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Financial Outsourcing Solutions


FOS Blog

08 Feb

What Can We Learn from the State Farm Case?

When the FACT Act was rolled out, it took 3 years for regulators to fully implement it with regulations.  It seems when we hit the “Identity Theft” sections, it took our breath away and most institutions left their focus there.  However, one of the last sections to become effective was Section 312 related to accuracy and integrity of information furnished to consumer reporting agencies (CRAs) which became effective July 1, 2010.  Regulators included in Regulation V, Section 1022.42, that furnishers must develop policies and procedures consistent with Appendix E having to do with the accuracy and integrity of information furnished to the consumer reporting agencies.

When we conduct FACT Act or Fair Credit Reporting Act (FCRA) audits, we inquire about these written procedures and often hear the response that the Bank’s core system vendor handles furnishing information to credit bureaus.  Yes, they do the reporting on behalf of the bank and assure that it is in the required Metro 2 format.  But the accuracy and integrity of what’s reported is the responsibility of the local bank.  Frequently, loan operations staff have no clue as to the use of credit bureau reporting codes like those found at  or how to apply them in the Bank’s particular loan accounting system.  Other than delinquency, are you reporting when an account is in dispute, when the dispute is resolved, when an account holder dies, when the consumer requested the account be closed (vs bank closure), when payments are deferred (loan mitigation), repossessions – to name a few conditions?

In an Administrative Proceeding, State Farm Bank FSB was found to have violated these requirements.  The 25-page consent order is a good study of what can happen if you ignore this compliance requirement. State Farm Bank was found negligent for:

  • furnishing information about consumers’ credit that the bank knew or had reasonable cause to believe was inaccurate;
  • failing to promptly update or correct information furnished to CRAs;
  • furnishing information to CRAs without providing notice that the information was disputed by the consumer; and
  • failing to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs.

Management should review the case and perform targeted training for their own institutions to avoid non-compliance situations.

Article written by Evelyn I. Dehmey, for additional information contact