QUESTION
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?
ANSWER
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.
And I will
endeavor to be specific!
- Furnishers
of mortgage loans had failed to adopt policies and procedures appropriate to
the nature, size, complexity, and scope of their activities. For example,
policies and procedures did not provide sufficient guidance for responding to
disputes in a timely manner or reporting changes in accounts when the status of
accounts changed.
- Furnishers
of auto loans failed to adopt policies and procedures that provided sufficient
guidance for conducting reasonable investigations of indirect disputes that
contained allegations of identity theft. For example, the policies and
procedures did not specify that agents investigating disputes alleging identity
theft should review internal records of fraud investigations before completing
dispute investigations and responding to CRAs.
- Debt
collection furnishers failed to adopt policies and procedures that
differentiated among FCRA disputes, Fair Debt Collection Practices Act (FDCPA)
disputes, or validation requests. Instead, they handled direct FCRA disputes,
FDCPA disputes, and validation requests the same way and without consideration
for applicable regulatory requirements. The policies and procedures also did
not address the regulatory timeframes for conducting reasonable investigations
of disputes, or for reporting the results of the investigations to the consumers
or to CRAs, as appropriate. Instead, the policies and procedures provided
general instructions on how to indicate that accounts are disputed and how to
label dispute-related correspondence from consumers, and did not contain any
substantive instructions on how to conduct investigations of disputed accounts.
- Deposit
account furnishers failed to adopt written policies or procedures for
furnishing deposit account information to specialty deposit CRAs, including
validation of the data provided.
Learn from these failures!
Although the furnishers agreed to take action to comply with
the Regulation V requirements to establish and implement reasonable written
policies and procedures regarding the accuracy and integrity of information
furnished to nationwide CRAs, that was after-the-fact!
Immediately, you should develop
policies and procedures as well as policies for training, monitoring, and conducting internal audits that relate
to dispute investigations. Get ready now for the returning examiner!
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
