A Look At The Requirements Imposed By The “Fair Credit Reporting Act.”

1
A Look At The Requirements Imposed By The Fair
Credit Reporting Act.
2

• If a furnisher makes an accommodation with
  respect to 1 or more payments on a credit
  obligation or account of a consumer, and the
  consumer makes the payments or is not required
  to make 1 or more payments pursuant to the
  accommodation, then the furnisher shall report
  the credit obligation or account as current. 15
  U.S.C. 1681s-2(a)(1)(F)(ii). If the credit
  obligation or account was delinquent before the
  accommodation, the furnisher must maintain the
  delinquent status during the period in which the
  accommodation is in effect and, if the consumer
  brings the credit obligation or account current
  during the period described, the furnisher must
  report the credit obligation or account as
  current. Id.

3

• Excepted from these new requirements is a credit
  obligation or account of a consumer that has been
  charged-off. 15 U.S.C. 1681s-2(a)(1)(F)(iii).
  The covered period began retroactively on
  January 31, 2020, and lasts until the later of
  either 120 days after March 27, 2020, the date of
  enactment of this provision, or 120 days after
  the cessation of the COVID-19 national emergency
  declared by President Trump on March 13, 2020. 15
  U.S.C. 1681s-2(a)(1)(F)(i)(II).

4

• Consumers lives can be seriously affected by the
  information included on their credit reports bad
  scores can mean higher loan interest rates or
  denials of mortgage refinancing plans or other
  loans altogether. The information on consumers
  credit reports comes from furnishers of
  information, which contribute information to
  consumer reporting agencies (CRAs), who, in turn,
  compile the information into a consumer report
  and distribute that report. If at any point in
  this process, incorrect information is included
  on a consumers credit report, the consumers
  life could be disrupted and any furnishers of
  the information who provided incorrect
  information or failed to properly respond to a
  consumers dispute over the information in their
  report could face liability under the Fair Credit
  Reporting Act (FCRA).

5

• The FCRA, which seeks to protect consumers from
  having their lives disrupted by incorrect
  information, imposes duties on furnishers of
  information (such as mortgage lenders, loan
  servicers, and credit bureaus, among others) to
  ensure that consumer information is being
  reported correctly and accurately to CRAs. A
  furnishers obligations are found in the FCRA, 15
  U.S.C. 1681s-2, and the associated regulations,
  known as the Furnisher Rule, at 16 C.F.R. 660.
  Furnishers under the FCRA must be aware of and
  comply with these duties not only so they can
  avoid the hassle of litigation, but so they can
  also avoid regulatory penalties.

6

• Furnishers Must Report Accurate Consumer
  Information
• A furnishers first duty is simple A furnisher
  must report accurate consumer information to
  CRAs. Although simple on its face, this duty
  manifests itself in different ways. First, the
  FCRA expressly prohibits a furnisher from sharing
  information if the furnisher knows or has
  reasonable cause to believe that information is
  inaccurate. A furnisher has reasonable cause to
  believe that the information is inaccurate if it
  has specific knowledge, other than solely
  allegations by the consumer, that would give the
  furnisher substantial doubts about the
  informations accuracy.

7

• Second, once a consumer notifies a furnisher that
  specific information is inaccurate, the furnisher
  cannot provide that information to a CRA if the
  information is, in fact, inaccurate. Even if its
  accurate, the furnisher still may not report that
  information to a CRA unless the furnisher also
  notifies the CRA that the consumer has disputed
  the information.
• Third, when a furnisher determines that
  information it previously reported about a
  consumer is inaccurate or incomplete, it must
  promptly notify the CRA of that determination. It
  must also correct the information or provide
  additional information to make the information it
  previously reported accurate and complete and
  it must refrain from reporting the inaccurate or
  incomplete information in the future.

8

• Fourth, financial institutions that extend credit
  and regularly furnish information to CRAs in the
  ordinary course of business should note that, if
  the institution reports negative information
  (i.e., information concerning a customers
  delinquencies, late payments, insolvency, or any
  form of default) to a CRA about credit that the
  institution extended to a customer, the
  institution must notify the customer that it
  shared the negative information. The notice to
  the customer must be in writing and must be given
  either before, or no later than 30 days after,
  furnishing the negative information. The notice
  may be included with other materials provided to
  the consumer, including a notice of default or a
  billing statement, so long as the notice is
  clear and conspicuous.

9

• Once the furnisher provides this notice, the
  institution can provide a CRA with other negative
  information related to the same transaction,
  extension of credit, account, or customer without
  having to provide the customer with notice again.
  Importantly, the FCRA provides a safe harbor for
  financial institutions that fail to comply with
  these requirements so long as the financial
  institution either maintained reasonable policies
  and procedures to ensure compliance or reasonably
  believed that it was prohibited by law from
  contacting the consumer.

10

• Fifth, a furnisher must have in place reasonable
  procedures to respond to any notification that it
  receives from a CRA relating to information
  from identity theft so as to not re-report that
  blocked information. It is the CRAs
  responsibility to notify the furnisher that
  specific information may be the result of
  identity theft that a report has been filed
  that the consumer has requested a block of the
  information and that the block will be effective
  for specific dates. The consumer may also notify
  the furnisher directly about a claim of identity
  theft. If the consumer submits an identity theft
  report to a furnisher at the appropriate address
  designated for such reports, the furnisher may
  not report information that supposedly relates to
  the consumer unless the furnisher later knows or
  is informed by the consumer that the information
  is correct.

11

• When a Consumer Disputes Reported Information
• Because both CRAs and furnishers report
  information, consumers can dispute inaccurate or
  incomplete information to the CRA or directly to
  the furnisher. Regardless of whether the
  furnisher receives notice of the dispute
  directly, it is still obligated to investigate
  the information and report back to the CRA.

12

• Duties of Furnishers After Receiving a Direct
  Dispute The Furnisher Rule sets forth when a
  furnisher must investigate a dispute that the
  consumer made directly to the furnisher. Under 16
  C.F.R. 660.4, a furnisher must investigate a
  direct dispute if it relates to 1) the consumers
  liability for a credit account or debt with the
  furnisher 2) the terms of a credit account or
  debt with the furnisher 3) the consumers
  performance or other conduct concerning an
  account or other relationship with the furnisher
  or 4) any other information contained in a
  consumer report relating to an account or other
  relationship with the furnisher that bears on the
  consumers creditworthiness, credit standing,
  credit capacity, character, general reputation,
  personal characteristics, or mode of living.

13

• But there are exceptions A furnisher does not
  have to investigate a direct dispute that relates
  only to the consumers identifying information,
  the identity of past or present employers
  inquiries or requests for a consumer report
  information derived from public records
  information related to fraud alerts or active
  duty alerts or information provided to a CRA by
  another furnisher. Notably, to trigger a
  furnishers duty to investigate under the FCRA,
  the onus is on the consumer to provide proper
  notice of the dispute to the furnisher.

14

• Specifically, a notice of the dispute must be
  sent to one of the three following addresses the
  address provided by the furnisher and placed on
  the consumers credit report an address clearly
  and conspicuously specified by the furnisher for
  submitting direct disputes that are communicated
  to the consumer or to any business address of
  the furnisher if the furnisher has not specified
  an address for direct disputes. A notice of
  dispute must contain sufficient detail to
  identify the information at issue, the basis for
  the dispute, and any supporting documentation
  required to substantiate the basis for the
  dispute. When a furnisher receives notice from a
  consumer that complies with the above
  requirements, it has several obligations it must
  comply with.

15

• For starters, the furnisher must reasonably
  investigate the disputed information and review
  all the information that the consumer provided
  within the dispute notice. Once it has completed
  its investigation, the furnisher must then report
  the results of the investigation back to the
  consumer. This must be done before the end of
  the 30-day period beginning on the date on which
  the furnisher receives the notice of the
  dispute from the consumer. If, after completing
  its investigation, the furnisher determines that
  the information was inaccurate, it must notify
  each CRA of that determination and correct the
  information to make it accurate.

16

• There is no need to investigate a dispute if the
  furnisher has a reasonable belief that the
  dispute was submitted or prepared by a credit
  repair organization. Nor is there a duty to
  investigate a dispute that is frivolous or
  irrelevant. A dispute is frivolous or irrelevant
  under the Furnisher Rule if the consumer did not
  provide sufficient information to investigate
  the dispute is substantially the same as a
  dispute that was previously submitted by (or on
  behalf of) the consumer and the furnisher has
  already satisfied its obligations under the FCRA
  and Furnisher Rule, or the dispute is about the
  information listed in section (b) of the
  Furnisher Rule. If the furnisher is not going to
  investigate the dispute because it determines
  that the dispute is frivolous or irrelevant, it
  must notify the consumer of this decision no
  later than five days after making that decision.

17

• Duties of Furnishers After Dispute Sent to CRA
  Because Congress created the FCRA with the
  intention of protecting consumers, it also
  provides guidelines for steps a furnisher must
  take when a consumer disputes information with a
  CRA. Once the furnisher learns of the consumers
  dispute from the CRA, the furnisher must
  investigate the disputed information review the
  information provided by the CRA, and report the
  results of the investigation to the CRA. Thus,
  the FCRA contemplates three potential ending
  points to a dispute verification of the
  accuracy of the information a determination of
  the inaccuracy or incompleteness of the
  information or a determination that the
  information cannot be verified.

18

• If it is determined that the disputed information
  is incomplete or inaccurate, the furnisher must
  report that determination to all the CRAs it had
  previously reported the incomplete or inaccurate
  information to. Additionally, if the disputed
  information is determined to be incomplete or
  inaccurate, or if it cannot be verified, the
  furnisher must promptly modify, delete, or
  permanently block the reporting of that
  information.

19

• These actions must all be completed before the
  end of the 30-day period beginning on the date
  the consumer notifies the CRA of the dispute. If
  the CRA receives information from the consumer
  during that 30-day period that is relevant and
  applicable to the dispute, the deadline may be
  extended by up to 15 days. No extension is
  allowed if the information being investigated is
  found to be inaccurate or incomplete or if the
  CRA finds that the information cannot be verified.

20

• Reasonableness of the Investigation Whether a
  furnisher has complied with its obligations upon
  learning of a consumer dispute is becoming a
  highly litigated issue. Although consumers do not
  have a private cause of action against furnishers
  for reporting inaccurate information to CRAs,
  there is a private cause of action for
  noncompliance with the furnishers duties after
  receiving notice of a dispute, particularly when
  a furnisher fails to investigate a dispute.

21

• Because neither the FCRA nor the Furnisher Rule
  defines what constitutes an investigation, courts
  conduct their own inquiries to determine whether
  a furnisher has complied with this requirement.
  Historically, courts have evaluated a furnishers
  investigation based on reasonableness.

22

• In doing so, courts have explained that the
  plain meaning of investigation clearly requires
  some degree of careful inquiry by creditors.
  Because the purpose of the FCRA is to shield
  consumers from inaccurate and incomplete credit
  reporting by CRAs and furnishers, a provision
  that required only a cursory investigation would
  not provide such protection instead, it would
  allow furnishers to escape their obligations by
  merely rubber-stamping their earlier submissions,
  even where circumstances demanded a more thorough
  inquiry. Whether an investigation is reasonable
  is a fact-dependent inquiry that considers the
  quality of the documentation available to the
  furnisher in conducting its investigation.

23

• For example, four years ago in Hinkle v. Midland
  Credit Management, 827 F.3d 1295, 1305 (11th Cir.
  2016), the 11th Circuit held that a reasonable
  jury could conclude that the furnishers
  investigation, in that case, was not reasonable.
  According to the 11th Circuit, when a furnisher
  does not already possess evidence establishing
  that an item of disputed information is true,
  the FCRA requires the furnisher to seek out and
  obtainevidence before reporting the information
  as verified. Similarly, in Johnson v. MBNA Am.
  Bank, NA, 357 F.3d 426, 429-31 (4th Cir. 2004),
  the Fourth Circuit Court of Appeals held that an
  investigation was unreasonable when the furnisher
  had received notice that the consumer dispute
  that she was a co-obligor on a specific account.

24

• But the furnishers investigation only included
  confirming that the name and address on the
  report belonged to the consumer. The furnishers
  agents conceded they did not consult underlying
  documents when investigating the consumers
  dispute, which the court held was unreasonable
  given the specificity of the consumers dispute
  notice. By contrast, in Westra v. Credit Control
  of Pinellas, 409 F.3d 825, 827 (7th Cir. 2005),
  the Seventh Circuit held that the furnishers
  limited investigation of a consumer dispute was
  reasonable because the furnisher received hardly
  any information (such as the nature of the
  dispute or any supporting documentation) from the
  CRA.

25

• So what is required of a furnisher who receives a
  consumer dispute? In a situation in which the
  furnisher reports that the information is
  accurate, the question of whether the furnisher
  behaved reasonably will turn on whether the
  furnisher acquired sufficient evidence to support
  the conclusion that the information was true.
  Furnishers are, therefore, charged with
  uncovering documentary evidence that is
  sufficient to prove that the information is
  true. In doing so, the furnisher can rely on
  personal knowledge to establish the truth of the
  information.

26

• Of course, the furnisher can always determine
  that the information was, in fact, wrong or
  incomplete, report as such to the CRA, and
  modify, delete, or block future reporting of that
  information. Or the furnisher could satisfy its
  obligations under the FCRA by investigating the
  dispute and deciding that the information is
  unverifiable. Indeed, part of the purpose behind
  the act is to prevent CRAs from reporting
  information that cannot be verified. Information
  is unverifiable if the evidence needed to verify
  the disputed information is either nonexistent or
  is far too burdensome to obtain.

27

• If a furnisher determines that disputed
  information was unverifiable, the furnishers
  liability will ultimately hinge on whether the
  furnisher reasonably determined that further
  investigation would be fruitless or unduly
  burdensome. It is worth noting that ending an
  investigation with a finding that information is
  unverifiable does not require a furnisher to stop
  attempting to collect the debt from the consumer
  the furnisher is merely required to stop
  reporting that information to the CRAs.

28

• Penalties for Noncompliance
• As noted above, a furnishers obligation to
  investigate disputed information and report the
  findings to CRAs is what subjects many furnishers
  to lawsuits. To avoid those lawsuits, furnishers
  must implement reasonable procedures for consumer
  disputes and must comply strictly with the
  requirements set forth in the FCRA. The
  consequences of failing to do so can be
  time-consuming and costly.

29

• Consumers may bring suit for both willful and
  negligent failure to investigate. To prevail on a
  cause of action under the FCRA for such a
  violation, the plaintiff must show that 1) the
  investigation was objectively unreasonable, and
  2) the result of the furnishers investigation
  would have been different had the furnisher
  conducted a reasonable investigation. For
  lawsuits brought by consumers directly against
  furnishers, a furnisher who is found to have
  negligently failed to comply with its obligations
  under the FCRA is liable to the consumer for
  actual damages caused by the furnishers failure
  to comply with the FCRA, plus costs and
  reasonable attorneys fees. Actual damages refer
  to an amount awarded to a complainant to
  compensate for a proven injury or loss or
  damages that repay actual losses.

30

• The consequences for a furnisher who willfully
  fails to comply with its obligations under FCRA
  are more severe. If a furnisher willfully
  violates the FCRA, it is liable to the consumer
  for 1) the consumers actual damages or damages
  of not less than 100 and not more than 1,000
  (in the case of liability of a natural person for
  obtaining a consumer report under false pretenses
  or knowingly without a permissible purpose, the
  consumer is entitled to actual damages or 1,000,
  whichever is greater) 2) punitive damages and
  3) costs and reasonable attorneys fees.
  Willful noncompliance, by the way, is not
  limited to knowing noncompliance the Supreme
  Court has held that reckless disregard of a
  requirement under the FCRA also constitutes a
  willful violation.

31

• But furnishers must worry about more than
  consumer-brought civil actions to hold them
  accountable for their obligations under the FCRA.
  Congress has granted authority for administrative
  enforcement through the Federal Trade Commission,
  including granting the FTC the authority to bring
  a civil action to recover civil penalties for
  knowing violations of the FCRA. Other
  administrative agencies listed in the FCRA are
  also granted authority to enforce specific
  violations. Not to mention state governments are
  explicitly granted authority to bring civil
  actions to enjoin violations and to recover
  damages when furnishers fail to comply with the
  FCRA.

32

• Conclusion
• Any entity that reports consumer information to
  CRAs should take note of the FCRA requirements
  for furnishers and implement reasonable
  procedures to ensure that consumer information is
  being reported accurately and that disputes are
  adequately investigated. Consult with a
  knowledgeable attorney for help creating and
  executing procedures that satisfy these
  obligations and comply with the stringent
  requirements under the FCRA and the Furnisher
  Rule.

33

• Entities with investigation procedures already in
  place should also review them with their
  attorneys to ensure they are reasonable under
  the standards imposed by the courts. This will
  help avoid complaints from consumers alleging
  that their credit scores and reports are
  reflecting inaccurate or unverified information
  and will prevent penalties imposed by the Federal
  Trade Commission or your state for noncompliance.
  The investment is worth the return compliance
  with the Fair Credit Reporting Act will save
  entities from an unnecessary investigation by
  agencies, expenses, and litigation in the future.
• When youre looking for reporting requirements of
  the fair credit reporting act. Contact us at Law
  Office of Tony Turner.