Thursday, February 20, 2020

Backlogged Dispute Investigations

Our bank recently was put under an administrative action because we had failed to investigate credit disputes by the expiration of the investigation period. Several customers went so far as to complain to the CFPB and our regulator about it. 

We just don’t have the personnel to do the investigations quickly enough. Already two people have been terminated, one a supervisor, allowing this to happen. But that makes things worse because now we have even fewer personnel to work in doing these investigations. 

We need to get this fixed soon as the examiner is returning to check our compliance with their order. I am asking for your guidance: what should be done about handling dispute investigations, given our challenges?

You describe a situation that banks and nonbanks deal with all the time. It is frustrating, because you want to do the right thing and comply with the applicable regulations, but feel stymied by personnel, procedures, and a host of other issues.

Let’s look first at the guidelines by discussing briefly the Fair Credit Reporting Act (FCRA), which requires that when a furnisher receives notice of a dispute from a consumer reporting agency (CRA) pursuant to FCRA section 623(b)(1), the furnisher must complete its investigation of disputes “before the expiration of the period under section 611(a)(1)….” within which the CRA must complete its own dispute investigation.

This period of time is normally 30 days from the date the CRA receives a dispute and can be extended to 45 days in certain limited circumstances. For disputes filed directly with furnishers, Regulation V, which implements the FCRA, requires furnishers to conduct a reasonable investigation with respect to the disputed information and review all relevant information provided by the consumer with the dispute notice.

How to go about solving some of the challenges in providing a timely dispute investigation?

I do not know why the supervisor was terminated, but presumably she knew or should have known about this compliance issue. Let’s understand, examiners can’t stand backlogs of dispute investigations. Falling behind is going to attract regulatory scrutiny, whether from the CFPB or your primary regulator.

As a matter of fact, CFPB examiners recently found backlogs of disputes of which credit furnishers had received notice from the CRA but failed to conduct investigations or respond to the CRA. This was described to some extent in the CFPB’s Supervisory Highlights of Summer 2019 [84 Federal Register 49250 (September 19, 2019), and Fall 2019, 84 Federal Register 67725 (December 11, 2019)].

Examiners also found backlogs of thousands of direct disputes accumulated in document processing queues that had not been investigated or responded to at all. And when the furnishers discovered the backlogs, they had responded to disputes pursuant to methodologies that broadly categorized the correspondence, which resulted in the failure to undertake individual investigations of the disputes.

In one example, the furnishers had responded to disputes referred by CRAs and verified the disputed information as accurate without reviewing their own system records as part of the investigation. However, had the furnishers reviewed their records, they would have seen that some of the disputed accounts were, in fact, the result of identity theft.

In other cases, the furnishers had responded to CRA notices of dispute without verifying the accuracy of the disputed information and instead went with instructions to the CRA that the consumer should contact the furnisher directly and that the disputed information should not be deleted. Why not just wave a red flag for the examiners?

Examiners discovered system flaws, including coding errors and poor workstream management, that resulted in backlogs of complaints not investigated or responded to in a timely manner. Examiners also found inadequate control policies, poor resource allocation, and weak oversight that led to the results of dispute investigations not being sent to consumers.

Furthermore, the examiners found that some furnishers of information had failed to implement reasonable written policies and procedures regarding the accuracy and integrity of account information it furnished to nationwide specialty CRAs. Policies and procedures were also not appropriate to the nature, size, complexity, and scope of the furnishing activities. For instance, there were no written policies and procedures for handling disputes regarding account information from certain files. The existing policies also did not address compliance with the FCRA dispute requirements, such as the duty to conduct a reasonable investigation. There were also no policies and procedures for training, monitoring, or conducting internal audits regarding a business unit’s responsibilities to forward disputes of furnished information.

Finally, one or more furnishers failed to have policies and procedures for a business unit to conduct investigations of consumer disputes alleging account abuse caused by fraud.

Let’s take a look at the mistakes that others have made and learn from them.