Following in the footsteps of the Guilty Until Proven Innocent flaw, for every consumer who has ever tried to challenge the accuracy of a derogatory account on his or her credit reports, I know you will agree that this is a big flaw in the system. Basically, when it comes to derogatory information on your credit reports, the law states that you have the right to ask for two things:

1. Verification of the claim from the creditor, court or collection agency reporting it; and
2. For the credit bureaus to investigate the validity of the item with the creditor, court, or collection agency.

If either of these two requests are not responded to under certain guidelines, as follows, then the items must be deleted from your credit reports. But the process DOES NOT WORK for consumers.

This is because the law is unclear and left open to interpretation. There is no concrete language establishing the definition of the terms “reasonable procedures,” “reasonable investigation,” “verification,” or “unverifiable.” Stricter guidelines must be put into place to make the investigation and verification procedures clearer and more demanding of the creditors and credit bureaus.

Following are the key sections that pertain to this flaw. You decide. You can access the full content of the Acts on my site.

Fair Credit Reporting Act (FCRA)

• § 607. Compliance procedures [15 U.S.C. § 1681e]. This is the section that regulates how the credit to bureaus report information about consumers to lenders. The following key text from this section proves that consumer protection offered is useless without a term definition for “reasonable procedures.”

“(b) Accuracy of report. Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.”

• § 611. Procedure in case of disputed accuracy [15 U.S.C. § 1681i]. This is the section that regulates how the credit bureaus handle investigation of a disputed account. Again, consumer protection offered is useless without a term definition for “reasonable investigation.”

“(1) Reinvestigation Required
(A) In general. Subject to subsection (f), if the completeness or accuracy of any item of information contained in a consumer’s file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly, or indirectly through a reseller, of such dispute, the agency shall, free of charge, conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate and record the current status of the disputed information, or delete the item from the file.”

Fair And Accurate Credit Transaction Act (FACTA)

It was finally recognized that the FCRA did not address the verification process in sufficient detail, and thus in 2003 the Fair and Accurate Credit Transaction Act (FACTA) came along as an amendment. Here’s the language of FACTA that pertains to this issue:

• Section 313. FTC And Consumer Reporting Agency Action Concerning Complaints

“(A) consumer disputes with consumer reporting agencies over the accuracy or completeness of information in a consumer’s file are promptly and fully investigated and any incorrect, incomplete, or unverifiable information is corrected or deleted immediately thereafter;”

• Section 314. Improved Disclosure Of The Results Of Reinvestigation.

”(i) promptly delete that item of information from the file of the consumer, or modify that item of information, as appropriate, based on the results of the reinvestigation; and”

• Section 314. Improved Disclosure Of The Results Of Reinvestigation.

“(E) if an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after any reinvestigation under paragraph (1), for purposes of reporting to a consumer reporting agency only, as appropriate, based on the results of the reinvestigation promptly-

(i)     modify that item of information;
(ii)    delete that item of information; or
(iii) permanently block the reporting of that item of information.”

• Section 317. Reasonable Reinvestigation Required.

“Section 611(a)(1)(A) of the Fair Credit Reporting Act (15 U.S.C. 1681i(a)(1)(A)) is amended by striking ”shall reinvestigate free of charge” and inserting ”shall, free of charge, conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate.”

Here’s the problem: As a credit score expert who has consulted on thousands of credit challenged situations, I can confidently say that the laws don’t work! Period. And the legislators responsible for writing and enacting the new laws do not properly regulate the creditors and the credit bureaus. It’s all smoke and mirrors. So, riddle me this: What do you think is the most commonly used and printed phrase employed by all three credit bureaus to respond to consumer disputes?

“We have verified that this item belongs to you.”

There has to be a better way!