The Fair Credit Reporting Act was enacted to “require that consumer reporting agencies (CRAs) adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer.”
It comes into play in the use of credit reports, background checks, and risk-based pricing of credit products, among other scenarios. There are specific notice requirements associated with each, a topic too broad for this article. Generally, the FCRA specifically imposes responsibilities on all entities that furnish information to consumer reporting agencies regarding consumer reports (“furnishers”).
There are two general responsive obligations for a furnisher: one, when it receives a “direct dispute” from a consumer; and two, when it receives notice of a consumer dispute from a CRA.
No. 1: The Duties of Credit Unions to Provide Accurate Information and Investigate “Direct Disputes” from Consumers.
The first category involves receipt of a “direct dispute,” which, with several exceptions, generally occurs when a consumer raises a legitimate issue specific to his or her consumer report and an account with the furnisher, and provides enough information for the furnisher to analyze the dispute.
Such a dispute triggers a “reasonable investigation” requirement on behalf of the furnisher. The results of such investigation must be reported to the consumer within 30 days (or 45 if new information is received), and additionally to the CRAs if an error is discovered. On the other hand, furnishers have no obligation to conduct a reasonable investigation if it deems a dispute “frivolous or irrelevant” (though notice that such a finding was made must be provided within five days of the furnisher making the determination, again with certain exceptions).
Terry C. Frank, Attorney, Kaufman & Canoles
There is no private right of action for failing to investigate a consumer’s direct dispute, i.e., individual consumers cannot sue a credit union for its failure to comply with this section of the FCRA. Enforcement is limited to agency action by federal and state authorities. This lack of private cause of action contrasts the requirements for disputes received from a CRA, however, where a failure to comply could result in a costly individual or class-action lawsuit.
No. 2: The Duties of Credit Unions Upon Notice of a Consumer Dispute from a CRA.
This section is the wellspring from which most FCRA lawsuits arise. Under this section, if a CRA notifies a furnisher that a consumer disputes the completeness or accuracy of information provided by a credit union, it has a duty to complete five requirements:
Conduct an investigation with respect to the disputed information;
Review all relevant information the CRA provides;
Report the results of the investigation to the CRA that referred the dispute;
If the investigation establishes information was incomplete or inaccurate, report the results to all CRAs; and
Promptly modify, delete, or permanently block the reporting of the incorrect information.
The above steps must be completed within 30 days from the date the furnisher receives the dispute. An additional 15 days is given for investigations if the consumer provides relevant updated information within the initial 30-day period. If a credit union can provide evidence that it has complied with the above steps, it can likely successfully defend against a consumer claim of noncompliance.
Benjamin A. Wills, Attorney, Kaufman & Canoles
Many disputes will center around what is required for a “reasonable investigation.” As one court noted, the “plain meaning of ‘investigation’ clearly requires some degree of careful inquiry by creditors. ... It would make little sense to conclude that, in creating a system intended to give consumers a means to dispute — and, ultimately, correct — inaccurate information on their credit reports, Congress used the term ‘investigation’ to include superficial, unreasonable inquiries by creditors.” Nonetheless, the scope of an investigation necessarily is contingent on the breadth of the consumer’s dispute, and will be evaluated on a case-by-case basis.
If a credit union fails to comply with the foregoing requirements, it can be subject to hefty penalties. Specifically, a furnisher who willfully fails to comply with FCRA requirements may be liable to a consumer in an amount between $100 to $1,000, and any amount of punitive damages the court may allow (which has exceeded six figures in many cases).
Anyone who is negligent in complying with the FCRA is liable to the consumer both for actual damages and for the consumer’s costs. In addition, regardless of whether a consumer prevails under a negligence or willfulness theory, the defendant furnisher must pay all attorneys’ fees, which often far exceed any actual damages sustained by the consumer. These stiff penalties underline the importance of maintaining and adhering to up-to-date compliance programs.
This article provides just a rough outline of the FCRA’s requirements. The authors encourage the reader to contact credit union counsel for specific questions, issues, or assistance.
Terry C. Frank concentrates her practice in litigation and regulatory compliance issues related to real estate finance, mortgage banking and consumer finance. Her clients consist of large national banks and mortgage companies, credit unions, regional and community banks, and other secured and unsecured lenders in complex commercial, class action and bankruptcy litigation. Terry can be reached at (804) 771.5745 or firstname.lastname@example.org.
Benjamin A. Wills litigates a wide variety of matters under various federal and state statutes and the common law, specifically focusing on issues related to real estate finance, consumer finance, mortgage banking, and eminent domain. Benjamin can be reached at (757) 873.6302 or email@example.com.
The Kaufman & Canoles Credit Union Team serves as general counsel to credit unions, large and small, regularly advising clients on consumer compliance issues, NCUA requirements, and the rules governing credit union service organizations. For more information about our team visit www.kaufcan.com.