Consumer Compliance Outlook
Furnishers' Compliance Obligations for Consumer Credit Information Under the FCRA and ECOA
Consumer reports and credit scores have become an indispensable tool for creditors, not only when evaluating credit applications and setting credit terms and conditions but also during account review for existing accounts. Because the information that furnishers provide to consumer reporting agencies (CRAs) can have significant consequences for consumers, Congress created consumer protections for furnished information.
The two primary laws are the Fair Credit Reporting Act (FCRA), as implemented by Regulation V,1 12 C.F.R. Part 1022, and the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, 12 C.F.R. Part 1002. This article reviews furnishers' compliance obligations under the ECOA and the FCRA.
EQUAL CREDIT OPPORTUNITY ACT/REGULATION B
Section 1002.10 of Regulation B imposes three obligations on creditors furnishing consumer credit information to the CRAs. First, a furnisher must designate accounts to reflect both spouses' participation in the following circumstances: for new accounts when the spouse is an authorized user or is liable on the account (except as a guarantor, surety, endorser, or similar party); and for existing accounts when one of the spouses makes a written request to reflect both spouses' participation on the account. In the latter situation, the furnisher must make the designation within 90 days after receiving the written request.2
Second, when an account is designated to reflect the participation of both spouses, the information must be furnished to the CRAs in a way that enables the CRAs to provide access to the information in the name of each spouse.3
Finally, when a creditor receives an inquiry about an account that reflects the participation of both spouses, the creditor must furnish the information in the name of the spouse for whom the request is made.4 For example, if the inquiry concerns an account on which a husband and wife both participate, and the inquiry specifically is about the wife, the creditor must provide the information in the wife's name.
The Official Staff Commentary to §1002.10 clarifies that these requirements only apply to consumer credit and only apply to furnishers if they choose to furnish information to the CRAs because furnishing such information is not required.5 Further, in furnishing information to the CRAs, furnishers are not required to distinguish between an account on which a spouse is a contractually liable party and one on which a spouse is an authorized user.6
Violations of these provisions subject furnishers to civil liability for actual and punitive damages,7 but if a furnisher fails to comply with §1002.10 because of an inadvertent error, there is no violation. Upon discovering the error, the furnisher must correct it as soon as possible.8 Under ECOA, violations may, in some circumstances, be referred to the Department of Justice9 or the Department of Housing and Urban Development.10
FAIR CREDIT REPORTING ACT/REGULATION V
A 1996 amendment to the FCRA11 created compliance obligations for furnishers under §623 of the FCRA.12 According to a report of the Senate Committee on Banking, Housing and Urban Affairs, “[t]he driving force behind the changes was the significant amount of inaccurate information that was being reported by consumer reporting agencies and the difficulties that consumers faced getting such errors corrected. In fact, during the period leading up to the amendments, the FTC [Federal Trade Commission] consistently indicated that it received more complaints about consumer report errors than any other item.”13 Section 623, among other things, generally provides that a furnisher must not furnish inaccurate consumer information to a CRA, and that furnishers must investigate a consumer's dispute of the completeness or accuracy of information after the furnisher receives notice from a CRA.
Duty to Provide Accurate Information: FCRA §623(a)
Inaccurate Information. Section 623(a) prohibits furnishers from reporting information to a CRA if the furnisher “knows or has reasonable cause to believe that the information is inaccurate.”14 The statute defines “reasonable cause to believe that the information is inaccurate” to mean “specific knowledge, other than solely allegations by the consumer, that would cause a reasonable person to have substantial doubts about the accuracy of the information.”15
Duty to Correct and Update Information. A furnisher that regularly furnishes information to CRAs is also required to notify a CRA if it has determined that previously furnished information is not complete or accurate and to correct that information.16 For example, if a bank reports to a checking account verification service that a consumer's account was closed with an outstanding negative balance, and the consumer subsequently paid off that balance, the bank would have a duty to report that the balance had been paid off.17
Duty to Provide Notice of Dispute. When a consumer disputes the completeness or accuracy of furnished information, the furnisher must note the dispute to the CRAs when furnishing the information.18
Duty to Provide Notice of Closed Accounts. Furnishers that regularly furnish information to CRAs must notify the CRAs when a consumer voluntarily closes a credit account.19 This information must be included in information regularly furnished for the period in which the account is closed. The legislative history indicates that this requirement is designed to complement the requirement in §605 of the FCRA that CRAs must indicate in a consumer report when a consumer voluntarily closes an account20 and to “ensure that an account closed by a consumer does not lead to the incorrect assumption by credit grantors reviewing the consumer's consumer report that the account was closed because the consumer failed to meet its terms. Such an assumption could result in the denial of credit to a consumer.”21
Duty to Provide Notice of Delinquency of Accounts. When an account is placed for collection, is charged to profit or loss, or a similar action is taken, and that delinquency is furnished to a CRA, the furnisher must notify the CRA of the date of delinquency on the account no later than 90 days after furnishing the information.22 This date is the month and year the account first becomes delinquent, not when the creditor places the account for collections, charges the account to profit or loss, or takes a similar action. For example, if an account became delinquent in January 2010 but the creditor waited until April 2010 to sell it to a collection agency, the “date of delinquency” is January 2010. See S. Rep. 104-185 , at 49-50 (1995).
Identity Theft. Furnishers are required to maintain reasonable procedures to respond to notifications from the CRAs under §605B relating to information resulting from identify theft in order to prevent the refurnishing of this information. In addition, when a consumer submits an identity theft report to a furnisher indicating that furnished information resulted from identity theft, the furnisher may not report the information to the CRAs unless the furnisher subsequently knows or is informed by the consumer that the information is correct.23
Negative Information. If a financial institution that extends credit and regularly furnishes information to a nationwide CRA furnishes negative information to the CRAs about a consumer credit extension, it must provide a clear and conspicuous written notice to the consumer indicating that it furnished negative information to the CRAs. The notice must be provided to the consumer no later than 30 days after furnishing the negative information. After providing the notice, the financial institution is not required to send the consumer additional notices if it furnishes additional negative information to the CRAs about the same transaction, credit extension, account, or consumer.24 Two model forms (“Furnishing Negative Information”) are available in Appendix B of Regulation V. Appropriate use of one of the two model notices in Regulation V provides a safe harbor for complying with the notice requirement in §623(a)(7). See Appendix B of Regulation V.
Furnishers' Investigation of Disputes Filed with CRAs: §623(b)
In addition to establishing accuracy requirements, the FCRA requires furnishers to investigate consumer disputes filed with the CRAs about information the furnishers provided. Note that this requirement under §623(b) applies only to disputes that consumers file with the CRAs, which the CRAs forward to the furnisher. Congress amended the FCRA in 2003 with the Fair and Accurate Credit Transactions Act (FACT Act), which established a furnisher's obligation to investigate disputes that consumers file directly with the furnisher.25 Those direct dispute requirements, which became effective July 1, 2010, are discussed later in the article.
Investigation Procedures. Under §623(b)(1), when a furnisher receives notice from a CRA that a consumer disputes the completeness or accuracy of information the furnisher provided to the CRA, it must investigate the disputed information, review all relevant information provided by the CRA, and report the results of its investigation to the CRA. If the furnisher determines that the information it provided was incomplete or inaccurate, it must notify all nationwide CRAs to which the information was furnished of its findings.26 Finally, if the furnisher determines that the disputed information is inaccurate or incomplete or cannot be verified, the furnisher must promptly modify or delete the information or permanently block the reporting of that information.27 The furnisher generally has 30 days from the date the consumer filed the dispute with the CRA to complete its investigation and make appropriate notifications, but the investigation period may be extended an additional 15 days in some circumstances.28
Additional Furnishers' Duties Under the FACT Act
Section 312 of the FACT Act expands furnishers' affirmative duties concerning the accuracy and integrity of the information they furnish, contains a provision that allows consumers to file disputes directly with the furnishers, and specifies the procedures furnishers must follow in responding to direct disputes. In July 2009, the federal banking agencies and the Federal Trade Commission (FTC) issued a final rule implementing §312's requirements, which became effective July 1, 2010.29 Because the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred rulemaking authority for most sections of the FCRA to the Consumer Financial Protection Bureau (CFPB),30 the §312 regulations are now under the jurisdiction of the CFPB, which republished them as CFPB regulations.31 See 12 C.F.R., Part 1022, Subpart E.
Accuracy and Integrity Requirements: §1022.42. Section 1022.42 requires furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the consumer information furnished to CRAs. “Accuracy” means that the information provided to a CRA by a furnisher correctly:
- identifies the appropriate consumer;
- reflects the account's terms and liability; and
- reflects the consumer's performance with respect to the account.32
“Integrity” means the information provided to a CRA by a furnisher:
- is substantiated by the furnisher's records at the time it is furnished;
- is in a form designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; and
- includes information in the furnisher's possession that the CFPB has determined would likely be materially misleading in evaluating a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, if absent.33 For open-end credit products, the credit limit (if any) is the one item of information the agencies have determined would likely be materially misleading if omitted.34
The final rule includes guidelines for designing and implementing policies and procedures to comply with the accuracy and integrity requirements in Appendix E of Regulation V (“Interagency Guidelines Concerning the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies”). Under §1022.42(b), furnishers must consider the guidelines in developing policies and procedures and incorporate them as appropriate in light of the nature, size, complexity, and scope of the furnisher's activities.
Direct Disputes Rule: §1022.43. The dispute provision in §623(b) discussed above only requires furnishers to investigate a consumer dispute that is filed with a CRA, which, in turn, would forward the dispute to the furnisher to investigate. When Congress passed the FACT Act in 2003, it allowed consumers to also file disputes directly with the furnisher.35
Under the regulations implementing this provision, when a consumer files a direct dispute, a furnisher is required to investigate if the dispute relates to any of the following issues: (1) the consumer's liability for a credit account or other debt with the furnisher; (2) the terms of a credit account or other debt with the furnisher; (3) the consumer's performance or other conduct concerning an account or other relationship with the furnisher; or (4) any other information contained in a consumer report for an account or other relationship with the furnisher that bears on the consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.36
The direct dispute rule does not apply if the dispute relates to the consumer's identifying information, the identity of past or present employers, or inquiries or requests for a consumer report. It also does not apply to disputes relating to information that is derived from public records, provided to a CRA by another furnisher, or related to fraud alerts or active duty alerts.37
A furnisher is required to investigate the dispute only if the consumer submitted the dispute notice to one of the following addresses: (1) an address the furnisher provided and is listed on the consumer report; (2) an address the furnisher clearly and conspicuously identified for submitting direct disputes; or (3) if no address is specified, any business address of the furnisher.38 The dispute notice must contain sufficient information to identify the account in dispute, the specific information being disputed, an explanation of the basis for the dispute, and all supporting documentation reasonably required by the furnisher to substantiate the basis of the dispute.39
After receiving the dispute notice, the furnisher must determine whether to initiate an investigation or dismiss the dispute as frivolous or irrelevant. A dispute is frivolous or irrelevant if the dispute notice (1) does not contain sufficient information to investigate the dispute; (2) raises a dispute about information exempted from the rule; or (3) raises a dispute that is substantially the same as a dispute previously submitted by the consumer and resolved in accordance with the regulations. If the dispute is found to be frivolous or irrelevant, the furnisher has five business days to mail the consumer a notice of determination. The notice of determination must include the reasons for the determination and any information required to investigate the disputed information.40
If the furnisher does not find the dispute frivolous or irrelevant, the furnisher must review all relevant information provided by the consumer in the dispute notice and conduct a reasonable investigation. The furnisher has 30 days from receipt of the dispute notice (with the possibility for a 15-day extension under certain circumstances) to complete the investigation and report the results to the consumer.41 If the furnisher finds that the information reported was inaccurate, the furnisher must promptly notify each CRA to which it provided the inaccurate information of the determination and provide the changes necessary to make the information accurate.42
Financial institutions that furnish information to the CRAs must have adequate policies and procedures in place to ensure that they are complying with these requirements, including procedures to periodically test systems to verify compliance. Specific questions should be addressed to your primary regulator.