QUESTION
Our regulator has cited us for violating the Fair Credit Reporting Act. For some time, we provided consumer information that was outside of the purpose of the relationship we had with the consumer. In some cases, we had not yet established a relationship when we submitted information about the consumer to the credit reporting agency. Consequently, the regulator now says that we acted in the capacity of a consumer reporting agency.
On top of that, the regulator’s audit shows that we provided information to the credit agencies that were sometimes inaccurate, which triggered consumer complaints. When we got the complaints, we did not correct the information for all the consumers who complained. We did not do a risk assessment to determine how many credit report errors like this occurred.
I want to revise our policies and procedures to make sure this never happens again. Our attorney says we have furnisher liability under the FCRA. I need some guidance, and I hope you can give me some suggestions.
What are some suggestions to reduce furnisher liability for providing inaccurate consumer information to consumer reporting agencies?
ANSWER
The Fair Credit Reporting Act (FCRA) requires any entity that furnishes information about its consumers to a consumer reporting agency to be sure the information is accurate. Your company has made several rather big mistakes. I suggest you undertake a policy and procedure revision, update your change management policy, implement periodic testing, and conduct a risk assessment. You must demonstrate to the regulator that you are taking all appropriate steps to cure the violations and, to the extent possible, ensure they do not recur.
We typically advise our clients that the information should only relate to the entity’s own relationships with its customers; otherwise, the entity risks becoming a consumer reporting agency itself and is subject to the FCRA’s requirements for consumer reporting agencies.
More precisely, the FCRA states:[i]
“A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.” (My emphasis.)
The “knows or has reasonable cause to believe” standard is a potentially burdensome test because it does not explain how much investigation the person must conduct to ensure the information is not inaccurate. Consequently, the FCRA limits the general rule by providing that a person is not subject to the rule if it has specified to the consumer an address for notifying it that specific information is inaccurate.
A person may choose not to provide an address, but having provided an address, it may not furnish information to a consumer reporting agency if the consumer has notified it, at the address specified, that specific information is inaccurate and the information is, in fact, inaccurate.
If an entity regularly and in the ordinary course of business furnishes information to one or more consumer reporting agencies about its transactions or experiences with any consumer and has furnished to a consumer reporting agency information it determines is not complete or accurate, it must promptly notify the consumer reporting agency and provide any corrections to that information, or any additional information necessary to make the information provided to the agency complete and accurate. Then, it must not refurnish to the agency any of the information that remains not complete or accurate.
Section 312 of the Fair and Accurate Credit Transactions Act (FACT Act), adopted in 2003, required federal agencies to issue guidelines and regulations regarding the accuracy and integrity of information furnished by entities to credit reporting agencies.
The Consumer Financial Protection Bureau’s (CFPB’s) Regulation V requires each furnisher to establish and implement reasonable written policies and procedures concerning the accuracy and integrity of the information furnished. The rules encourage the voluntary furnishing of information and list the objectives that should be accomplished, explain practices that should be implemented (such as a review of existing practices, historical records, and feedback received), and describe components that should be included.
Consistent with these guidelines, your policies and procedures should promote the following objectives:
· Furnish accurate information about loans or other relationships with a consumer so that the furnished information identifies the appropriate consumer, reflects the terms of and liability for those loans or other relationships, and reflects the consumer’s performance and other conduct with respect to the loan or other relationship.
· Furnish information about loans or other relationships with a consumer that has integrity so that the furnisher’s records substantiate the information at the time it is furnished, is furnished in a form and manner designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report, and includes the credit limit, if applicable, and in the furnisher’s possession. (The information should include appropriate identifying information about the consumer to whom it pertains and be furnished in a standardized and clearly understandable form and manner and with a date specifying the time period to which the information pertains.)
· Conduct reasonable investigations of consumer disputes and take appropriate actions based on the outcome of the investigations.
· Update the information as necessary to reflect the current status of the consumer’s loan or other relationship, including, for example, any transfer of a loan to a third party (i.e., by sale or assignment for collection) and any cure of the consumer’s failure to abide by the terms of the loan or other relationship.
Regarding furnisher liability, I would ask you to consider a recent decision by a federal district court in Texas, where the court considered a claim that a lender had failed to provide accurate information to a third party in violation of the FCRA. The case is Dixon v. Mazda Financial Services, Inc. (“Dixon”).[ii] I don’t think the decision breaks new ground, but it does offer useful information for creditors whose unhappy consumers file FCRA lawsuits.
Dixon alleged violations of the Fair Debt Collection Practices Act (FDCPA), Truth-in-Lending Act (TILA), and FCRA. The court previously granted summary judgment for Mazda regarding the non-FCRA claims. It dismissed the FDCPA claim because Mazda, as the creditor to whom Dixon’s debt was owed – while in the process of collecting that debt in its own name – was not a “debt collector” within the meaning of the FDCPA. The court granted summary judgment as to the TILA claims because Mazda had fully complied with its disclosure obligations, and its disclosures unquestionably satisfied TILA. The court also dismissed a TILA rescission claim, which plaintiffs too frequently assert in transactions such as Dixon’s – a consumer credit sale of a motor vehicle involving no security interest in a principal dwelling – to which TILA’s right of rescission does not apply.
As for the FCRA, Dixon alleged that Mazda had illegally furnished personal information to credit reporting agencies. Whether that information was accurate or not, Dixon’s claim failed because the FCRA section he relied on [§ 1681s-2(a)] does not provide a private right of action against a furnisher for failing to provide accurate information. The court noted that this does not mean the section “lacks any true bite.” Rather, the FCRA specifically provides that violations of that section “shall be enforced exclusively” by certain federal and state agencies (for example, the Federal Trade Commission and the CFPB).
The court then addressed the viability of a possible claim under § 1681s-2(b), which sets forth the responsibilities of a furnisher of information once a consumer reporting agency gives the furnisher notice of a consumer’s dispute about the completeness or accuracy of information provided by the furnisher to the agency. The subsection requires the furnisher to conduct a reasonable investigation of the dispute, report its findings to the credit reporting agency, and modify or delete the incorrect information.
To state a claim under subsection 2(b), Dixon needed to show:(1) he had disputed the accuracy (completeness) of information with a consumer reporting agency;
(2) the agency had notified Mazda of the consumer’s dispute; and
(3) Mazda had failed to conduct an investigation, correct any inaccuracies, or notify the agency of the investigation results.
Dixon did not present any evidence to create a genuine issue of material fact on any of the three elements.
In contrast, Mazda had submitted an affidavit from one of its managers stating that Mazda had received four automated credit dispute verification (“ACDV”) requests from credit reporting agencies concerning Dixon’s account and that Mazda had conducted a reasonable investigation for each of the ACDVs.
According to the manager, Mazda had determined that all the information Mazda reported to the consumer reporting agencies concerning Dixon was accurate. Because Dixon failed to address this assertion, the court considered the fact undisputed and that this fact conclusively negated the third element – that Mazda had, in fact, conducted an investigation.
The court addressed another issue Dixon referenced in his complaint. He suggested that Mazda had violated § 1681b, which permits “any consumer reporting agency” to “furnish a consumer report…i[n] accordance with the written instructions of the consumer to whom it relates.” That is, a consumer reporting agency may only furnish consumer reports under the circumstances specified in § 1681b, including in accordance with the consumer’s written instructions. Mazda was not a “consumer reporting agency,” but rather a furnisher of information to the credit reporting agencies. Because the section only applies to consumer reporting agencies, Mazda could not have violated it.
Chairman & Managing Director
[i] 15 U.S.C. §
1681s-2(a)(1)
[ii] Dixon v.
Mazda Financial Services, Inc., 2022 U.S. Dist. (S.D. Tex. Dec. 27, 2022)
