This article first appeared on the Ontario Systems Blog and is republished here with permission.
If all you hear from your ops folks is that Fair Credit Reporting Act (FCRA) disputes are killing your bottom line, peel back the onion. If you furnish data to credit reporting agencies (CRA) about consumers you should expect a small percentage of consumers will dispute the items you furnish. Credit repair organization dispute scams are also a common lament. But if you are experiencing dispute levels above 20%, you can bet the CFPB is watching you.
Worried about your good standing? It’s time to review your compliance management system, and take a few important steps:
1. Determine the major sources of your disputes
If you do nothing else to update your compliance management system this month, you should add FCRA dispute trend analysis to your leadership team’s monthly meeting rhythms. During these meetings, you should be:
- Determining if certain accounts portfolios are triggering a disproportionate number of disputes
- Asking whether certain asset classes are triggering a disproportionate number of disputes
- Considering whether accounts with low balances account for the majority of your disputes
- Reviewing the minimum data you require about the consumer before you credit report
Once you identify the root cause of your high dispute numbers, take steps to design a targeted remediation program. High dispute rates are not an indication you must stop credit reporting, it only means you need to adjust your credit reporting strategy.
2. Check your reporting criteria – 5 is the magic number
When it comes to the quantity of data you collect before you report an account to a CRA most data furnishers agree two points are insufficient, four are good, and five are great. If you are not using at least five data points to identify the consumer before you report to the CRAs you should change your reporting criteria. The large banks and credit card companies now require their third-party debt collection agency service providers to use at least five data points to ensure the credit reporting agencies associate the right party with the information they report.
Examples you may use to confirm a consumer’s identity may include a combination of first name, last name, current and prior address, date of birth, social security number, driver’s license number and place of employment. The more due diligence you exercise before you report an account, the greater the likelihood the information will not be disputed by the consumer. If you find your dispute rate is still high even after changing the criteria thresholds, next consider increasing the balance threshold you use to identify accounts for credit reporting.
3. Increase the balance threshold on accounts eligible for credit reporting
Credit reporting is a costly process even for data furnishers who experience very low levels of disputes. But credit reporting can become cost prohibitive for data furnishers who experience high levels of disputes. One very easy way to reduce dispute levels is to increase the balance on accounts eligible for credit reporting to a $1000 minimum. The reason to make this change in your reporting strategy is not because accounts with lower dollar balances trigger a greater number of disputes than high balance accounts, but because the ROI for lower dollar accounts is completely consumed by the costs you will incur to investigate them.
Most medical data furnishers have already raised balance thresholds to the $1000 – $1500 minimum and the practice is pouring over to other market segments. If you are in doubt, do the math:
- Determine average amount of time it takes your data furnisher dispute investigator to complete and close an investigation
- Identify the fully loaded, average, hourly rate you pay your data furnisher dispute investigator(s)
- Using these two data points, now calculate the unit cost of a dispute investigation.
For the sake of our analysis, let us assume the unit cost of a dispute investigation for your agency is $50. This means, using very round numbers, you need to collect at least $50 on this account to only cover the cost of the investigation and no other expenses related to the collection of the account. If you earn a commission of 20% on an account, you would need to collect a gross amount of $250 in order to recoup the $50 you will spend on managing the account holder’s E-OSCAR dispute.
4. Don’t be afraid to use technology solutions to perform the dispute investigation process
In addition to the controls and strategies you can initiate to reduce the number of disputes you receive either directly from consumers or indirectly through the E-OSCAR process, you may want to incorporate the use of an automated dispute management software solution. The solution I am most familiar with is Sonnet. Sonnet is one of the automated data management solutions produced and sold by Palinode. It is extremely powerful and will replicate your credit reporting dispute investigation policies, procedures and workflow. In doing so it increases the data furnisher’s likelihood of compliance with laws and regulations, decreases the costs associated with dispute investigation processes and in most cases reduces one’s dependency on FTEs for dispute investigations.
5. Review applicable laws, regulations, and most importantly the Bureau of Consumer Financial Protection’s (BCFP) formal Guidance Bulletins
Dispute investigation is not the mere act of checking if the data you furnished matches the data you received from the original creditor or debt buyer. Rather, dispute investigation requires unique processes to be tailored to the nature of the specific disputes. Some of the most common disputes filed by consumers include:
- identity theft
- mistake in identify
- incorrect balance
- settled in full
- paid in full
- frivolous disputes
For example, if the consumer states they do not owe the debt and you have reported the item in error, don’t simply respond by telling the consumer their name matches the name received by the creditor. It’s your duty to review the account thoroughly and ensure your operation is reporting accurate information. Included in this duty is the expectation you carefully review and compare the information provided by the consumer against the information you have in your possession about the account and if necessary, examine the creditor’s documentation about the account.
To be sure you and your team are properly investigating consumer FCRA disputes, read the five BCFP Guidance Bulletins and update your policies and procedures accordingly.
- PUBLISHED FEB 03, 2016 – Bulletin re: furnisher FCRA obligation to have reasonable written policies and procedures
- PUBLISHED FEB 27, 2014 – Bulletin re: FCRA requirement that furnishers conduct investigations of disputed information
- PUBLISHED SEP 04, 2013 – Bulletin re: the FCRA’s requirement to investigate disputes and review “all relevant” information
- PUBLISHED JUL 10, 2013 – Bulletin re: representations regarding effect of debt payments on credit reports and scores
- PUBLISHED NOV 29, 2012 – Bulletin re: FCRA’s streamlined process requirement for consumers to obtain free annual reports
Credit reporting remains a powerful collection tool, but it is not one without costs and risks. Do your homework, update your policies and procedures, monitor and analyze your collection rates, adopt champion challenger campaigns both among portfolios and within portfolios, analyze your disputes and above all properly investigate all direct and indirect consumer disputes. They are all important to maintain strong compliance programs.