Credit reports provide a record of each consumer’s use of credit over time. Such reports “play a critical role in the lives of consumers,” in the words of Richard Cordray, the Director of the Consumer Financial Protection Bureau (“CFPB”). They form the basis for a consumer’s ability to do many important things, from paying for goods or services by check to obtaining a home mortgage loan.

Credit reports are compiled by commercial firms called consumer reporting agencies (“CRA”) from various sources, including information on a consumer’s credit performance provided to the CRAs by banks, retailers, and other companies that have extended some form of credit to the consumer. Those entities providing information are called “furnishers.”

Because of the important role of credit reports, Federal law protects the right of consumers to dispute what they believe to be inaccurate information contained in credit reports. Under the law, furnishers that supply consumer credit information to CRAs have a duty to investigate consumer disputes regarding credit reports. The CFPB has issued a Bulletin containing a new, tougher policy regarding enforcement of the duty of furnishers to receive, investigate, and make needed corrections in response to, consumer credit report disputes and related documents forwarded to them by CRAs. Furnishers of information to CRAs should consider a prompt review of their existing dispute resolution procedures against the standards contained in the new CFPB Bulletin.

Background

The Fair Credit Reporting Act (“FCRA”) generally applies to all aspects of consumer credit reporting in the United States. Although many of the statute’s provisions are directed to the activities of CRAs, the FCRA also imposes duties on users of consumer credit reports and on furnishers of consumer credit information to CRAs. The FCRA is implemented in part by Regulation V, originally promulgated by the Federal Reserve Board.

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Congress indicated its dissatisfaction with the enforcement efforts of the Federal agencies that had previously been responsible for consumer protection laws, including the FCRA. Congress did so by transferring the rule-making and oversight powers for the FCRA and most other such laws to a new agency, the CFPB. Although the CFPB shares enforcement responsibility in many areas with other agencies, it is now generally regarded as the primary source of policy implementation for consumer protection laws.

FCRA Requirements

The duties imposed by the FCRA and Regulation V on furnishers are of three types. First, a furnisher must adopt and maintain reasonable written policies and procedures on the accuracy and integrity of consumer credit information it supplies to CRAs, and must not furnish information it knows, or has reasonable cause to believe, is inaccurate. Second, a furnisher must receive, conduct a reasonable investigation of, and respond to, consumer disputes made directly to it by a consumer regarding information the furnisher provided to a CRA. Finally, a furnisher must conduct a reasonable investigation of each consumer dispute it receives from a CRA, and furnish to the CRA a report on the results of its investigation within the time period mandated by the FCRA. The CFPB’s new Bulletin addresses this third type of duty of furnishers.

The consumer reporting industry is dominated by three nationwide CRAs; i.e., Equifax Information Services, LLC, TransUnion LLC, and Experian Information Solutions, Inc. As required by the FCRA, those CRAs use an electronic system, called E-OSCAR, to make needed referrals of consumer disputes to furnishers of credit information. Last year, the CFPB criticized E-OSCAR as insufficient, because it did not have the capability of transmitting to furnishers copies of documentation submitted by consumers in support of their disputes. At the behest of the CFPB, the E-OSCAR system has now been upgraded to permit such transmission of documents accompanying consumer disputes. The CFPB has stated that it is working to expand further the capacity of the system in the near future.

The CFPB Bulletin

In its latest Bulletin, the CFPB has outlined its expectations regarding the duty of furnishers to investigate consumer disputes referred by CRAs. In general, the CFPB expects each furnisher to comply with the FCRA by:

• Maintaining systems and technology reasonably capable of receiving notices of disputes, including supporting documentation, from CRAs;

• Conducting an investigation of the disputed information that includes a review of all relevant information furnished by the CRA, as well as the furnisher’s own information with respect to the dispute;

• Reporting the results of the investigation in a timely manner to the CRA that sent the dispute;

• Providing corrected information to every nationwide CRA that received the original information if it is inaccurate or incomplete; and

• Modifying or deleting the disputed information, or permanently blocking the reporting of the information if the information is incomplete or inaccurate or cannot be verified.

The CFPB stated that furnishers that do not currently have a process meeting these standards should take “immediate steps” to comply with these and other legal requirements.

In its Bulletin, the CFPB noted that it now accepts consumer complaints about credit reports through its website and toll-free telephone numbers. Those complaints provide direct information, in addition to examinations and other sources, for the CFPB to use in assessing the adequacy of legal compliance by furnishers. The agency stated that it would take “appropriate supervisory and enforcement actions” against any furnisher that it determines to have violated the FCRA or other consumer protection laws.

Summary

The CFPB’s guidance is a clear warning to furnishers regarding a change in approach to FCRA compliance. Its timing appears to have been coordinated with the expanded capability of the CRAs’ E-OSCAR system. It also coincides with invigorated attention by other agencies, such as the Federal Trade Commission, which last month obtained a $3.5 million consent judgment against a CRA, Certegy Check Services, in a case involving dispute resolution and furnisher violations of the FCRA.

Following the CFPB’s Bulletin, all furnishers are on notice that meaningful review of consumer disputes, involving consideration of all relevant information, including documentation received from a CRA as well as the furnisher’s own information, is required by the FCRA.

The CFPB’s announcement suggests that companies furnishing credit information on consumers to CRAs should consider reviewing their existing procedures for handling consumer disputes to ensure their adequacy in light of the standards contained in the CFPB Bulletin, particularly with respect to documentation review. In the words of the CFPB, furnishers that identify shortcomings in their procedures should take “immediate steps” to bring them into compliance with legal requirements.