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 of the other Agencies.

Direct Disputes

As amended by section 312 of the FACT Act, 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 Agencies' Advance Notice of Proposed Rulemaking

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 Agencies issued an advance notice of proposed rulemaking (ANPR) in March 2006.\7\ 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.

\7\ 71 FR 14,419 (March 22, 2006).

The Agencies received a total of 197 comments. Commenters included depository institutions, other financial services companies, trade associations, a CRA, a credit score service provider, a mortgage company, consumer groups, and individual consumers. Key issues identified and comments received on the accuracy and integrity criteria and on the direct dispute factors are summarized separately in the next two sections.
Comments Pertaining to Accuracy and Integrity Regulations and Guidelines

Burden of accuracy and integrity regulations and guidelines. A consistent theme among industry commenters on the ANPR was that the proposed guidelines and regulations should be sensitive to the voluntary nature of the reporting of information about consumers by furnishers to CRAs and not create undue burdens on furnishers that would discourage reporting. These commenters asserted that imposing burden on furnishers may result in furnishers reporting less information than they do presently or ceasing to report at all, thereby decreasing the effectiveness of the current credit reporting system for both consumers and industry.

Types of errors, omissions, or other problems that may impair the accuracy and integrity of furnished information. Many commenters detailed the types of errors that may impair the accuracy of information furnished to CRAs. Industry commenters, consumer groups, and individuals stated that some furnishers do not report consumers' positive payment histories, a practice that can lead to lower credit scores than consumers may merit. Similarly, commenters also noted that some furnishers do not report credit limits, which may likewise lead to lower credit scores. Consumer groups reported that sales of consumer accounts to collection agencies also result in accounts being ``re aged,'' meaning that a debt receives a new origination date when the collection account is opened, resulting in the debt being included on a consumer's credit file longer than legally permissible. In addition, a number of industry commenters mentioned that data entry errors by furnishers and different data processing procedures by the CRAs can result in ``mixed files''files that include information from two or more consumers. Commenters noted that furnishing inaccurate information can adversely affect consumer credit scores and result in higher costs of credit for some consumers and increased credit risk for lenders.

Patterns, practices, and specific forms of activity that can compromise the accuracy and integrity of furnished information. Industry commenters and consumer groups stated that a number of furnishers do not use the industry standard format for reporting information about consumers to CRAs, which results in the reporting of inaccurate information. In addition, industry and consumer groups mentioned that sales of debt to collection agencies or to other creditors results in inaccurate information reported to the CRAs (e.g., duplicative reporting of accounts and reaged accounts). Consumer groups and a trade association noted problems with inaccurate bankruptcy information being reportedsome furnishers continue to report a debt as not included in bankruptcy, fail to record a debt as discharged, or continue to show a balance owed after bankruptcy discharge. Several industry commenters stated that some furnishers do not provide data to CRAs in a timely manner, which may result in delinquent debtors appearing as current on their loans.

Business, economic, or other reasons for the patterns, practices, and specific forms of activity that can compromise the accuracy and integrity of furnished information. A few consumer groups and trade associations indicated that some creditors omit good payment history or credit limit information in order to protect their proprietary underwriting systems and prevent competitors from soliciting business from their customers. Some commenters also asserted that collection agencies have little economic incentive to report updated or accurate information because they typically do not use consumer report information to determine credit risk.

Recommendations and descriptions of policies and procedures that a furnisher should implement and maintain to identify, prevent, or mitigate patterns, practices, and specific forms of activity that can compromise the accuracy and integrity of information furnished to a CRA. Some individual and industry commenters recommended that furnishers report all consumer account information to CRAs and not omit information. Consumer groups and some industry commenters recommended that furnishers should report using the Metro 2 formata standard reporting format created by the credit reporting industryor a similar standardized format. Some depository institutions and trade associations suggested that the accuracy and integrity guidelines should be flexible and take into consideration the diversity of furnishers with regard to size and business complexity.

Methods (including technological means) used to furnish information about consumers to CRAs. Industry commenters stated that most furnishers are reporting to the three nationwide CRAs electronically using the Metro 2 format, although some furnishers transmit information via magnetic tape, disks, or paper. Some trade associations commented that errors can be introduced into a consumer's credit file when a CRA translates the furnisher's raw data into the CRA's database. [[Page 70948]]

Maintenance and enforcement of policies and procedures to ensure the accuracy and integrity of information furnished to CRAs. Industry commenters stated that, in general, furnishers have policies and procedures in place to ensure the accuracy of information and perform internal audits to verify accuracy. Industry commenters also stated that furnishers have a business incentive to maintain and report accurate information in order to maintain good customer relations.

Methods (including any technological means) that a furnisher should use to ensure the accuracy and integrity of information about consumers furnished to CRAs. Industry commenters suggested that furnishers should use internal reports to verify the accuracy of information transmitted to the CRAs. Consumer groups recommended that furnishers take appropriate steps to ensure that they report bankruptcy discharge information accurately.

Descriptions of policies, procedures, and processes used by furnishers to conduct reinvestigations and to correct inaccurately furnished information and recommendations that furnishers should adopt. Industry commenters indicated that most furnishers use an electronic automated system (eOSCAR) for receiving and transmitting consumer dispute information from and to the three nationwide CRAs. Although each furnisher has its own procedures for investigating disputes, furnishers generally review the information provided by the CRA and compare it to the information in the consumer's file at the furnisher. A few industry commenters stated that using the eOSCAR system to conduct reinvestigations is adequate. One trade association stated that furnishers should establish better reinvestigation procedures and provide staff training for processing credit disputes.

Consumer groups commented that furnishers' reinvestigation procedures are inadequate in that they only verify that the reported information is consistent with the furnishers' records, not the underlying accuracy of such information. Consumer groups recommended that furnishers should perform indepth investigations beyond verifying that information reported to CRAs matches furnishers' records, including contacting consumers to obtain additional information, if necessary. Consumer groups also noted that CRAs do not provide furnishers with documentation provided by consumers to support their claims.

Description of the policies and procedures of CRAs for ensuring the accuracy and integrity of furnished information and whether and to what extent those policies, procedures, or other requirements address particular problems that may affect information accuracy and integrity. A few industry commenters noted that CRAs have implemented policies to ensure the accuracy of information that they receive from furnishers. One industry commenter asserted that once CRAs incorporate data into their databases, furnishers do not know how CRAs actually apply the data to consumer credit files or whether the data is applied to the correct consumers.

Comments Pertaining to Direct Dispute Regulations

Circumstances under which a furnisher should be required to investigate a dispute. Industry commenters indicated that furnishers generally are voluntarily investigating disputes that are directly submitted to them using a process that is similar to the one furnishers use to investigate disputes that CRAs forward to the furnishers. Industry commenters, however, also stated that investigations of direct disputes should be required only in instances of fraud or identity theft that can be documented by the consumer, or where the consumer has provided a written detailed dispute to the furnisher. Other industry commenters believe that investigations of direct disputes should only be required if the consumer has already disputed the item with the CRA and received a response. Consumer groups favored a broad application of the direct dispute rule, noting that many furnishers already have an obligation to investigate other types of disputes for major product categories under other laws, such as the Truth in Lending Act, Real Estate Settlement Procedures Act, and Electronic Fund Transfer Act. Some individuals commented that furnishers should always be required to reinvestigate a consumer's account upon the consumer's request.

Benefits or costs to consumers that may result from a direct dispute right. Consumer groups commented that consumers would benefit from direct disputes because the dispute requirement would eliminate the problem of CRAs not forwarding disputes and supporting documentation to furnishers and would provide furnishers with necessary documentation to investigate errors or fraud. One individual noted that consumers would benefit by being able to deal with one entity, the furnisher, rather than the three nationwide CRAs. Some industry commenters noted that consumers would benefit from direct disputes in complex cases or where the consumer needs to provide the furnisher with supporting documentation.

Benefits to furnishers, consumer reporting agencies, or the credit reporting system that may result if furnishers are required to investigate direct disputes. Consumer groups stated that direct disputes will result in a more accurate credit reporting system and would afford industry the opportunity to standardize the dispute resolution process. A few industry commenters stated that direct disputes would yield faster dispute resolution for consumers. Some industry commenters mentioned that direct disputes may be beneficial for providing to furnishers additional documentation for complex disputes, noting that such information may not be forwarded by CRAs.

Costs to furnishers, consumer reporting agencies, or the credit reporting system of implementing a direct dispute requirement. Industry commenters believed that a direct dispute requirement would impose significant costs on furnishers resulting from an expected increase in the number of direct disputes. One depository institution reported that the costs of resolving a direct dispute are related to whether the disputed information contains derogatory information and the nature of the consumer's dispute. Some industry commenters noted that reviewing consumers' lengthy payment histories can be costly. One industry commenter noted that a direct dispute requirement would shift costs from CRAs to furnishers.

One consumer group commented that startup costs should not be burdensome as many furnishers already have direct dispute
responsibilities for their major products (such as credit cards). This commenter asserted that the cost for processing a direct dispute ranges from $25 to $200, and that this cost is exceeded by the harms to consumers who are adversely affected due to reporting errors.

Impact on the overall accuracy and integrity of consumer reports if furnishers are required to investigate direct disputes. Some industry commenters stated that they expect an adverse impact on overall accuracy and integrity of consumer reports as a result of an increase in duplicate disputes and costs, decreased efficiency in processing disputes, and the likelihood that some furnishers would stop reporting or report less information than they currently do.

Whether direct contact by the consumer with the furnisher would likely result in the most expeditious
[[Page 70949]]
resolution of a dispute. Industry commenters generally believed that direct contact by the consumer is most appropriate in instances of fraud, identity theft, or where detailed information is needed in order to resolve the consumer dispute. Some industry commenters also stated that direct contact by the consumer would not be appropriate where the error lies with the CRA or an aggregator rather than with the furnisher.

Potential impact on the credit reporting process if credit repair organizations are able to circumvent the FCRA's prohibition of their submission of direct disputes. Consumer groups and an individual commented that attorneys should be permitted to assist consumers with disputes and not be considered credit repair organizations. Industry commenters predicted an increase in costs resulting from a significant increase in the number of direct disputes that would be filed by credit repair organizations, which, these commenters contended, are often deliberately vague or overbroad.

Additional, specific comments are mentioned, as appropriate, in the sectionbysection analysis.

The Agencies have carefully considered the comments received in response to the ANPR in developing the proposed accuracy and integrity regulations and guidelines and the proposed direct dispute regulations. The Agencies also reviewed a number of studies that have identified potential issues that may affect the accuracy of consumer report information. These studies indicate that consumer report accuracy may be affected by the presence of stale account information, the practice of furnishing only negative information about an account, inaccurate or incomplete public record data, inaccurate or incomplete collection account data, and unreported credit limits.\8\
\8\ See Robert B. Avery, Raphael W. Bostic, Paul S. Calem & Glenn B. Canner, An Overview of Consumer Data and Credit Reporting, Federal Reserve Bulletin, vol. 89, at 4773 (Feb. 2003); Robert B. Avery, Paul S. Calem, Glenn B. Canner & Shannon C. Mok, Credit Report Accuracy and Access to Credit, Federal Reserve Bulletin, vol. 90, at 297322 (Summer 2004); Consumer Federation of America & National Credit Reporting Association, Credit Score Accuracy and Implications for Consumers (Dec. 17, 2002), http://www.consumerfed.org/pdfs/121702CFA_NCRA_Credit_Score_Report_Final.pdf (last visited Oct. 4, 2007); Federal Trade Commission and Board of Governors of the Federal Reserve System, Report to Congress on the Fair Credit Reporting Act Dispute Process (Aug. 2006). IV. SectionbySection Analysis \9\
\9\ The OCC, Board, FDIC, OTS and NCUA would place the proposed regulations and guidelines implementing section 312 in the part of their regulations that implement the FCRA12 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 would place the proposed 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 components of this rulemaking: the proposed accuracy and integrity regulations, the proposed accuracy and integrity guidelines, and the proposed direct dispute regulations. Proposed Accuracy and Integrity Regulations

Section .40 Scope

Section .40 sets forth the scope of each Agency's proposed regulations requiring furnishers to establish reasonable policies and procedures for implementing the accuracy and integrity guidelines. Each of the Agencies has tailored this section to describe those entities to which this subpart applies. The FDIC requests comment on whether it would be useful to include a crossreference in its proposed regulation to the definition of ``subsidiary'' in the Federal Deposit Insurance Act.\10\
\10\ See 12 U.S.C. 1813(w)(4).

Section .41 Definitions.

Two approaches to defining the terms ``accuracy'' and ``integrity.''

Section 623(e) of the FCRA requires the Agencies to establish and maintain guidelines for use by furnishers regarding the accuracy and integrity of the information about consumers that they furnish to CRAs. The statute does not define the terms ``accuracy'' or ``integrity.''

Consumer group and industry commenters on the ANPR provided suggestions for defining the terms ``accuracy'' and ``integrity.'' Consumer groups proposed that the Agencies define the term ``accuracy'' to mean ``conformity to fact,'' rather than conformity to data records. They said that an accuracy standard should rely not only upon a furnisher's data records, but also upon original documents such as credit agreements. Some consumer groups also said that information should not be considered ``accurate'' if it is overly general, incomplete, outofdate, or misleading. Consumer groups also proposed that the Agencies make clear that information lacks ``integrity'' if it is technically accurate, but misleads users of consumer reports because it does not include critical information.

Industry commenters, citing the legislative history of the FACT Act, suggested that the term ``integrity'' does not mean completeness, but rather, that the information a furnisher provides to a CRA is factually correct.

In the Agencies' view, neither the text nor the legislative history of the FACT Act resolves how the terms ``accuracy'' and ``integrity'' should be defined. Although the terms used in section 623(e) differ from terms used in other provisions of the FCRA,\11\ the text of section 623(e) provides no direction to the Agencies about the meaning or significance of that difference.\12\ The Agencies have reviewed the legislative history, and note that the Congressional Record includes postenrollment statements regarding section 623(e) made by the Chairman of the House Financial Services Committee and by the Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs.\13\ Those statements,
[[Page 70950]]
however, provide different views on the meaning of the terms. \11\ See FCRA section 623(b)(1), 15 U.S.C. 1681s2(b)(1) (requiring entities that furnish information to CRAs to conduct investigations in response to complaints regarding the
``completeness or accuracy'' of furnished information); sections FCRA 623(a)(2)(A)(B), 15 U.S.C. 1681s2(a)(2)(A)(B) (requiring furnishers to correct and update information that the furnisher determines is ``not complete or accurate'' and to refrain from refurnishing information that remains ``not complete or accurate''). \12\ 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. This language also was contained in the bill passed by the Senate and referred to the Conference Committee. However, the bill reported by the Conference Committee used the phrase ``accuracy and integrity.'' 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).
\13\ See 149 Cong. Rec. E2512, E2516 (Nov. 4, 2003) (extension of remarks of Chairman Michael Oxley, entered into the Congressional Record on Dec. 9, 2003) (`` `[a]ccuracy and integrity' was selected [by the Congress] as the relevant standard rather than `accuracy and completeness' as used in Sections 313 and 319 [of the FACT Act], to focus on the quality of the information furnished rather than the completeness of the information furnished.''); 149 Cong. Rec. S1580602 (Nov. 24, 2003) (statement of Ranking Member Paul Sarbanes) (`` `[A]ccuracy' relates to whether the information that is provided by data furnishers to credit reporting agencies is factually correct. The term `integrity' relates to whether all relevant information that is used to assess credit risk and to grant credit is accurately provided. Integrity of information is not achieved when furnishers do not fully provide data that, by its absence, could have a positive or negative effect on a consumer's credit score, or on his or her ability to obtain credit under the most favorable terms for which he or she qualifies.'').

In light of these considerations, the Agencies are proposing for comment two alternative approaches to defining the terms ``accuracy'' and ``integrity'' in the text of the regulations and guidelines. Although the definition of ``accuracy'' is the same under both alternatives, the two approaches differ in terms of both the substance of the definition of ``integrity'' and the placement of the definitions. Accordingly, the Agencies request comment on which definition of ``integrity'' should be adopted in the final rule, and on whether the definitions of ``accuracy'' and ``integrity'' should be placed in the regulations or in the guidelines.

A. Regulatory Definition Approach

Under the first approach, the Agencies would provide specific definitions for the terms ``accuracy'' and ``integrity'' in the regulations. This approach, labeled ``Regulatory Definition Approach,'' appears at Sec. Sec. .41(a) and .41(b) in the text of the proposed regulations. Under proposed Sec. .41(a), the term ``accuracy'' means 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 or other conduct with respect to the account or other relationship. This proposed definition of ``accuracy'' is intended to require that furnishers have reasonable procedures in place to ensure that the information they provide to CRAs is factually correct. The Agencies solicit comment on whether the definition of accuracy should specifically provide that accuracy includes updating information as necessary to ensure that information furnished is current.

Under proposed Sec. .41(b), the term ``integrity'' means 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 of a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Thus, the Regulatory Definition Approach provides 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.\14\
\14\ ``A key factor that credit evaluators consider when they assess the creditworthiness of an individual is credit utilization. If a creditor fails to report a credit limit for an account, credit evaluators must either ignore utilization or use a substitute measure such as the highestbalance levelthat is, 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 highestbalance amount is typically lower than the credit limit: the higher estimate leads, in turn, to a higher perceived level of credit risk for affected consumers.'' Robert B. Avery, Paul S. Calem, Glenn B. Canner, Credit Report Accuracy and Access to Credit; Federal Reserve Bulletin, Summer 2004, p. 306.

Under the Regulatory Definition Approachand as described in further detail in the sectionbysection analysis of the guidelines the Agencies would include in the guidelines six objectives that a furnisher's policies and procedures should be designed to achieve. The six objectives seek to ensure that: Information is furnished accurately; information is furnished with integrity; 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; information is reported in a form and manner designed to minimize the likelihood that it will be erroneously reflected in the consumer's report; information furnished is substantiated by the furnisher's records; and the furnisher updates information it furnishes as necessary to reflect the current status of the consumer's account or other relationship. The first two of these objectives would reflect the regulatory definitions of ``accuracy'' and ``integrity.''

Thus, under the Regulatory Definition Approach, the guidelines would provide 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:

Consistent with the FCRA, under which the furnishing of information about consumers is voluntary, the proposed definitions would apply only to information that the furnisher elects to report to CRAs. The Agencies are aware that some furnishers may be subject to separate obligations to report all available information about an account or other relationship.\15\ These proposed definitions, however, are not intended to require furnishers to do so.
\15\ Furnishers that report information about consumers to CRAs related to mortgage loans may be required by Freddie Mac, Fannie Mae, and the Federal Housing Administration to report fullfile information. 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) (Rev5) (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).

B. Guidelines Definition Approach

The second approach contained in the proposal, labeled the ``Guidelines Definition Approach,'' would define the terms ``accuracy'' and ``integrity'' in the guidelinesrather than in the regulations with reference to the objectives that a furnisher's policies and procedures should be designed to accomplish.

Under the Guidelines Definition Approach, the Agencies have identified four objectives that pertain to the accuracy and integrity of information furnished and related matters. Definitions for the terms ``accuracy'' and ``integrity'' would be incorporated into the first two of these objectives. Thus, the guidelines would provide 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 would define ``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 or other conduct with
[[Page 70951]]
respect to the account or other relationship. This is the same definition of ``accuracy'' used in the Regulatory Definition Approach.

Additionally, the guidelines would provide that a furnisher's policies and procedures should ensure that the information it furnishes about accounts or other relationships with a consumer is furnished with integrity. The guidelines would define ``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; and (2) should be substantiated by the furnisher's own records. In addition to being placed in a different location, this definition is substantively different from that used in the Regulatory Definition Approach.

Under the Guidelines Definition Approach, the definition of ``integrity'' does not address the omission of any term the absence of which could contribute to an incorrect evaluation by a user of a consumer's creditworthiness. Instead, the proposed definition of ``integrity'' addresses two potential issues with furnished information. First, accurate information may be attributed to the wrong consumer or the wrong account, or may be associated with an erroneous date. Second, if the accuracy of the furnished information is disputed, the furnisher should be able to substantiate, or verify, the information through its own records. The Regulatory Definition Approach also includes these two concepts in the guidelines as objectives that a furnisher's policies and procedures should be designed to achieve. The Guidelines Definition Approach, like the Regulatory Definition Approach, also includes as objectives: Ensuring 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; and ensuring that the furnisher updates information it furnishes as necessary to reflect the current status of the consumer's account or other relationship.

As noted above, the Agencies invite comment on these alternative definitions of ``integrity,'' and on whether the definitions of ``accuracy'' and ``integrity'' should be placed in the regulatory text or in the guidelines.

Furnisher

Proposed Sec. .41(c) would define the term ``furnisher'' to mean an entity other than an individual consumer that furnishes information relating to consumers to one or more CRAs. An entity is not a furnisher under the proposed definition when it provides information to a CRA solely to obtain a consumer report under sections 604(a) and (f) of the FCRA, which enumerate the circumstances under which a CRA may provide a consumer report and prohibit persons from obtaining or using consumer reports for impermissible purposes. Users of consumer reports may provide information about consumers to CRAs in order to obtain such reports, but they do not do so for the purpose of having such information included in consumer reports. Although the user's request for the report may be reflected in the consumer report as an inquiry, the Agencies do not believe it would be appropriate to subject such furnishing of information to the regulations and guidelines proposed here. In addition, by defining the term ``furnisher'' in terms of an entity other than an individual consumer, the proposal makes clear that consumers are not furnishers, even if they selfreport information about themselves to a CRA.

Identity Theft

Proposed Sec. .41(d) provides that the term ``identity theft'' has 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,\16\ defines the term ``identity theft'' to mean ``a fraud committed or attempted using the identifying information of another person without authority.'' This definition also is used in the interagency regulations implementing section 114 of the FACT Act (Red Flags).
\16\ Section 111 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).

Direct Dispute

Proposed Sec. .41(e) defines ``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. Although the definition of ``direct dispute'' uses the term accuracy, the proposed Regulatory Definition Approach provides a definition of accuracy for purposes of the definition of ``direct dispute,'' but the Guidelines Definition Approach does not.

The Agencies solicit comment on whether the definition of ``accuracy'' should be made applicable to direct disputes, if the Guidelines Definition Approach is adopted. The Agencies also solicit comment on whether the proposed definition of ``accuracy'' is appropriate for the direct dispute provision.\17\
\17\ The Agencies note that section 623(a)(8) only requires a furnisher to handle direct disputes about ``accuracy.'' In contrast, section 611(a) requires a CRA to handle disputes about
``completeness or accuracy'' and section 623(b) requires furnishers to reinvestigate disputes about ``completeness or accuracy'' if the disputes come through a CRA. The Agencies particularly request comment on whether the definition of ``accuracy'' needs to be clarified in order to more clearly delineate those disputes that, while subject to the CRA dispute process, would not be subject to the direct disputes rule.
Section .42 Reasonable Policies and Procedures Concerning the Accuracy and Integrity of Furnished Information

Paragraph (a) of proposed Sec. .42 would require each furnisher to 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 policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher's activities.

The requirement that furnishers' policies and procedures be written facilitates effective implementation and enables the Agencies to assess furnishers' compliance with the rules. The Agencies do not believe that the requirement for written policies and procedures will be unduly burdensome, particularly since, under the guidelines, a furnisher may include any of its existing policies and procedures that are relevant and appropriate. As noted previously, industry commenters responding to the ANPR noted that, in general, furnishers have policies and procedures in place to ensure the accuracy of information furnished to CRAs. The Agencies invite comment on any burden and effects on furnishers, particularly small furnishers, regarding the requirement that the policies and procedures be written.

The Agencies recognize that there is substantial diversity among furnishers with respect to their structure, operations, and the types of business they conduct, such that a ``onesizefitall'' approach to the implementation of the guidelines is inappropriate. The requirement that the furnisher's policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher's activities permits furnishers to tailor their policies and procedures to their business activities.
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The Agencies expect, for example, that the policies and procedures for a small retail entity would differ from those of a multibillion dollar financial services company.

Proposed Sec. .42(b) requires each furnisher to consider the accuracy and integrity guidelines in developing its policies and procedures and to incorporate those guidelines that are appropriate. 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 ensure the accuracy and integrity of the information about consumers that they provide to CRAs.

Some of the commenters on the ANPR specifically suggested that the Agencies require furnishers to review or audit their furnishing policies and procedures in order to ensure that the information about consumers continues to be furnished accurately and with integrity. Proposed Sec. .42(c) incorporates these commenters' suggestions and would require each furnisher to review its policies and procedures periodically and update them as necessary to ensure their continued effectiveness.

Proposed Accuracy and Integrity Guidelines

The accuracy and integrity guidelines appear as Appendix E to the appropriate part of each Agency's regulations. In the introductory language to the guidelines, the Agencies encourage voluntary furnishing of information about consumers to CRAs. This reflects 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 reminds furnishers that Sec. .42 of the proposed regulations would require each furnisher to establish and implement reasonable written policies and procedures concerning the accuracy and integrity of the information about consumers it furnishes to CRAs and to consider the guidelines in developing those policies and procedures.
Section INature, Scope, and Objectives of Policies and Procedures

The Nature and Scope section of the guidelines references the requirement, at proposed Sec. .42(a), that a furnisher's policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher's activities and provides the following examples of aspects of a furnisher's business activities that its policies and procedures should reflect: The types of business activities in which the furnisher engages; the nature and frequency of the information about consumers the furnisher provides to CRAs; and the technology used by the furnisher to provide information to CRAs.

The Objectives section of the guidelines provides that a furnisher should have written policies and procedures reasonably designed to accomplish the specified objectives. As described earlier in the discussion of the terms ``accuracy'' and ``integrity,'' the wording of some of the objectives set out in the guidelines is related to the alternative approaches to construing the term ``integrity'' that the Agencies are proposing in the text.

In connection with the Regulatory Definition Approach, the first two objectives of the guidelines would provide 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 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 Guidelines Definition Approach, definitions of ``accuracy'' and ``integrity'' would be incorporated into the first two objectives. Thus, the guidelines would provide 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 would define ``accuracy'' to mean that with respect to any information that a furnisher provides about an account or other relationship with the consumer to a CRA 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.

Additionally, under the Guidelines Definition Approach, the guidelines would provide 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 would define ``integrity'' to mean, that any information that a furnisher provides to a CRA about an account or other relationship with the consumer is:

As indicated in the discussion of the proposed accuracy and integrity regulations, the Agencies invite comment on the alternative approaches to defining the term ``integrity'' and the appropriate placement of the definitions. When responding to these issues raised by the Agencies, commenters may wish to address, among other relevant factors, how the approaches would impact the quality of information in consumer reports, the burdens on furnishers, and the relative benefits to consumers, the credit reporting system, and users of consumer reports.

The third proposed objective under both approaches states 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. This objective addresses concerns raised by commenters that some furnishers perform perfunctory investigations of consumer disputes in cases where a proper investigation would require reviewing information beyond the account status listed in the furnisher's electronic records, and that some furnishers do not update their own records when errors are discovered, resulting in incorrect information being reported again to the CRAs.

The fourth proposed objective under both approaches states 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
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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 states that the information a furnisher furnishes about accounts or other relationships with a 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 reported with appropriate identifying information about the consumer to which it pertains, in a standardized and clearly understandable form and manner, with a date specifying the time period to which the information pertains.

The sixth proposed objective under the Regulatory Definition Approach states that the information a furnisher furnishes about accounts or other relationships with a furnisher should be substantiated by the furnisher's own records.
Section IIAccuracy and Integrity Duties of Furnishers Under the FCRA

This section reminds furnishers of their statutory duties that relate to the accuracy and integrity of the information about consumers they provide to CRAs. This section states that a furnisher's policies and procedures should address compliance with all applicable requirements imposed on the furnisher under the FCRA and lists certain of those requirements, including the duty to investigate direct disputes as required by proposed Sec. .43 and section 623(a)(8) of the FCRA. This section also lists 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.
Section IIIEstablishing and Implementing Policies and Procedures

This section identifies three steps that furnishers should take when establishing 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. Methods appropriate for this purpose include:

Second, a furnisher should 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 are necessary. As is specifically mentioned in the introduction to the guidelines, a furnisher may incorporate in its accuracy and integrity policies and procedures any of its existing policies and procedures that are relevant and appropriate.

Third, a furnisher should evaluate the effectiveness of specific methods (including technological means) the furnisher uses to provide information about consumers to CRAs and determine whether changes to those methods are appropriate to enhance the accuracy and integrity of that information.

Section IVSpecific Components of Policies and Procedures

This section serves to address specific problems raised by commenters on the ANPR, studies regarding the consumer reporting system, and other information gathered by the Agencies in the course of developing this proposal. The proposed guidelines detail specific components that should be addressed in a furnisher's policies and procedures. These include:

Proposed Regulations Concerning Direct Disputes

The third component of this notice of proposed rulemaking comprises the Agencies' proposed 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 about the consumer contained in a consumer report,\20\ based on a direct request by the consumer. The statute sets forth procedural and other requirements applicable to any such reinvestigations.
\20\ For purposes of the proposed Sec. .43(c) and (d) of the direct disputes provision, a ``consumer report'' means a disclosure a CRA provides to a consumer as referenced in section 609(a) of the FCRA. CRAs may provide such disclosures in a different format than a consumer report they provide to a third party and refer to them as ``file disclosures.''

We note that a number of industry commenters on the ANPR indicated that they are already voluntarily investigating direct disputes as a matter of good customer relations and sound business practices. The Agencies encourage furnishers to continue voluntary investigations of consumer disputes as one way to enhance the accuracy and integrity of the information about consumers they provide to CRAs.\21\
\21\ 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 their respective supervisory agencies. See generally FRB, ``How to File a Consumer Complaint Against a Bank,'' http://www.federalreserveconsumerhelp.gov (last visited October 26, 2007);
FDIC, ``Consumer Affairs Brochure: Fostering Consumer Confidence in Banking, How to file a Written Complaint'' (October 2005), http://www.fdic.gov/consumers/questions/consumer/complaint.html (last
visited November 1, 2007); OTS, ``How to Resolve a Consumer Complaint'' (February 2007), http://www.ots.treas.gov/docs/4/480924.pdf (last visited October 24, 2007); and OCC, ``Assistance
for Customers of National Banks'' (April 2005), http://www.occ.gov/customer.pdf (last visited October 24, 2007).

Section .43(a) General Rule

The proposed general rule would require a furnisher to investigate a direct dispute if it relates to:

The proposed rule is designed to permit direct disputes in virtually all circumstances involving disputes with respect to the types of information typically provided by the furnisher to a CRA, while excepting out certain types of information from the direct dispute process. The Agencies are proposing this approach in light of the considerations set forth in the statute to be weighed by the Agencies, including the benefits to consumers, the impact on the overall accuracy and integrity of consumer reports, and whether direct disputes would lead to the most expeditious resolutions of consumer disputes. The exceptions in the proposed rule relate to information where the disputes are more appropriately directed to the CRA, such as information derived from public records, which may be obtained directly from public sources,\22\ and information about requests for consumer reports (``inquiries''). The Agencies specifically request comment on whether this approach appropriately weighs all of the relevant considerations.
\22\ The public records exception applies only to inform