New FACT Act Has Created Dispute Among Credit Bureaus And Lenders |
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The Fair and Accurate Credit Transactions Act, (FACT) passed in 2003, makes it mandatory for all credit bureaus to provide one copy of free credit report annually to all the US consumers. Now, it seems that credit bureaus are beginning to pass this cost of free credit report on to lenders. The three major credit-reporting agencies (Equifax, Experian, and TransUnion) have begun charging lenders an additional, supplemental fee of at least $0.08 for each credit report ordered. On top of the new credit report fees, lenders are facing other additional costs, in terms of time and money, because of the act's requirements. The law's free credit report requirement requires the Big 3 national bureaus to set up a central system (website and phone and mail) for consumers to request each of their free credit report. Following a lot of whining by the credit bureaus, Congress allowed the Federal Trade Commission (FTC) to consider slowing the implementation of the law to prevent overloads. Consequently, as proposed, the FTC rule would provide free credit reports in 4 staggered quarterly rollouts, first to the West Coast on 1 December 2004, but not to the East Coast until 1 September 2005. On December 1, 2004 the major U.S. credit bureaus began providing free credit report annually to residents of the western states, as mandated by the Fair and Accurate Credit Transaction Act (FACT Act) passed in late 2003. Regulators agreed to allow the bureaus to roll out the new service in phases through the remainder of 2005, beginning with the west coast, to reduce peak-load problems associated with the anticipated flood of requests. The good news for US consumers is that they can obtain their credit report for free by September 1, 2005. During legislative hearings leading up to passage of the FACT Act, both bureaus and lenders argued that making a free credit report available to every U.S. consumer each year would impose enormous additional costs on the lending industry, not only through the logistics of providing and tracking reports delivered, but also from handling the inevitable customer service inquiries associated with report disclosures. In the month of April 2004, the senior member of Equifax called the FACT Act provision that the first time a business has been required by Congress to provide its products and services without receiving any compensation whatsoever. Not surprisingly, the credit bureaus are attempting to pass on these extra costs to the primary purchasers of free credit report, the lending industry. The American Banker reports that both Equifax and TransUnion have begun charging lenders a flat regulatory recovery fee of 11 cents per credit report ordered. The third major credit bureau, Experian, is charging a sliding supplemental fee starting at 8 cents per report. An Equifax spokesman said that none of the [banks] were pleased, but many of them understand the circumstances. In addition, the FACT Act requires creditors to tell customers their credit report score, and the basic factors that influence the score. The credit bureaus have offered to provide this service to consumers, on the lender's behalf, for a fee. A provision of providing free credit report to consumers that became effective in December 2004 requires lenders to give customers not only their credit report score, but also four reasons for the score, when they apply for credit. The new disclosure requirement could increase costs for lenders because they must incorporate the rule into their loan origination systems. Given the proliferation of free credit report, most lenders expect a sharp increase in the volume of disputes as consumers examine, perhaps for the first time, their own credit reports. A senior counselor told the American Banker that if they are not on the compliance side, they don't understand what goes into this. For financial institutions, this is a big deal. So, till FACT doesn't come in picture there is argument between credit bureaus and lenders that increases the cost of ordering a credit report!!! The requirement that credit bureaus provide free credit report was one of the few bright spots in the 2003 enactment of major legislation, the Fair and Accurate Credit Transactions Act, which permanently restricted state authority to enact many credit reporting and financial privacy laws. |
