If you are furnishing credit data on your customers you know that one of the most resource intensive activities is investigating and responding to disputes. I have seen businesses ignore disputes or fail to do thorough investigations because they didn’t have the resources required to dedicate to them. The requirements for data furnishers are quite clear and you ignore them at your peril.
Although the Fair Credit Reporting Act (“FCRA”) precludes private action against data furnishers for providing incorrect information, it does allow private action if the furnisher fails to conduct a reasonable investigation. The 2003 FACT Act bolstered protections against identity theft and its effects. It also ordered agencies to create rules governing the proper disposition of consumer report information, granted consumers the right to request free annual reports, and required businesses to provide copies of relevant records to identity-theft victims.
As a data furnisher, you can be held liable for both willful noncompliance and negligent noncompliance. In the case of negligent noncompliance, the consumer can recover actual damages, costs, and attorney’s fees. In the case of a willful violation, the consumer can also recover statutory damages between $100 and $1,000, plus punitive damages.
Furnishers who do not conduct a reasonable investigation of a consumer’s dispute may be liable for actual damages, including credit denials, and attorneys’ fees for a negligent violation, or statutory and punitive damages, plus attorneys’ fees in the case of a willful violation.
What exactly is a reasonable investigation? The short answer is that it depends.
When a furnisher reports back that the disputed information regarding the account has been verified, the question of reasonableness depends on whether the furnisher looked at enough evidence to prove that the information was true. What this means is that you must investigate every item that was disputed and look at all of the available evidence to substantiate your reporting.
A data furnisher can conduct an investigation and conclude, based on that investigation, that the disputed information cannot be verified. If you are unable to conclude 100% that what you reported is correct, you must stop reporting that information and remove the account.
Secondly, the furnisher might conduct an investigation and conclude that the disputed information is inaccurate or incomplete. When a furnisher determines that disputed information is wrong they must notify the CRAs through eOscar (AUD or ACDV) and must modify, delete, or block the incorrect information from being furnished in the future. This usually means also making a correction in the account servicing software.
In the case of direct disputes, you are not required to conduct an investigation if:
The disputed information is related to consumers’ identity (DOB, Address, etc.).
The information was provided by another furnisher.
The dispute is related to previous employers.
You have evidence that the dispute was prepared by a credit repair organization on behalf of the customer.
You determine that the dispute is frivolous or irrelevant.
One question I often get asked is, “How do I tell a letter is from a Credit Repair Company? In some instances, I have seen disputes come from companies that clearly states on their website that they are a credit repair company that only gets paid after they are able to get credit lines deleted. When these type companies are involved, it is often difficult to tell if this is a valid dispute situation and many companies respond regardless of whether they believe it is. I recommend that clients exercise caution and treat it as a dispute and investigate.
Another common question I get is, “When is a dispute frivolous or irrelevant?” Some of the most common examples include:
The consumer didn’t provide enough information to investigate.
The dispute is substantially the same as a previous dispute.
The dispute is a duplicate. It’s similar to a previously submitted dispute.
If a dispute is found to be frivolous or irrelevant, you must notify the consumer within five business days of making your determination. An example of this would be when the letter is missing an account number when the consumer has or had multiple accounts with you.
There is another strategy that we have seen used more frequently by credit repair agencies lately, often sent on the letterhead of a law firm. The tactic involves sending dispute letters in three stages. The first letter is usually a standard dispute letter that disputes that the debt belongs to their client. After the furnisher responds that they conducted an investigation and confirmed the information is correct, the firm will send a debt validation demand that includes a list of questions to answer regarding the debt. By sending this letter, they are hoping that the furnisher will just delete the tradeline to avoid further letters from a law firm.
If the furnisher completes the questionnaire and send it to the firm, they are expecting to find differences or missing information between the first letter and the second. They then respond with another letter, noting the discrepancy, citing an FCRA violation, and using that to ask for an immediate deletion. These letters can be scary to receive, especially for a small business that doesn’t have in-house counsel to give guidance on the response. The best things you can do in these instances is to make sure you are conducting a thorough investigation, have records and documentation substantiating your decision, and be consistent in your responses. Last but most important, track your responses and keep copies of them. In the case of a second dispute, it’s critical that you be able to reference the previous dispute, details of your investigation, and your response.
Richard Hudson is Managing Partner of Ignite Consulting Partners, which is a compliance, training, and advisory company that works with independent dealers and finance companies across the country. He is a frequent writer and speaker on credit furnishing and dispute handling issues. For more information visit their website at IgniteCP.com