News & Insights

Originally published in the May/June 2020 issue of The Florida Bar Journal.

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 consumer’s credit report, the consumer’s life could be disrupted — and any furnishers of information who provided incorrect information or failed to properly respond to a consumer’s dispute over the information in their report could face liability under the Fair Credit Reporting Act (FCRA).

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.^[1] A furnisher’s 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.

Furnishers Must Report Accurate Consumer Information

A furnisher’s first duty is simple: A furnisher must report accurate consumer information to CRAs.^[2] 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.^[3] 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 information’s accuracy.^[4]

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.^[5] Even if it’s 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.^[6]

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.^[7] 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 customer’s delinquencies, late payments, insolvency, or any form of default)^[9] to a CRA about credit that the institution extended to a customer, the institution must notify the customer that it shared the negative information.^[10] 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.^[11] 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.”^[12]

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.^[13] 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.^[14]

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.”^[15] It is the CRA’s 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.^[16] The consumer may also notify the furnisher directly about a claim of identity theft.^[17] 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.^[18]

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.

• 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 consumer’s liability for a credit account or debt with the furnisher; 2) the terms of a credit account or 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 relating to 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.^[19]

But there are exceptions: A furnisher does not have to investigate a direct dispute that relates only to the consumer’s 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.^[20]

Notably, to trigger a furnisher’s duty to investigate under the FCRA, the onus is on the consumer to provide proper notice of the dispute to the furnisher. Specifically, notice of the dispute must be sent to one of the three following addresses: the address provided by the furnisher and placed on the consumer’s credit report; an address “clearly and conspicuously” specified by the furnisher for submitting direct disputes that is communicated to the consumer; or to any business address of the furnisher if the furnisher has not specified an address for direct disputes.^[21] 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.^[22] When a furnisher receives notice from a consumer that complies with the above requirements, it has several obligations it must comply with.

For starters, the furnisher must reasonably investigate the disputed information and review all the information that the consumer provided within the dispute notice.^[23] Once it has completed its investigation, the furnisher must then report the results of the investigation back to the consumer.^[24] 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.^[25] 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.^[26]

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.^[27] 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 information listed in section (b) of the Furnisher Rule.^[28] 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.^[29]

• 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 consumer’s 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.^[30] 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.”^[31] 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.^[32] 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.^[33]

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.^[34] 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.^[35] 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.^[36]

• 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,^[37] there is a private cause of action for noncompliance with the furnisher’s duties after receiving notice of a dispute, particularly when a furnisher fails to investigate a dispute.

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 furnisher’s investigation based on reasonableness.^[38]

In doing so, courts have explained that “the plain meaning of ‘investigation’ clearly requires some degree of careful inquiry by creditors.”^[39] 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.”^[40] 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.^[41]

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 furnisher’s investigation in that case was not reasonable.^[42] 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 obtain…evidence before reporting the information as ‘verified.’”^[43] 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, but the furnisher’s investigation only included confirming that the name and address on the report belonged to the consumer.^[44] The furnisher’s agents conceded they did not consult underlying documents when investigating the consumer’s dispute, which the court held was unreasonable given the specificity of the consumer’s dispute notice.^[45] By contrast, in Westra v. Credit Control of Pinellas, 409 F.3d 825, 827 (7th Cir. 2005), the Seventh Circuit held that the furnisher’s 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.^[46]

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.”^[47] Furnishers are, therefore, charged with “uncovering documentary evidence that is sufficient to prove that the information is true.”^[48] In doing so, the furnisher can rely on personal knowledge to establish the truth of the information.^[49]

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.^[50] Indeed, part of the purpose behind the act is to prevent CRAs from reporting information that cannot be verified.^[51] Information is unverifiable if the evidence needed to verify the disputed information is either nonexistent or is far too burdensome to obtain.^[52] If a furnisher determines that disputed information was unverifiable, the furnisher’s liability will ultimately hinge on “whether the furnisher reasonably determined that further investigation would be fruitless or unduly burdensome.”^[53] 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.^[54]

Penalties for Noncompliance

As noted above, a furnisher’s 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.

Consumers may bring suit for both willful and negligent failure to investigate.^[55] 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;^[56] and 2) the result of the furnisher’s investigation would have been different had the furnisher conducted a reasonable investigation.^[57]

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 furnisher’s failure to comply with the FCRA, plus costs and reasonable attorneys’ fees.^[58] Actual damages refers to “an amount awarded to a complainant to compensate for a proven injury or loss” or “damages that repay actual losses.”^[59]

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 consumer’s 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.^[60] “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.^[61]

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.^[62] Other administrative agencies listed in the FCRA are also granted authority to enforce specific violations.^[63] 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.^[64]

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. 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 unnecessary investigation by agencies, expenses, and litigation in the future.