Sizing up Changes in Legal Risks for Data Furnishers

The legal landscape for furnishers of data to credit reporting agencies (CRAs) has changed dramatically over the years. Not unlike a seismic event, the current setting is a result of actions, events and forces that have built up over time and resulted in a completely different setting today than ten years ago. The Report to Congress on the Fair Credit Reporting Act Dispute Process that was submitted jointly by the FTC and the Fed in August 2006 described an operating environment in which it was normal for furnishers to perform investigations of disputes that primarily focused upon verification of the customer’s identification. In this regard, the only information furnishers typically received to investigate was a dispute code, which 30-40% of the time was a generic “other” code. As further explained below, “the norm” from 2006 will not meet today’s standards. Understanding the current legal landscape, and the various forces that produced it, is a critical step toward effective risk mitigation.

Over the past several years, the CFPB has taken a series of steps that collectively raised the pressure for furnishers. Those steps include the CFPB’s exercise of direct supervision over the largest CRAs, and its multi-faceted campaign to create increased consumer access to, and general awareness of, credit reports and credit scores. The latter has generated a pronounced spike in the number of CFPB complaints concerning all aspects of the credit reporting process, including the investigation of disputes. Moreover, in December 2014 the CRAs began reporting to the CFPB on:

1. furnishers with the most disputes,
2. industries with the most disputes,
3. furnishers with the highest dispute rates relative to their peers.

Arguably, however, the most impactful development to date is the CFPB’s success in persuading CRAs to enhance the ability of consumers to submit supporting documentation for disputes, which is passed along to data furnishers by the CRAs through e-OSCAR. The inclusion of this additional documentation in investigations breathed new life into what had been largely nuisance lawsuits alleging violations of Section 623(b).

A total of six US Courts of Appeals—the jurisdiction of which encompasses most of the US—have considered and found a private right of action under Section 623(b). The resulting judicial decisions have set an increasingly higher bar for what constitutes a “reasonable” investigation by a furnisher. In particular, decisions of the Sixth and Third Circuits, issued in 2012 and 2014, respectively, turned a spotlight on the adequacy of a furnisher’s policies, procedures, training, and third party oversight related to the investigation of disputes.

Given furnisher’s increased access to dispute-related documentation from CRAs—and the greater likelihood such documentation will exist thanks to the CFPB’s successful efforts at generating consumer awareness—the number and frequency of these lawsuits is certain to rise, and could mushroom depending on the outcome of a pending U.S. Supreme Court case. Moreover, in the same way that seismic pressure in one place may cause an earthquake somewhere else, intensified scrutiny on furnishers has spurred judicial actions based on other laws besides the FCRA, including all manner of state tort claims and alleged violations of the U.S. Bankruptcy Code.