.⁹⁹ To avoid this, MBA recommended in its comment letter that there be a free alternative to e-OSCAR for CRAs to accept corrections from furnishers.¹⁰⁰

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2. "All Relevant Information"

As noted above, when CRAs send disputes to furnishers, the FCRA requires them to include "all relevant information regarding the dispute that the agency has received from the consumer."¹⁰¹ Comments reflected differing views on whether the current system sufficiently provides "all relevant information" for all disputes. The consumer groups commented that consumers often supply CRAs with information and documentation sufficient to support their disputes (including account applications, billing statements, and letters), but CRAs neither review the documentation nor forward it to furnishers.¹⁰² The consumer groups asserted that the twenty-six dispute codes CRAs use in ACDVs and CDVs to describe consumer disputes convey only "generic descriptions" of the disputes.¹⁰³

A number of furnishers commented that the dispute codes are "vague and broad," and that the CRAs do not always provide sufficient information.¹⁰⁴ The Coalition to Implement the FACT Act reported that a significant volume of current disputes--according to some Coalition members, 30%-40% of all disputes--are assigned generic, or "catch-all," dispute codes, such as "other" or "consumer complains data inaccurate; no specific dispute." According to the Coalition, the use of these catch-all codes makes investigations time-consuming and costly.¹⁰⁵ At the same time, most furnishers reported that the information provided to them through e-OSCAR usually is sufficient to investigate the dispute.¹⁰⁶ According to CDIA, the free-form field is used in 30% of all disputes processed through e-OSCAR.¹⁰⁷ MBA also noted that, while the information its members receive from CRAs is often cursory, it generally is not problematic, adding that the bank can contact the borrower directly for information.¹⁰⁸

According to CDIA, the e-OSCAR system as it currently exists already conveys all relevant information.¹⁰⁹ The two repositories that submitted comments, TransUnion and Equifax, agreed.¹¹⁰ CDIA reported that 22% of consumer disputes submitted to the repositories are submitted by telephone,¹¹¹ and that many other disputes are submitted on the standardized form that CRAs provide when they give consumers copies of their consumer reports. Thus, CDIA commented, most disputes are not accompanied by additional relevant information.¹¹² TransUnion also reported that most consumer disputes it receives do not reference or contain any specific information or documentation.¹¹³ CDIA added that, "due to credit repair activity or even individual choices, not all information or documentation that a consumer submits is truthful or authentic, nor are all requests for reinvestigations valid."¹¹⁴

TransUnion stated that it typically does not supply copies of consumer-supplied documentation to furnishers but added that, "if the documentation can be reasonably verified as being authentic, the account is automatically updated based on the documentation, in lieu of sending an ACDV or CDV."¹¹⁵ Equifax noted that it currently provides two methods of supplementing the e-OSCAR dispute codes and free-form field: (1) a copy of the documentation can be faxed to the furnisher as appropriate and (2) furnishers can contact CRAs with questions they have about a particular dispute.¹¹⁶

In April 2006, CDIA stated that its members "have continued to research both the technological and legal questions that might arise from providing consumer-submitted information directly to data furnishers." It concluded that "the viability of the concept of making consumer-submitted information available through the e-OSCAR system to data furnishers is now questionable."¹¹⁷

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D. Furnisher Investigates and Sends Response to CRA

1. Furnisher's Investigation

A furnisher that receives notice of a dispute from a CRA is required to

1. conduct an investigation with respect to the disputed information;
2. review all relevant information provided by the consumer reporting agency …;
3. report the results of the investigation to the consumer reporting agency; and
4. if the investigation finds that the information is incomplete or inaccurate, report those results to all other [nationwide] consumer reporting agencies to which the person furnished the information.¹¹⁸

Whether a furnisher's actions constitute a sufficient investigation depends on a number of factors, including the information the furnisher received about the dispute and the steps the furnisher takes to investigate the dispute.¹¹⁹

According to the consumer groups, "regardless of where the dispute is made (directly with the furnisher or through a CRA), furnishers are simply not conducting meaningful reinvestigations; they do not train their employees on effective reinvestigation procedures; and they repeatedly default simply to verifying the existence of an account."¹²⁰ The consumer groups assert that furnishers rarely research the underlying dispute, review documents, or analyze the furnishers' own data for inconsistencies and errors.¹²¹

Other commenters provided varying information on the level of investigation that furnishers conduct in response to disputes. Several furnishers commented that they compared the information provided on the dispute notice with the information contained in the furnishers' records.¹²² Wells Fargo and Company (Wells Fargo) indicated that such information could include the

• consumer's name, address, and Social Security number;
• consumer's account number;
• account payment history;
• account servicing notes and collection notes;
• loan documents; and
• deferral, modification, and extension history.¹²³

Similarly, Zions Bancorporation (Zions) indicated that its consumer loan servicing department researches the account history to match the consumer's identifying information and to determine the timing of the payment compared to the payment due dates.¹²⁴ If the department's staff members determine that they reported incomplete or inaccurate information, they send a correction to CRAs through the e-OSCAR system.¹²⁵

Some commenters stated that furnishers generally correct their internal records to ensure that the incorrect information is not re-reported to CRAs.¹²⁶ In some cases, the furnisher will also send a letter to the consumer indicating that the information was incomplete or inaccurate and that a correction will be made.¹²⁷ NAMB asserts, however, that some furnishers do not correct their internal records, and, as a result, the incorrect information is reinserted into the consumer's file at the CRA the next time the furnisher sends an electronic update to the CRA.¹²⁸ As amended by the FACT Act, however, the FCRA now requires furnishers to delete, modify, or permanently block the reporting of disputed information that is found to be inaccurate or incomplete or cannot be verified.¹²⁹ This change is likely to reduce the instances of incorrect information being reinserted.

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2. Furnisher Communicates Results to CRA

If a furnisher determines that the information in dispute is neither incomplete nor inaccurate, the furnisher generally selects "Verified as Reported" on the ACDV or CDV and returns it to the CRA.¹³⁰ If, instead, the furnisher determines that the information the consumer disputed is incomplete or inaccurate, the furnisher generally makes the correction on the ACDV or CDV and returns it to the CRA.¹³¹ If the furnisher is using e-OSCAR, the system forwards the information automatically to any other nationwide CRA to which the furnisher reported the disputed item.¹³² According to CDIA, e-OSCAR also edits for illogical furnisher responses and provides furnishers with an error message if the data they enter in responding to a dispute are inconsistent with the dispute code.¹³³ MBA commented that disputes returned to CRAs through e-OSCAR are more quickly reflected in consumers' credit reports than are disputes conveyed to CRAs through paper.¹³⁴

In contrast to the experience of the repositories, the National Credit Reporting Association commented that where the dispute has been reported to a reseller and then forwarded to the furnisher, furnisher practice varies. Some furnishers provide the correct information to the reseller and then forward the correction to the proper repository. Other furnishers do not respond at all, causing the reseller to delete the disputed information, whether it is accurate or not.¹³⁵ The FACT Act amended the FCRA to no longer require resellers to forward disputes to the furnisher that reported the disputed item. Instead, resellers generally are permitted to forward the consumer dispute to the CRAs from which they obtained the disputed item ("source CRA").¹³⁶ The source CRA then must reinvestigate the dispute as if it had come directly from the consumer. This new process is likely to alleviate the problems that the NCRA described.

If a consumer continues to dispute information after the formal dispute process has been concluded, some furnishers offer the consumer the option of submitting additional evidentiary information that the furnishers then review.¹³⁷ Under the FCRA, the consumer has a right to include a statement of dispute in the consumer report if the reinvestigation does not resolve the dispute.¹³⁸ Several furnishers commented that they advise consumers of this option, although some commenters questioned its value.¹³⁹ TransUnion reported that approximately 4% of all consumer file disclosures result in a statement of dispute being added to the file after the repository completed its reinvestigation.¹⁴⁰ Of the 18% of consumers in the GAO survey who disputed information in their file and either (1) the information was not deleted from their files or (2) they did not know whether the information was deleted, 30% submitted such a dispute statement to the CRA.¹⁴¹

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3. Furnishers' Response Times and Rates

Based on the information that the FTC and the Board reviewed, it appears that most disputes are processed in the statutory time frame, regardless of whether they are processed by e-OSCAR or by fax and mail. According to CDIA, e-OSCAR allows furnishers to prioritize all disputes to ensure that the most urgent ones are processed first and that all disputes can be processed within the time frames established by the FCRA.¹⁴² As the time limit for responding to a dispute approaches, e-OSCAR notifies the furnisher of the impending deadline.¹⁴³ CDIA noted that, of the disputes that all three repositories sent through e-OSCAR in April 2004, furnishers responded within the following time periods:

• 54% within 0-7 days;
• 18% within 8-14 days;
• 22% within 15-30 days; and
• 6% did not respond within 30 days.¹⁴⁴

CDIA also supplied statistics (see appendix E) showing the July 2004 response rates of furnishers that responded to one of the three repositories using e-OSCAR and furnishers that responded to the repository in paper form.¹⁴⁵ According to CDIA, as of day 10, 50.98% of the e-OSCAR furnishers had responded to this CRA regarding the disputes forwarded to them by the repository. At the same time, 24.33% of paper-based furnishers had responded. By day 20, 79.47% of e-OSCAR furnishers and 71.50% of paper-based furnishers had responded. By the end of the month, e-OSCAR furnishers had responded to 94% of the disputes from the repository, and paper-based furnishers had responded to 82%.

A number of furnishers reported that disputes received from CRAs by paper or by e-OSCAR are normally resolved within twenty days, and often within the first five days after receipt.¹⁴⁶ The Coalition to Implement the FACT Act (Coalition) reported that its members meet the FCRA's thirty-day response requirement 100% of the time when using e-OSCAR.¹⁴⁷

The consumer groups commented that the length of time CRAs and furnishers take to complete reinvestigations generally is not a problem, and that reinvestigations usually are finished very quickly through the e-OSCAR system.¹⁴⁸

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E. CRA Communicates Reinvestigation Results to Consumer

If a furnisher does not respond to the CRA within the 30-day period established by the FCRA, the CRA is required to treat the disputed information as unverifiable and delete the information.¹⁴⁹ TransUnion stated that if a response is not received within twenty-eight days, the information in dispute is automatically deleted from the consumer's credit file.¹⁵⁰

Of the 18% of consumers in the GAO study who had disputed information in their files, 69% reported that the disputed information had been removed from their credit files. Another 23% reported that their disputed information had not been removed, and 7% said they did not know whether it had been removed.¹⁵¹ Of those consumers in the survey who reported that information they disputed had been removed, approximately 72% said the information was not reinserted later, 13% reported that the information had been reinserted, and 15% did not know.¹⁵²

CDIA provided the following data for the first five months of 2004, showing the resolution of disputes processed through the e-OSCAR system.¹⁵³

We note that the percentage of consumers in the GAO survey who reported that disputed information had been removed from their file--69%--is similar to the percentage of consumers whose disputed information was either modified or deleted based on the furnisher's instructions--71.38%. According to CDIA, however, with respect to the "Data modified per data furnisher's instructions" category, the data may have been modified due to an update of information, rather than the data being found to be inaccurate as of the date reported.¹⁵⁴ With respect to the fourth category--data deleted due to the furnisher not responding within the thirty-day period--CDIA stated that it cannot be determined whether these data were accurate.¹⁵⁵

TransUnion noted that it identified approximately 5% of disputes as "repeats," meaning that the repository recently processed the same dispute and the consumer has provided no new information.¹⁵⁶ In such cases, TransUnion may treat the dispute as frivolous and notify the consumer accordingly, without sending a dispute notice to the furnisher.¹⁵⁷

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F. Consumer Disputes Information Directly to Furnisher

In addition to disputes received from CRAs, furnishers also receive disputes directly from consumers about information reported to CRAs. As noted earlier, of the consumers in the GAO survey who said they disputed information in their credit files, 32% reported that they disputed with a CRA only, 29% reported that they disputed with the creditor only, and 30% reported that they disputed with both a CRA and the creditor.¹⁵⁸ Furnishers that submitted comments generally reported that they receive most of their disputes from CRAs.¹⁵⁹ As discussed above, until the new consumer-direct-dispute provision of the FACT Act takes effect, the FCRA does not specifically require that furnishers investigate disputes conveyed directly to them by consumers.¹⁶⁰ However, the FCRA does (1) prohibit furnishers that report regularly from reporting information they have determined is inaccurate and (2) require them to report corrected information.¹⁶¹

Some furnishers that commented reported that they provide or plan to provide a specific address or other information sufficient for consumers to initiate a dispute directly with them.¹⁶² For example, Juniper Bank reported that it provides a specific address for direct disputes on all of its monthly billing statements.¹⁶³ Similarly, Wells Fargo commented that while some of its divisions and affiliates already do so, virtually all of them plan to begin providing addresses soon to consumers who want to dispute information directly.¹⁶⁴ Some furnishers do not provide a specific address dedicated to receiving disputes on information reported to CRAs, but instead provide general contact information that consumers can use to raise complaints and inquiries generally, including disputes on information provided to CRAs.¹⁶⁵ Furnishers that did not provide a specific address for reporting disputes directly provided various reasons for not doing so, including that (1) such disputes represent too small a percentage of the total inquiries and disputes received to justify establishing a specific address for such disputes; (2) a specific address would not be provided at a useful time; while the address would appear on initial disclosures or periodic statements, consumers generally learn of potential inaccuracies from receiving and reviewing consumer reports--not from the disclosures; and (3) the more appropriate address to publicly disclose is that of the three repositories.¹⁶⁶

Whether or not a furnisher provides a specific address for receiving disputes directly from a consumer, most furnishers reported that they use a similar procedure for investigating direct disputes as they use for disputes received through a CRA,¹⁶⁷ including making any necessary corrections by sending the results of their investigations through e-OSCAR or in paper form.¹⁶⁸ Some furnishers commented that, upon receiving disputes directly from consumers, they compare information and documentation submitted by the consumers to information contained in their files.¹⁶⁹ In some cases, furnishers send letters to consumers notifying them that the information will be corrected.¹⁷⁰ Furnishers also report updating their own records to ensure that the erroneous information does not "re-pollute" the CRA's files when the furnisher sends its next monthly update.¹⁷¹ If the information is found to be accurate, a letter may be sent to the consumer and reporting continues as before.¹⁷² In general, the furnisher commenters stated that they investigate and attempt to resolve disputes directly from consumers as soon as possible, usually within one to twenty--and no more than thirty--days.¹⁷³

Several furnishers reported that while most consumers provide sufficient information for the furnisher to investigate the consumer's dispute,¹⁷⁴ disputes received directly from consumers sometimes lack clarity as to the precise information disputed or fail to provide information sufficient to justify the dispute. According to the Coalition, for example, one of its members reported that 30% of all direct consumer disputes it receives fall into this category; another member that is a major credit grantor reported that 40% of its direct disputes contained insufficient information to conduct an investigation.¹⁷⁵ The type of information that is usually missing from consumers in direct disputes includes the consumer's full account number, Social Security number, date of birth, and address.¹⁷⁶ MBA noted that, on occasion, a consumer will refuse to send in a copy of his or her credit report. If the mortgage furnisher is given the authority by the CRA to view its tradeline as it appears in the CRA's database without impacting the consumer's credit score (i.e., as an inquiry), the mortgage furnisher will do so if this is relevant to the dispute.¹⁷⁷ Several furnishers commented that when relevant information is missing, the furnisher generally contacts the consumer by telephone or mail to request the necessary additional information.¹⁷⁸

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G. Commenters' Overall Views on the Dispute Process

The consumer groups and the credit reporting industry hold differing views on how well the current dispute process is working. The consumer groups maintain that the reinvestigation system in its current form is flawed because of what they regard as failures by both the CRAs and furnishers to conduct meaningful investigations of disputes.¹⁷⁹ As noted above, the consumer groups assert that CRAs typically do not provide furnishers with the documentation of the error that the consumer sent to the CRAs, that the CRAs generally do not review that documentation, and that the codes used by the CRAs to convey the nature of the dispute are too general and vague. The consumer groups also state that furnishers' investigations of disputed information are inadequate because they typically consist merely of verifying that their own records show that a debt exists.¹⁸⁰ They believe that CRAs and furnishers have little incentive to conduct thorough reinvestigations because such investigations are expensive and the relatively small number of lawsuits that CRAs and furnishers face for failing to conduct adequate investigations impose almost no economic cost.¹⁸¹ According to the consumer groups, furnishers actually have an incentive to keep derogatory information in a consumer's credit file, "even if it is inaccurate … because the negative information limits the consumer's options to obtain other, less expensive debt, and is often the impetus to force a consumer to pay the furnisher even on an unjust claim."¹⁸²

The consumer groups recommend that the current system be reformed to shift or counter these economic incentives. They suggest a role for lay advocates or independent third-party review in the reinvestigation system. They also recommend making statutory damages more readily available, so that CRAs and furnishers would take their duties more seriously.¹⁸³

The consumer groups also suggest increasing the duties on furnishers as another option for improving the current system. These groups state that consumers currently have the impossible burden of proving that the disputed information is not correct to both furnishers and CRAs. They believe that the burden of proof should be shifted so that furnishers are required to rebut a consumer's specific disputes by providing documentation to the CRA that shows that the information furnished is correct. In particular, the consumer groups believe that furnishers should not be allowed simply to tell the CRA that the consumer is wrong and the original information was correct, and CRAs should not be allowed to accept such a report. Instead, the furnisher should be required to give the CRA the underlying information--copies of documents with original signatures to rebut a forgery claim, for example, or copies of the payment record to demonstrate that the claimed balance is correct. Then, the CRA should be required to evaluate the data and reach its own conclusions.¹⁸⁴

The consumer groups believe that the dispute process should require, at a minimum, the following:

• CRAs to convey to furnishers the actual documents that support the consumer's dispute, with failure to do so being per se unreasonable;
• furnishers to reinvestigate, rather than merely verify, that the information appears in their records, including reviewing the actual documents provided by the consumer and, in appropriate circumstances, reviewing documents in the furnisher's possession or the possession of others;
• furnishers to respond specifically and in detail to the consumer's dispute and include enough material so that the CRA can evaluate the response and reach an independent conclusion;
• CRAs to review and evaluate furnishers' responses; and
• CRAs to establish an appeals process that involves a telephone conference between the consumer and a CRA employee who has the consumer's dispute and all the documentation provided by the furnisher and the consumer.¹⁸⁵

Approximately 100 consumers provided comments for this report, generally expressing a variety of problems they encountered in resolving their disputes.¹⁸⁶ For the most part, these individual accounts parallel the concerns raised by the consumer groups.

The California Association of Realtors recommended that sufficient financial penalties be imposed for violations of the FCRA to allow the FTC to protect the integrity of credit reports and to create the proper incentives for creditors and CRAs to comply.¹⁸⁷ The Mortgage Bankers Association recommended that the e-OSCAR system be changed to permit furnishers to submit comments to CRAs when they return ACDVs.¹⁸⁸

Most industry commenters--furnishers and their trade groups and the repositories and their trade group--asserted that while there is still room for improvement, the current dispute process generally is working well, and that legislative and regulatory changes would not be appropriate at this time.¹⁸⁹ Visa U.S.A. Inc. (Visa), a membership organization composed of financial institutions, gave several reasons it believes that the current system is effective in removing inaccuracies.¹⁹⁰ First, Visa argued, financial institutions have strong incentives to investigate disputed information adequately in order to maintain good relationships with their customers. Visa also pointed out that, in providing information to CRAs, financial institutions typically report information as it appears that month in the institution's own records. According to Visa, financial institutions have strong incentives to ensure that their own records are accurate, because the records are essential for the institution's own collection activities and other important business purposes, for making reports to their federal and state bank regulatory agencies, and, where applicable, for making securities filings.

Visa warned that any additional requirements and liability on furnishers would have a negative impact on the nationwide credit reporting and credit granting systems.¹⁹¹ According to Visa, the more requirements imposed on, and the more liability risks incurred by, furnishers, the less likely it is they will continue to furnish information to CRAs. Visa noted that, should this occur, the entire nationwide credit system would suffer. A reduction in the supply of credit information, Visa argued, would increase the risks associated with extending credit because creditors would be required to make credit decisions on less complete information. The increased risk would be reflected in an increase in the costs consumers must pay for credit. Visa contended that this increased risk also would have an anticompetitive impact on financial institutions, where smaller lenders are less able to absorb the cost of this increased risk than larger lenders. Thus, smaller lenders could find it difficult to price their products to compete with larger lenders. Visa also warned that a shortage of consumer report information would decrease competition by making it difficult for creditors to serve consumers across the country through national credit programs. In addition, the types and amounts of credit available to consumers could be restricted.

Visa and Juniper also warned that potential changes in the dispute process (such as shorter time frames to investigate disputes) could impact industry's fraud prevention efforts.¹⁹² Several commenters indicated that the financial industry continues to be plagued by "debt elimination" schemes and abuses by some borrowers and credit repair organizations that initiate disputes designed to overwhelm the dispute system, forcing removal of accurate, but unfavorable, information.¹⁹³ Visa warned that any changes to shorten the time periods to investigate and correct consumer report information would benefit credit repair organizations by forcing the deletion of correct, but unfavorable, information that cannot be verified in a shorter period.¹⁹⁴ According to Visa, this would lead to less accurate consumer report files and greater risk for creditors who rely on consumer reports to underwrite credit requests. Juniper argued that any new proposals need to be examined to ensure that they are not providing another avenue for individuals to avoid legitimate debt.¹⁹⁵

Other commenters indicated that, given the FACT Act provisions, further legislative and regulatory actions are not needed at this time. The Coalition and MBNA report that to the extent problems have occurred, they almost entirely relate to cases of identity theft.¹⁹⁶ These commenters point out that the FACT Act contains a number of key provisions to deal with problems of identity theft and should be fully implemented before it is possible to determine whether there are any remaining reinvestigation issues. According to TransUnion, the improvements made through the 1996 FCRA amendments, combined with the as-yet unknown impact of the FACT Act's amendments concerning accuracy, reinvestigations, and the processing of consumer disputes by furnishers and resellers, make further statutory or regulatory changes inadvisable at this time.¹⁹⁷

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V. FCRA Enforcement

The FTC and the federal financial regulators are responsible for enforcing the FCRA.¹⁹⁸ The FTC's jurisdiction extends to all CRAs and other persons not specifically committed to another agency's jurisdiction.¹⁹⁹ The FTC does not formally examine its regulated entities for compliance with the FCRA, but rather conducts selected law enforcement investigations and brings legal actions against violators. The FTC has brought a number of actions against CRAs²⁰⁰ and furnishers²⁰¹ for violations of the FCRA's dispute and accuracy provisions.

Financial institutions regulated by the federal financial regulators generally are subject to the FCRA dispute provisions primarily due to their role as furnishers of information to CRAs. The federal financial regulators examine these institutions for compliance with the FCRA, including the FCRA dispute provisions. The federal financial regulators have FCRA examination procedures that each decides how to implement. For example, the Federal Reserve System implements these procedures as part of routine consumer compliance examinations. A Federal Reserve Bank examiner considers the bank's processes for complying with the FCRA accuracy and dispute provisions when performing a preliminary risk assessment of the bank and setting the scope of the consumer compliance examination, and applies the FCRA examination procedures, as appropriate.

While state-chartered banks make up only a portion of the furnishers, for this study, bank examiners for the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) looked at violations by state-chartered banks of the dispute provisions governing furnishers and found an insignificant number of violations.²⁰² These two federal financial regulators, along with the OCC, also surveyed their complaint databases for this study to determine the number and types of consumer complaints regarding disputed consumer file information.²⁰³ Both the Board and the OCC provided data from 2000 to 2004; the FDIC provided data from 2002 to 2004. While some consumers complained that inaccurate or incomplete information remained in their files, or that a furnisher failed to conduct or complete an investigation to the consumers' satisfaction, in general, the data did not indicate a large number of complaints regarding failures by furnishers to properly reinvestigate information disputed by consumers.

Under section 611(e), the FTC is required to transmit to the repositories complaints from consumers who appear to have disputed the completeness or accuracy of their files with one or more repositories or otherwise utilized their dispute rights under FCRA section 611(a). Section 611(e) also requires that the repositories review the complaints, report to the FTC on the results of their review, and maintain sufficient records to show compliance. To implement section 611(e), the FTC entered into a complaint-referral program with the three repositories and a number of affiliate CRAs that store their data in the repositories' databases.²⁰⁴ Under the program, the FTC refers to the repositories and the affiliates' complaints that it receives from consumers who report that their disputes about accuracy or completeness have not been resolved to their satisfaction. The FTC makes no determination about the merits of the complaints. The CRAs review the complaints to ensure that they have complied with the applicable provisions of the FCRA and periodically provide reports to the FTC on the disposition of a sample of the complaints. The program does not limit the FTC's ability to pursue law violations under the FCRA.

Because the data that the FTC has obtained through the complaint-referral program to date are insufficient to provide probative evidence of the functioning of the dispute resolution process, this report contains no findings on that issue.

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VI. Conclusion

In compliance with FACT Act section 313(b), the FTC and the Board have studied the FCRA dispute process by reviewing information from a number of sources. There is general consensus that CRAs and furnishers usually are conducting their investigations within the thirty-day period set forth in FCRA section 611(a)(1). However, many commenters held differing views on the subject of FCRA compliance by CRAs and furnishers. Consumer groups that commented, for example, assert that CRAs do not convey "all relevant information" to furnishers, and that both CRAs and furnishers typically fail to conduct meaningful investigations. These groups recommend that the current system be reformed to induce CRAs and furnishers to take their duties to investigate disputes seriously. Most industry commenters, however, maintain that, while there is room for improvement, the current dispute process generally is working well and additional legislative and regulatory changes are not advisable at this time. Courts also have reached different conclusions on the subject of CRA and furnisher compliance, generally applying a reasonableness standard to CRA and furnisher investigations and then determining whether the investigation at issue was reasonable based on the facts of each case.²⁰⁵

With respect to the FCRA's requirement that CRAs forward to the furnisher "all relevant information," it appears that CRAs generally do not convey to furnishers documents that some consumers give CRAs in connection with their disputes. By itself, however, this does not mean that CRAs fail to convey "all relevant information" to furnishers. It is unclear how often consumers submit documents along with their disputes, or how often these documents contain relevant information. When consumers do submit documents, the CRAs summarize the information in a numeric code supplemented, in some instances, by a narrative in a free-form field. Although this process may be sufficient in most cases to resolve the dispute properly, in certain situations, the failure to convey the actual documents may lead to incorrect outcomes. The information that the FTC and the Board have obtained on this subject is inconclusive as to the prevalence of this result.

Likewise, the question of whether CRAs and furnishers generally are conducting investigations that comply with the FCRA cannot be resolved definitively. Although some consumers ultimately file a dispute statement regarding information that has not been corrected or deleted after reinvestigation, it is not clear whether these disputes reflect a failure to comply with the FCRA reinvestigation procedures or simply consumer dissatisfaction with the results of the reinvestigations, despite CRA and furnisher compliance. Similarly, evidence regarding compliance by the consumer reporting industry is inconclusive. The FTC and the Board agree with courts holding that (1) CRA and furnisher investigations must be reasonable and (2) whether an investigation is reasonable depends on the facts in each case.

FACT Act section 313(b)(4) requires that the FTC and the Board include in this report any legislative or administrative recommendations for improvements to the dispute process that the agencies jointly determine to be appropriate. The agencies recommend that no legislative action be taken at this time, in large part because the agencies believe such action would be premature. The FACT Act imposes a number of new requirements on CRAs and furnishers that should enhance the consumer dispute process and improve accuracy, including measures to reduce identity theft and new requirements on furnishers.²⁰⁶ Many of these requirements are still being implemented, and their effects on the dispute process have yet to be seen. The FTC and the Board believe that the FACT Act requirements should be given time to take effect before legislators and regulators consider making additional changes to the dispute process. This is particularly important given the voluntary nature of the reporting system and the uncertainty of how additional requirements and burdens would affect that system. As additional information becomes available, the agencies will reassess the need for administrative actions.

With respect to the "all relevant information" issue, there may be a number of ways to address the concerns that have been expressed about the process, ranging from different or more specific codes, to greater use of the narrative field, to better training of personnel who do the coding, to the scanning or other conveyance of documents to furnishers. The costs and benefits of each of these steps cannot be determined on the basis of the current record. The FTC and the Board intend to explore further these issues and possible solutions with the CRAs, furnishers, consumer advocates, and other interested parties, and, if appropriate, will make recommendations for action.

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Appendix A
Table of Names and Acronyms

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Appendix B
Request for Information for Report

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Appendix C
Sample Automated Consumer Dispute Verification Form¹

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Appendix D
Frequency of Credit Account Disputes in Federal Reserve Board Study of Data from One Repository as of June 30, 2003¹

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Appendix E
Response Rates of Furnishers Responding to One Repository Through E-OSCAR and Furnishers Responding in Paper Form (July 2004)¹

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Appendix F
The FCRA After the FACT Act

In the FACT Act amendments, Congress made three changes to the core dispute duties of CRAs. The provision stating that CRAs "shall reinvestigate" information that consumers dispute was amended to require CRAs to "conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate."¹ In addition, a CRA that learns during a reinvestigation that information disputed by a consumer is inaccurate, incomplete, or cannot be verified, now must notify the furnisher that the information has been modified or deleted from the CRA's file on the consumer.² Finally, the FACT Act amendments give CRAs forty-five days to reinvestigate a dispute from a consumer that is made following the consumer's receipt of a free annual file disclosure under the Act's new free file disclosure provisions.³

The FACT Act substantially changed the dispute duties for resellers.⁴ Because resellers are CRAs, the FCRA, prior to the FACT Act, required them to carry out all of the CRA dispute duties described in section II.C of the attached report. A new provision added by the FACT Act, however, changed those duties. If a consumer disputes directly to a reseller the completeness or accuracy of an item in a consumer report issued by the reseller, the reseller must, within five business days of receiving notice of the dispute, and free of charge, do the following:⁵

• determine whether the item is incomplete or inaccurate because of an act or omission of the reseller; and
• if the reseller determines that the item is incomplete or inaccurate because of an act of the reseller, not less than 20 days after receiving the notice, correct the information in the consumer report or delete it; or
• if the reseller determines that the item is not incomplete or inaccurate because of an act or omission of the reseller, convey the notice of dispute, together with all relevant information provided by the consumer, to each CRA that provided the disputed item to the reseller ("source CRA").

Another FACT Act provision requires a source CRA to reinvestigate a dispute conveyed by a reseller.⁶ Upon completion of its reinvestigation, the source CRA must provide to the reseller a written notice stating the results of the reinvestigation.⁷ The reseller must immediately reconvey the notice to the consumer.⁸

The FACT Act also amended the FCRA with respect to furnishers' dispute duties in several ways. Under one of the amendments, the FTC and the federal financial regulators are required to issue joint regulations that will identify the circumstances under which a furnisher must investigate a dispute made directly by a consumer to the furnisher. In prescribing the regulations, the agencies must weigh several factors, including the benefits to consumers versus the costs to furnishers and the credit reporting system. In those circumstances identified in the rules, the rules must provide that, when a consumer submits a proper notice of dispute to a furnisher, the furnisher must conduct an investigation of the disputed information; review all relevant information provided by the consumer with the notice; complete the investigation within thirty days (or forty-five days, if the consumer provides additional relevant information during the thirty-day period); and, if the investigation finds that the disputed item was reported inaccurately, promptly provide corrections to each CRA to which the information was furnished.⁹ These provisions do not apply if the dispute is frivolous or irrelevant or comes from a credit repair organization.

The FACT Act also provides that, in disputes received through a CRA, if an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after the furnisher completes the investigation, the furnisher must promptly delete, modify, or permanently block the reporting of that information as appropriate based on the results of the investigation.¹⁰ In addition, the FACT Act provides that furnishers must establish reasonable procedures to avoid re-furnishing to CRAs information after (1) a CRA notifies the furnisher that the CRA has blocked the information because it might be the result of identity theft or (2) the consumer submits an identity theft report stating that the information resulted from identity theft.¹¹

Prior to the FACT Act, furnishers could not furnish information about a consumer to a CRA if the furnisher knew or consciously avoided knowing that the information was inaccurate.¹² Under the FACT Act, the standard is now "knows or has reasonable cause to believe that the information is inaccurate."¹³ The term "reasonable cause to believe that the information is inaccurate" is defined as "having specific knowledge, other than solely allegations by the consumer, that would cause a reasonable person to have substantial doubts about the accuracy of the information."¹⁴

The FACT Act amendments require a financial institution that furnishes negative information about a consumer to a nationwide CRA to notify the consumer in writing.¹⁵ In addition, the amendments require federal financial regulators and the FTC to promulgate guidelines and regulations dealing with the accuracy and integrity of information that furnishers provide to CRAs.¹⁶

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