July 22, 2010

Credit Union Management magazine’s Web-only “On Compliance” column runs the fourth Thursday of each month.

While many credit unions’ attention has been predominantly focused on complying with July 1, 2010, deadlines for changes to Regulations E and Z, less attention has likely been paid to final rules that recently took effect under the Fair and Accurate Credit Transactions Act of 2003 regarding duties imposed on furnishers of consumer information to consumer reporting agencies.

In general, the FACT Act rules impose responsibilities on furnishers, including credit unions, relating to the accuracy and integrity of consumer information provided to CRAs. (The FACT Act rules also require furnishers to respond to consumer direct disputes concerning the accuracy of information contained in a consumer report, although this article does not address this requirement.)

“Accuracy” and “integrity” are defined terms under the new rules. “Accuracy” means that information a furnisher provides to a CRA correctly reflects: (1) the terms of and liability for the account; (2) the consumer’s performance on the account; and (3) the identity of the appropriate consumer. “Integrity” means the information: (1) is substantiated by the furnisher’s records at the time it is furnished; (2) is furnished in a form and manner designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; and (3) includes information from the furnisher, the absence of which could result in a misleading evaluation of a consumer’s creditworthiness (for example, the consumer’s credit limit).

The FACT Act rules were issued on July 1, 2009, by the Office of the Comptroller of Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp., Office of Thrift Supervision, the National Credit Union Administration, and Federal Trade Commission to implement the accuracy and integrity provisions under the act, and took effect on July 1, 2010.  

Among other things, the FACT Act rules require furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information provided to a CRA. The rules include guidelines that furnishers must consider in developing their policies and procedures, requiring that a furnisher’s policies and procedures be appropriate to the nature, size, complexity, and scope of the furnisher’s activities.

Guidelines for Policy Development

The guidelines also provide that in establishing and implementing its policies and procedures, a furnisher should do the following:

1. Identify practices or activities that can compromise the accuracy or integrity of information furnished to CRAs. Identifying potentially compromising practices or activities can be done by:

• reviewing existing practices and activities, including the technological means and other methods the furnisher uses to provide information to CRAs, and the frequency and timing of furnishing this information;
• reviewing historical records relating to accuracy or integrity or to disputes; reviewing other information relating to the accuracy or integrity of information provided to CRAs; and considering the types of errors, omissions or other problems that may have affected the accuracy or integrity of information furnished about consumers to CRAs;
• considering any feedback received from CRAs, consumers or other appropriate parties;
• obtaining feedback from staff; and
• considering the potential impact of the furnisher’s policies and procedures on consumers.

2. Evaluate the effectiveness of its existing policies and procedures regarding the accuracy and integrity of information furnished to CRAs; consider whether new, additional or different policies and procedures are necessary; and consider whether implementation of existing policies and procedures should be modified to enhance the accuracy and integrity of information about consumers furnished to CRAs.

3. Evaluate the effectiveness of specific methods (including technological means) the furnisher uses to provide information to CRAs; how those methods may affect the accuracy and integrity of the information provided to CRAs; and whether new, additional or different methods (including technological means) should be used to provide information to CRAs to enhance the accuracy and integrity of that information.

More Policy-Making Components

While your credit union has most likely implemented processes to report accurate information to CRAs, the FACT Act rules must be reviewed and your program enhanced as appropriate. The rules provide an extensive list of specific components that must be addressed in your credit union’s policy, as applicable; we highlight a select number of these components below.

Among other things, your credit union’s policy should address:

1. Technological issues, such as the use of standard data reporting formats and procedures for compiling and furnishing data (such as the electronic transmission of information about your members to CRAs) and designing a means of communication with CRAs to prevent duplicate reporting or other occurrences that compromise data. To this end, your credit union may wish to re-review existing third-party software vendor contracts pursuant to which the vendor provides assistance in compiling and furnishing data.

2. Implementation of internal controls, such as by verifying random samples of information provided to a CRA. Scheduling and conducting periodic audits is recommended.

3. Oversight of service providers whose activities may affect data, such as debit and credit card processors, loan servicers, and outsourced collections. For example, vendor contracts should provide your credit union with the right to periodically audit the vendor’s facilities and controls for compliance and/or obtain the vendor’s SAS 70 (or equivalent) reports.

4. Furnishing information to CRAs following mergers and portfolio acquisitions or sales. In this context, the merging and continuing credit union (or buyer and seller of assets, as the case may be) and their respective data processors must cooperate and work together to ensure a seamless conversion that prevents re-aging of information, duplicate reporting or other problems.

5. Going forward, conducting a periodic evaluation of your credit union’s own practices that may affect the accuracy or integrity of information and update them as needed.

If your credit union has questions regarding compliance with the recent FACT Act rules, it should contact its counsel for assistance.

Marie L. Pascua and Raza Ali are attorneys with STYSKAL, WIESE & MELCHIONE, LLP, Glendale, Calif.