Maryland Legal Alert for Financial Services
FCRA Duty to Conduct Reasonable Inquiry
We frequently receive inquiries from clients concerning credit reporting disputes and furnisher obligations under the federal Fair Credit Reporting Act (FCRA) and its implementing regulation (Regulation V). Regulators (including the Consumer Financial Protection Bureau -- CFPB) often cite creditor deficiencies involving the accuracy of information furnished to consumer reporting agencies (CRAs), the duty to conduct reasonable investigations of direct disputes, the duty to notify CRAs of direct disputes and delinquent accounts, and the duty to obtain consumer consent prior to submitting identity theft reports. CFPB guidance concerning conducting investigations of consumer disputes is available here and here.
Furnishers of consumer credit data should have policies in place to:
- Ensure that CRAs are promptly notified of fraudulent accounts;
- Address how furnishers will notify CRAs of direct disputes;
- Enable reasonable investigations of direct disputes;
- Ensure that furnishers accurately report dates of first delinquencies to CRAs; and
- Ensure that information relating to identity theft reports is furnished after completion of an investigation.
The Fourth Circuit further clarified the duty to conduct a “reasonable investigation” and to what types of disputes the duty applies in a case involving a disputed credit report tradeline related to the termination of a residential lease. The case focused on a lease-related deficiency that a landlord referred to a collection agency. The collection agency reported the deficiency to CRAs and the consumer submitted disputes to the three major CRAs. When notified of the dispute concerning the tradeline, the collection agency merely confirmed the debt with the landlord. The consumer then brought suit under the FCRA.
The consumer’s dispute involved the question as to whether the FCRA required furnishers to investigate disputes that were ultimately legal verus factual concerning the underlying debt. The Fourth Circuit held that furnishers must investigate disputes based on information that is “objectively and readily verifiable” even if the dispute involves legal and factual issues. The court held that furnishers must conduct “some degree of careful inquiry” to determine whether disputed information can be verified. In this case, the court remanded the proceeding to the lower court so that the lower court could determine whether the collection agency’s confirmation of the debt with the landlord was enough of a “careful inquiry” to satisfy the FCRA’s reasonable investigation requirements.
Practice Pointer: Furnishers should review previous CFPB guidance on establishing reasonable policies and procedures regarding the accuracy and integrity of information, conducting investigations, and investigating disputes to ensure compliance with FCRA and Regulation V.
For more information, contact Christopher R. Rahl.