Blog » 2016 » November » Credit Bureau Dispute Management: A Pillar to Fair Credit Reporting Act Compliance

Posted on Nov 3, 2016 11:24am PDT

As providers of financial services consulting, we often get involved in various types of initiatives, including those related to operational risk and FCRA compliance. In today’s environment, it is hard to think of operational risk and FCRA compliance without thinking of credit bureau compliance (or “consumer reporting compliance”). In our ongoing participation in industry dialogue, it continues to be clear that credit bureau compliance – which we define to include credit bureau reporting, disputes management, and data usage, is one of the most pressing topics facing lenders today. There are several reasons that bring this topic into focus. But let’s keep it simple: the CFPB has stated this is one of their top priorities over the next few years – and that on its own is enough to drive significant industry attention.

Of the three areas that make up credit bureau compliance, reporting has likely received more focus from data furnishers to date. However, credit bureau disputes management is an equally critical component of a credit bureau compliance program and is beginning to gain attention for many in the industry. This blog will cover four key considerations when examining your credit bureau disputes compliance program:

  1. Reasonable Investigations
  2. Frivolous/Irrelevant Definitions
  3. Root Cause Analysis
  4. Consumer Education & Experience

Reasonable Investigations

One of the most important (and least “prescriptive”) components of Regulation V (Fair Credit Reporting), the CFPB’s rule implementing the Fair Credit Reporting Act (FCRA), related to credit bureau disputes management is the requirement to “Conduct a reasonable investigation…”. This requirement can often be challenging to implement because what is “reasonable” is largely subjective and can vary based on information received in the dispute. Agreeing upon an internal definition of what constitutes a reasonable investigation and reviewing this definition with your regulator is typically a good first step to managing disputes in line with increased regulatory expectations. Once a strong definition is in place, it is then important to ensure the process is set up to enable reasonable investigations. A few questions are listed below, which you can ask yourself to help determine if your process is set up for reasonable investigations:

  1. Are my disputes agents positioned more as processors trying to work through volume or investigators seeking to prove out the customer’s claim and identify issues that may be impacting larger populations of accounts?
  2. What tools are available for disputes agents to complete their investigations? Do they have easy access to all systems that may have information to prove/disprove the consumer’s claim?
  3. How is disputes operations performance measured? Are key metrics based on volume, effectiveness, or a mix of both?

These questions are an overly simple proxy for a very complex process. However, if you are treating agents as investigators, providing them with the necessary tools/systems to fully investigate a dispute, and measuring success based on effectiveness in addition to (or in place of) volume, you are likely on your way to conducting reasonable investigations that will meet today’s increased expectations. For those who take a different approach, it does not mean you are doing something wrong, but it may be time to take a deeper look into your operation.

Frivolous & Irrelevant Dispute Definition

Considering that there’s no clear “industry standard” or “FCRA compliant” definition for frivolous or irrelevant disputes (or in other words – when a consumer does not provide sufficient information to investigate), care should be taken in determining how to handle these disputes. Cast a net too wide in defining disputes that don’t require investigation, and you could be opening potential legal and regulatory risk. Best practices for handling these types of disputes efficiently while still effectively managing risk include:

  1. Completing consistent reviews – diving deep enough to validate each piece of information provided by the consumer.
  2. If it is a repeat dispute, treat each dispute independently.
  3. If you choose, based on a business decision, not to investigate certain disputes that you define as frivolous or repetitive, make sure you have clearly defined definitions and “defendable” logic for why a dispute should not be investigated.
  4. Ensure that your dispute agents are sufficiently trained to accurately identify frivolous and irrelevant disputes.

Root Cause Analysis

Solid root cause analysis is an essential function across credit bureau disputes operations and is a critical control component for improving accuracy.

Root cause analysis:

  1. understanding the underlying issue that drove the dispute
  2. identifying/solving for other accounts that may be impacted
  3. fixing the systemic or process issue ultimately contributing to the error.

When done effectively, the disputes process can become a core component of your process improvement function, reducing the volume of new disputes and ultimately keeping costs down. Root cause analysis reporting is recommended to be reviewed on a regular, periodic basis with all stakeholders in the consumer reporting process for analysis and action.

Consumer Education and Experience

A frequently overlooked component of the credit bureau disputes process is the opportunity it provides to leave your customer with a positive customer experience. Credit reporting is generally a topic that most consumers may not fully understand – and this lack of understanding can sometimes be what leads to a dispute. When this occurs, taking the time to respond to the customer in a way that not only satisfies regulatory requirements but also gives them insight into how the credit reporting process works, how the disputes process works, why their dispute is not a valid one (if applicable), or how their dispute will be resolved if it was deemed to be valid, can lead to a more satisfied customer and reduce repeat disputes and/or escalated complaints. This education can be provided in a number of ways such as directing customers to educational material maintained online, sending communications throughout the process (e.g., receipt confirmation, status updates, decision, and final resolution if updates were required) that go beyond a typical form letter, or by interacting with the customer to discuss or clarify the dispute further prior to responding in writing.

While this more customer-centric approach was less widely taken years ago, it is gaining traction as a best practice given the benefits it can have for both the consumer and furnisher. In fact, we published a white paper dedicated to this topic late last year.

Conclusion

Consumer reporting compliance will continue to be a topic at the forefront for consumer lending over the next several years given the CFPB’s priorities. For those who may be facing an upcoming CFPB Compliance Exam, it is a topic that could very likely be in scope. As a financial services consulting firm, it has certainly impacted the type of work we do with our clients – and led us to establish a team focused on FCRA compliance and develop tools to help the industry achieve FCRA compliance. For those who have recently completed an examination of your consumer reporting compliance program you are likely ahead of the curve. However, it is smart to recognize that consumer reporting compliance is not a “one and done” task because the legal and regulatory expectations continue to rapidly evolve. The landscape that we see today is almost certainly going to be different then the landscape we see a year from now. For those who have not yet examined their consumer reporting compliance processes, it is something we would highly recommend as investing in preventive compliance controls up front can reduce the risk of future challenges and business impacts.