What is the Direct Dispute Rule

direct dispute ruleIn June of 2009, the FACT Act Furnisher Rules were passed by the federal banking agencies and the Federal Trade Commission.

These rules will go into effect July 1, 2010 and will regulate the accuracy and integrity of consumer information which furnishers of such information provide to consumer reporting agencies (the credit bureaus).

The new rules will require the “furnisher of information”, such as a lender, financial institution, debt collector, loan servicer that report or “furnish” information to the consumer reporting agency (credit bureaus) investigate disputes.

The furnisher of negative information to a credit report will be obligated to investigate consumer disputes under the Direct Dispute Rule.

Direct Dispute Rule

The Direct Dispute Rule gives consumers the power to dispute directly with the furnishers of the information in their credit reports rather than disputing only with the credit bureaus. Formerly, the furnisher of information to the credit bureaus were only required to respond directly to the credit bureaus after the consumer submitted a credit dispute.

The Direct Dispute Rule requires furnishers of information to respond to disputes submitted to them by the consumer. The new rules require the furnisher to conduct an investigation of consumer disputes regarding the accuracy of the information provided by that furnisher to the credit bureaus.

The rule also forces the furnisher of information to review all documentation and proof the consumer submits along with their dispute.

The consumer must submit the dispute and information to the address the furnisher has provided in the consumer’s credit file, unless the furnisher has not provided an address.

In that case, the consumer can submit the dispute to any address of the furnisher. The furnisher will have 30 days to conduct an investigation, just as the credit bureaus.

No longer will the credit bureaus and furnisher be able to solely rely upon the E-Oscar method of handling disputes where most credit disputes are reduced to a numerical code through an automated electronic dispute system.

With the E-Oscar automated system a consumer may submit documentation and proof along with a dispute and it is never reviewed or forwarded to the furnisher of information.

Accuracy and Integrity Rule

The accuracy of the information the furnisher provides to the consumer reporting agency must reflect the terms of liability of the account, the consumer’s performance regarding the account and whether or not information identifies the appropriate consumer.

The integrity of the information provided by the furnisher must be substantiated by the furnisher’s records and furnished in a way which minimizes the likelihood the information could be incorrectly reflected in a consumer’s credit report.

What this new law really means to the consumer

Previously consumers could dispute information directly with the creditors; however, the creditor or furnisher of information was under no requirement to respond. Now, under the new law, original creditors must respond within 30 days just like the credit bureaus. The original creditor must investigate, not verify a dispute.

The chances an original creditor has maintained your records after 18 months of a charge-off, inactivity or closure is highly unlikely. This can work to your advantage as the original creditor may not be able to back up their negative reporting, such as late payments, of an account.

Some original creditors may not have any records at all as accounts age. During recent years there have been numerous bank mergers and consolidations, often consumer records do not get transferred in their entirety. Just like the credit bureaus, if the original creditor cannot prove your dispute, they must delete it from your credit report. The original creditor has (30) days in order to conduct an investigation.

The FACT Act Furnisher Rules will require furnishers to establish and implement written policies and procedures concerning the accuracy and integrity of the information provided by the furnisher to the consumer reporting agencies (credit bureaus).

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