QUESTION
One of the findings in our internal audit caused us some concern. The audit found that we did not follow the proper steps in conducting a “reasonable investigation” for FCRA complaints. It says our “direct dispute” procedures were flawed.
The audit only gave us a brief overview of what should be done to fix the process but no guidance. So, we’re writing to you for some advice. We’ve done some research, but it’s not particularly helpful. We need a more precise outline of what would cause us to conduct a reasonable investigation.
Here are our two questions:
What is a “direct dispute?”
What are some criteria that trigger a “reasonable investigation?”
Thank you so much for your weekly FAQs. We love them!
ANSWER
I appreciate your kind words. Ours is a labor of love that shows our commitment to the mortgage community. Through highs and lows, we should look after one another!
Let’s start with a general understanding of “direct dispute.”[i] It is a term found in the Fair Credit Reporting Act (FCRA) that occurs when a dispute is submitted by a consumer directly to a furnisher (including a furnisher that is a debt collector) concerning the accuracy of any information in a consumer report and pertaining to an account or other relationship that the furnisher has or had with the consumer.
Your policies and procedures should meet regulatory standards, and they need to be monitored periodically for implementation. In addition to periodic reviews, you should update them as necessary to ensure their continued effectiveness.
As a furnisher, you must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers that your organization furnishes to a consumer reporting agency. The policies and procedures must be appropriate to the nature, size, complexity, and scope of your furnisher’s activities.
There are several regulatory requirements.[ii] Subject to exceptions, a furnisher must conduct a “reasonable investigation” of a direct dispute if the dispute relates to:
1. The consumer’s liability for a credit account or other debt with the furnisher, such as direct disputes relating to whether there is or has been identity theft or fraud against the consumer, whether there is individual or joint liability on an account, or whether the consumer is an authorized user of a credit account.
2. The terms of a credit account or other debt with the furnisher, such as direct disputes relating to the type of account, principal balance, scheduled payment amount on an account, or the amount of the credit limit on an open-end account.
3. The consumer’s performance or other conduct concerning an account or other relationship with the furnisher, such as direct disputes relating to the current payment status, high balance, the date a payment was made, the amount of a payment made, or the date an account was opened or closed.
4. Any other
information included in a consumer report regarding an account or other relationship
with the furnisher that bears on the consumer’s creditworthiness, credit
standing, credit capacity, character, general reputation, personal
characteristics, or mode of living.
There are two exceptions to having to conduct a reasonable investigation. The obligation of a furnisher to conduct a reasonable investigation does not apply if:
1. The direct
dispute relates to:
a. The consumer’s identifying information,
as name(s), date of birth, Social Security Number, telephone number(s), or
address(es). However, the exception does not apply if the direct dispute
relates to a consumer’s liability for a credit account or other debt with the
furnisher, such as whether there is or has been identity theft or fraud against
the consumer, whether there is individual or joint liability on an account, or
whether the consumer is an authorized user of a credit account;
b. The identity of past or present employers;
c. Inquiries or requests for a consumer
report;
d. Information derived from public
records, such as judgments, bankruptcies, liens, and other legal matters
(unless provided by a furnisher with an account of other relationship with the
consumer); and
e. Information related to fraud alerts or active duty alerts.
2. The furnisher has a reasonable belief that the direct dispute is submitted by, prepared on behalf of, or is submitted on a form that is supplied to the consumer by a credit repair organization[iii] or an entity that would qualify as a credit repair organization but for the exemption for nonprofit entities.
Jonathan Foxx, Ph.D., MBA
[i] 12
CFR § 222.41
[ii]
12 CFR §
334.43(a)
[iii]
15 USC Section 1679a(3)
