The Fair Credit Reporting Act included in the omnibus federal budget imposes new responsibilities on banks.
Historically, credit bureaus have been required to establish reasonable procedures to assure accuracy of the consumer information they maintain and report.
However, the courts have consistently held that these reasonable procedures requirements do not apply to banks, credit card issuers, and other companies that furnish information to credit bureaus.
Similarly, the act has not required such furnishers to cooperate with credit bureaus that are attempting to comply with consumer reinvestigation requests, although furnishers did so as a matter of course.
With the enactment of the reporting-act amendments, however, all of this will change. Banks that regularly furnish information on consumers to credit bureaus will have six new substantive obligations under the amended statute. This is the price that banks must pay for their important statutory gains, such as those involving-prescreening and affiliate sharing outlined in the first two articles.
The legislation prohibits banks and other organizations from furnishing consumer information to a credit bureau if the bank "knows or consciously avoids knowing that the information is inaccurate."
Under this standard, if a bank discovers on its own that information in the bank's files regarding a consumer is inaccurate, the bank may not subsequently provide that information to a credit bureau until the information has been corrected.
Or, if a credit card issuer is notified by a consumer that information on the consumer previously furnished to a bureau is inaccurate, the card issuer may not subsequently furnish that information to another credit bureau, or even the same credit bureau, until any inaccurate information has been corrected.
Nevertheless, the revised statute does not impose a "reasonable procedures" requirement on banks and other furnishers of information similar to that historically imposed on credit bureaus.
Instead, a bank simply is prohibited from furnishing information to a credit bureau that it knows is inaccurate and a bank cannot "consciously avoid knowing" that information it reports to credit bureaus is inaccurate. This is a new, but manageable requirement for banks.
The revised reporting act permits, but does not require, a bank to "clearly and conspicuously" specify an address that consumers may use in notifying the bank about inaccuracies in information it has reported to credit bureaus.
If a bank specifies such an address and a consumer notifies the bank that information is incorrect, the bank is prohibited from subsequently providing the information to a credit bureau until any error has been corrected.
If a bank follows this procedure, for example, it would not be responsible under the reporting act for reporting inaccurate information where a consumer informs one of the bank's tellers that information on the consumer provided to a credit bureau is inaccurate, instead of notifying the bank through the address established by the bank for that purpose.
The reporting-act amendments also make it clear that a bank or other furnisher that uses the address/notice option is not subject to the more general "knows or consciously avoids knowing" standard.
A bank that regularly provides information to credit bureaus is required to correct or update information that was previously provided to a bureau if the bank later learns that the information is not complete or accurate. The bank also may not resubmit the information to the bureau so long as it remains incomplete or inaccurate.
In addition, if the completeness or accuracy of any data furnished by a bank to a credit bureau continues to be disputed by a consumer after the information is reinvestigated by the bank, the bank may not continue to furnish it to credit bureaus without indicating that it is disputed by the consumer.
Under the reporting-act amendments, a bank also is required to notify a credit bureau when a consumer voluntarily closes an account previously reported by the bank to that bureau.
The notice can be included with any other information transmitted by the bank to the bureau for that reporting period. This provision is intended to avoid misunderstandings about closed accounts by indicating when an account is closed by the consumer, rather than by the bank.
The Senate Banking Committee report for the reporting act says that this duty is applicable only to accounts that are closed solely as a result of a consumer's voluntary request. This means, for instance, that the provision would not apply to an account that is closed by a bank because of a consumer's delinquencies or other account abuse, even if the consumer also requests that the account be closed.
Additionally, the revised statute provides that when a bank reports to a credit bureau that a delinquent account has been assigned for collection or charged off, the bank also must notify the credit bureau of the month and year of the commencement of the delinquency that led to the bank's action.
The Senate Banking Committee report makes it clear that the bank is not obligated to place delinquent accounts for collection within a certain time, or even to initially report the delinquency. However, if the bank charges off a loan or account or begins a collection action, and furnishes that information to a credit bureau, the bank also must identify the month and year of the preceding delinquency.
This is intended to provide a reference date so the bureau can correctly calculate the obsolescence date after which the information can no longer be included in most consumer reports. This new reporting obligation applies only to information submitted to credit bureaus after Dec. 30, 1997.
In addition, a bank is now statutorily required to participate in the process of reinvestigating disputes, and must do so within time frames mandated in the revised law.
Specifically, if information furnished to a credit bureau is later disputed by the consumer, the bureau must notify the bank that furnished the information to the bureau, and the bank must conduct an investigation of the dispute.
The bank also must review relevant information submitted by the consumer to the credit bureau. The bank must report the results of the investigation to the credit bureau within 30 days after the consumer contacted the bureau, or up to 45 days if the consumer submits new information during the course of the investigation.
This time frame, in practice, will require quick turnaround by the bank because some of the time will be used by the credit bureau to get notice of the dispute to the bank, and enough time must be left at the end of the process for the bureau to report the results of the investigation to the consumer.
As a result, the bank actually may have as few as 20 days to complete its investigation and communicate the results to the credit bureau. This will require efficient compliance procedures on the part of the bank and is likely to lead to automated communication programs for banks and credit bureaus for processing such reinvestigation requests.
Except as noted above, these new reporting-act requirements take effect on Sept. 30, 1997. Banks and credit bureaus have one year to formulate their compliance procedures. Of course, banks may begin complying earlier if they are able to do so. Finally, with certain limited exceptions, the amendments preempt state laws that relate to furnishing information to credit bureaus.
Mr. Fischer, Mr. McEneney, and Mr. Camper are lawyers in the Washington office of Morrison & Foerster.
