Navigating the FCRA Minefield
In recent years, there has been a significant rise in the number of claims for the violation of the Fair Credit Reporting Act (“the FCRA”). Some law firms derive a great deal of their revenue from bringing FCRA-based suits. The below does not represent a comprehensive analysis of the FCRA, but rather highlights some best practices in credit reporting and responding to credit reporting disputes.
When it enacted the FCRA in 1970, Congress established a regulatory structure requiring credit reporting agencies (i.e., Equifax, Experian, Transunion) (“Agencies”) to adopt procedures for meeting the needs of commerce for consumer credit, personal, insurance, and other information in a manner that is fair and equitable. Prior to 1996, the FCRA applied only to Agencies. However, in 1996, Congress enacted the Consumer Credit Reporting Act of 1996 and expanded the scope of the FCRA to cover entities that furnish information to [Agencies].
What should you do when you receive a dispute?
The credit union’s duties arise under the FCRA when the credit union receives a notice of dispute from the Agency, not from the customer. However, direct customer disputes can also lead to liability under other regulations if not investigated or otherwise reasonably addressed.
- Conduct an investigation. Once a credit union receives notice of a dispute from an Agency, it must conduct a reasonable investigation into the disputed information.
- Determine whether the report was accurate. The credit union should review all information related to the dispute provided by the Agency, review its loan files, and review any other information available to it related to the account(s).
- Report its findings to the Agency within 30 days. Under the FCRA, the credit union has 30 days from the date that the credit union receives notice of dispute in which to conduct its investigation and report its findings.
If the dispute code is “account included in bankruptcy,” the credit union should review its file for documents related to the bankruptcy. However the dispute notice from the Agency may not reference bankruptcy at all; the dispute notice may simply be coded “claims inaccurate information,” but the customer could be claiming that the account was included in a bankruptcy. If the credit union receives either of these referenced dispute codes, it should conduct a bankruptcy search and review.
For a variety of reasons, the credit union’s records may not include all of the information related to any underlying bankruptcy. In that event, the credit union should contact its counsel to locate and review the status and the outcome of the referenced bankruptcy. The credit union should note the type of bankruptcy (e.g., Chapter 7, Chapter 11, or Chapter 13), and any payments being made pursuant to a bankruptcy plan. Specific examples related to bankruptcies will be set forth later in this article.
What should the credit report look like?
Once the investigation is complete, the credit union should either:
- Verify the previous information reported; or,
- If applicable, completely and accurately modify the reporting; or
- If applicable, delete or block the reporting (e.g., where information cannot be verified, or where an account should not have been reported in the first place).
When modifying any incomplete or inaccurate information, the credit union should consult the Metro II guidelines, which constitute the industry standard in credit reporting. In any event, if information is determined to be incomplete or inaccurate during the investigation, the credit union must report the corrected information to all of the Agencies, not just the Agency that notified the credit union of the dispute.
Keys to avoiding liability
A credit union should ensure that it has policies and procedures in place for credit reporting and for investigating a dispute. Once a dispute is received, a review is crucial to confirm that the credit reporting is accurate and complete. As stated above, the Metro II guidelines are a valuable resource for handling FCRA disputes.
Perhaps the most common violations of the FCRA occur with respect to accounts that are included in bankruptcies. Below are a couple of examples:
Scenario 1: An account has been included and discharged in a bankruptcy, but is being reported as a “charge-off,” as opposed to “discharged in bankruptcy.”
Problem: Courts have held that reporting a discharged debt as “charged off” rather than “discharged” is inaccurate, and violates the FCRA.
Solution: The best practice when receiving a dispute related to an account that was discharged in bankruptcy is to ensure that the coding shows a discharge, rather than a charge-off.
Scenario 2: An account has been included in a Chapter 13 bankruptcy plan, and is being paid under the bankruptcy plan. The credit reporting on the account does not reflect the Chapter 13 bankruptcy plan, and does not reflect the agreed upon principal balance under the plan, and shows payments as “past due,” and does not reflect the agreed upon bankruptcy plan payment amount.
Problem: Courts have held that credit reporting that fails to reflect that an account was included in a Chapter 13 plan, and/or does not reflect the agreed upon principal balance and payment amounts constitutes inaccurate reporting, and a violation of the FCRA.
Solution: Accounts included in a Chapter 13 bankruptcy that are being paid under a Bankruptcy Plan should be coded to show that they are being paid under a Chapter 13 Plan, and should show the accurate balance pursuant to the Plan, and the payment amount as set forth in the Plan. Past due information should not be reported unless the account is actually past due pursuant to the terms of the Plan, rather than the original loan.
Have any more questions?
If you have questions in handling credit reporting issues, or if you have been served with a lawsuit claiming a violation of the FCRA, please feel free to reach out to us and we will be happy to assist you in navigating the FCRA minefield.