THE FAIR CREDIT REPORTING ACT

Transcription

1 THE FAIR CREDIT REPORTING ACT POLICY, INVESTIGATION, ACCURACY, & DISPUTES THIS PRESENTATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND THE INFORMATION INCLUDED IN THE FOLLOWING PRESENTATION IS NOT LEGAL ADVICE

2 WHAT IS THE FCRA? In 1970, Cngress enacted the Fair Credit Reprting Act ( FCRA ) t ensure the accuracy and fairness f credit reprting because, amng ther reasns, the banking system is dependent n fair and accurate credit reprting. Cngress als established a requirement that cnsumer reprting agencies adpt reasnable prcedures fr meeting the needs f cmmerce in a manner which is fair and equitable t the cnsumer Prir t 1996 applied nly t Credit Reprting Agencies ( CRAs ).

3 WHAT IS THE FCRA? The FCRA is designed t prtect the integrity and privacy f cnsumers credit infrmatin. The FCRA requires credit reprting agencies and the entities that reprt credit infrmatin t them t ensure that cnsumers credit infrmatin is fair, accurate, and kept private. The FCRA prtects cnsumers rights t access and crrect any inaccuracies in their credit reprt and prvides cnsumers with remedies if a credit reprting agency, furnisher, r thers vilate a cnsumer s rights.

4 WHAT IS THE FCRA? Frm 1970 t 2010, the Federal Trade Cmmissin ( FTC ) has been the agency primarily respnsible fr interpreting the Act thrugh frmal rules and infrmal guidance. Hwever, the Ddd-Frank Wall Street Refrm and Cnsumer Financial Prtectin Act f 2010 shifted the authrity t publish FCRA rules and guidelines t the newly created Cnsumer Financial Prtectin Bureau ( CFPB ). Surce: CFPB Tasked with FCRA Interpretatin FTC Issues Staff Reprt t Aid Transitin, Inf Law Grup, LLP, July 26, 2011 (available at

5 WHAT IS THE FCRA? The FCRA applies t: Credit Reprting Agencies ( CRA ) The Big 3: Experian Equifax Trans Unin Furnishers f credit infrmatin Creditr r third party that prvides infrmatin abut a cnsumer t a CRA (Banks, mrtgage servicers, credit unins, etc.) Any persn wh negligently r willfully fails t cmply with any requirement Anyne wh requests/receives a credit reprt e.g. Emplyers, Landlrds, insurance agents

6 THE BENEFITS OF CREDIT REPORTING Cnsumers: Instant Credit Lwer-Cst Credit Natinwide Credit Businesses: Widespread Availability Easily Evaluate Creditwrthiness Minimize Risk f Default Surce: The Basics f Credit Reprting, Experian, (available at:

7 WHAT IS IN A CREDIT REPORT? SOURCE:

8 WHAT IS IN A CREDIT REPORT? Identifying Infrmatin e.g. Name (including spuse); Sex; Date f Birth; Current and frmer address; Scial Security Number, emplyment, etc. Accunt Infrmatin e.g. Credit Cards, Lans, Lines f Credit, etc. Als can shw accunt balance, payment histry, and last date f activity Certain Public Recrd Infrmatin e.g. Bankruptcies, cllectin actins, but NOT criminal histry Inquiries (date and by whm made) Dispute Instructins

9 WHAT IS NOT IN A CREDIT REPORT? Criminal histry/backgrund Medical infrmatin Buying habits/transactin data Bank accunt infrmatin Credit Scre e.g. FICO, VantageScre, etc. A credit scre is determined frm the infrmatin in a Credit Reprt Bankruptcies mre than 10 years ld

10 REASONABLE PROCEDURES Cnsumer Reprting Agencies: CRAs must maintain reasnable prcedures designed t avid vilating the FCRA, including: T avid publishing infrmatin that is nt allwed; and T limit furnishing f cnsumer reprts t the permissible purpses enumerated in the Act Furnishers f Infrmatin: Have a duty t prvide accurate infrmatin Have certain duties upn ntice f a dispute

11 PERMISSIBLE PURPOSE Credit Reprting Agencies may furnish a cnsumer reprt t anyne wh has a permissible purpse under the FCRA. Whether smene has a permissible purpse under the FCRA causes a large amunt litigatin

12 PERMISSIBLE PURPOSE Permissible Purpses under the FCRA include: Offer r Extensin f credit Review r cllectin f an accunt Emplyment purpses Underwrite insurance Valuatin f risk by an investr Eligibility f gvernment license Business transactin initiated by the cnsumer Respnding t a Curt rder r Federal grand jury subpena In accrdance with written instructins f the cnsumer Disclsure t cnsumer

13 WHAT IS A NON-PERMISSIBLE PURPOSE? Everything that is nt permissible!

14 NON-PERMISSIBLE PURPOSES Can be difficult t determine because mst requests fr a credit reprt cme frm surces wh have sme relatinship t the cnsumer and believe they have a right t see reprt. Cmmn examples include: An emplyer pulls a credit reprt withut asking permissin Smene lking at a credit reprt t discver assets they can cllect against Creditr pulls a credit reprt after the debt has been discharged in bankruptcy Smene requests a reprt t use it as evidence against yu in a divrce, criminal, persnal injury, r ther nn-credit lawsuit r prceeding

15 DOES THE FCRA APPLY TO MEMBER BANKS OF THE MIBA?

16 ALL BANKS MUST COMPLY WITH ALL REQUIREMENTS OF THE FCRA The remainder f this presentatin will discuss a furnishers bligatin t reprt accurate infrmatin abut its cnsumers and duties when faced with a dispute. Cmmunity Banks, like all creditrs, must still cmply with ther aspects f the FCRA, including prviding cnsumers with Adverse Actin Ntices, Ntice t Hme Lan Applicants, Risk Based Pricing Ntice, etc.

17 UPTICK IN LITIGATION The CFPB reprts that: Credit Reprting cmplaints are up 18% fr the perid Nvember 2016 t January 2017 frm a year earlier. 73% f cnsumer credit reprting cmplaints are abut incrrect infrmatin appearing n a credit reprt. Surces:

18 FURNISHER OBLIGATIONS UNDER 1681s-2(a) The FCRA at subsectin 1681s-2(a) requires a furnisher t reprt accurate infrmatin and t flag disputes. It prhibits a furnisher frm: Prviding infrmatin t a CRA the furnisher knws r has reasnable cause t believe that the infrmatin is inaccurate; Furnishing infrmatin t a CRA if the furnisher has been ntified by the cnsumer, at the address specified by the persn fr such ntices, that specific infrmatin is inaccurate; and the infrmatin is, in fact, inaccurate. It als requires a furnisher t flag r therwise prvide ntice t CRAs f any dispute by a cnsumer related t his r her credit reprt

19 FURNISHER OBLIGATIONS UNDER 1681s-2(a) Significantly, n private right f actin fr vilatin f 1681s-2(a). The Ninth Circuit explained, Cngress did nt want furnishers f credit expsed t suit by any and every cnsumer dissatisfied with the credit infrmatin furnished. Nelsn v. Chase Manhattan Mrtg. Crp., 282 F. 3d 1057, 1060 (9th Cir. 2002) Thus, the duties impsed under 1681s2(a) f the FCRA are enfrceable nly by federal r state gvernment agencies.

20 FURNISHER OBLIGATION TO INVESTIGATE UNDER 1681s-2(b) Hwever, cnsumers can bring a private actin against a furnisher fr a vilatin f 1681s-2(b). 1681s-2(b) places a secnd set f bligatins n a furnisher that are triggered by the receipt f a ntice f dispute frm a CRA.

21 FURNISHER OBLIGATION TO INVESTIGATE UNDER 1681s-2(b) After receiving a ntice f dispute frm a CRA, a furnisher has 5 mandatry duties: 1. T Cnduct an investigatin with respect t the disputed infrmatin; 2. T review all relevant infrmatin prvided by the CRA; 3. T reprt the results f the investigatin back t the CRA; 4. If the investigatin finds the existing infrmatin is incmplete r inaccurate, t reprt back thse results t each f the CRAs t whm the furnisher riginally cmmunicated infrmatin abut the cnsumer; and 5. t mdify, delete r permanently blck the reprting f any item f infrmatin fund t be inaccurate, incmplete, r which cannt be verified as accurate after a reinvestigatin

22 FURNISHER OBLIGATION TO INVESTIGATE UNDER 1681s-2(b) The CRA will prvide the furnisher with an Autmated Cnsumer Dispute Verificatin ( ACDV ) frm:

23 ACDV EXAMPLE

24 ACDV EXAMPLE

25 ACDV EXAMPLE

26 FURNISHER OBLIGATION TO INVESTIGATE UNDER 1681s-2(b) The 1681s-2(b) duties arise nly after a furnisher receives ntice f a dispute frm CRA. Ntice f a dispute directly frm a cnsumer des nt trigger the bligatins f a furnisher under 1681s-2(b). But see, sectin 1692g f the Fair Debt Cllectin Practices Act. Ntice f Debt; Dispute f Debt...

27 INVESTIGATION FCRA requires a CRA t cnduct a reasnable investigatin within 30 days f receiving a dispute frm a cnsumer. In additin, within 5 business days f receiving the dispute, the CRA is required t prvide ntificatin t any persn wh prvided any item f infrmatin in dispute. This Ntice shall include all relevant infrmatin regarding the dispute that the CRA has received frm the cnsumer.

28 INVESTIGATION REASONABLE OR NOT? Plain language f the FCRA requires CRAs t Perfrm a reasnable investigatin upn ntice f a dispute. See 15 U.S.C. 1681i(1)(A). Hwever, the FCRA nly requires a furnisher f infrmatin t perfrm an investigatin upn ntice f a dispute frm a CRA. See 15 U.S.C. 1681s-2(b)(1)(A). Are furnishers held t lesser standard? The Curts say Nt S Fast in fact, it may be the ppsite

29 DUTY OF A FURNISHER OF INFORMATION Curts have added a reasnableness requirement t an investigatin by furnisher: Furnishers have tried (and failed) t argue that because there is n reasnableness requirement expressly enunciated in the text, the FCRA des nt require an investigatin f any particular quality; arguing any investigatin int a cnsumer's dispute even an entirely unreasnable ne satisfies the statute. See e.g. Grman v. Wlpff & Abramsn, LLP, 584 F. 3d 1147 (9th Cir. 2009); Jhnsn v. MBNA Am. Bank, NA, 357 F.3d 426, (4th Cir. 2004). Curts have reasned that a CRAs reasnable reinvestigatin cnsists largely f triggering the investigatin by the furnisher. See Grman, 584 F. 3d at Thus, it appears the heavier burden f a reasnable investigatin falls t the furnisher.

30 WHAT IS REASONABLE? Curts have stated the plain meaning f the term investigatin is a detailed inquiry r systematic examinatin, which necessarily requires sme degree f careful inquiry. See Grman, 584 F. 3d at The Ninth Circuit has held, the pertinent questin is thus whether the furnisher s prcedures were reasnable in light f what it learned abut the nature f the dispute frm the CRA s ntice f dispute. See Grman, 584 F. 3d at There is a split f authrity as t whether a furnisher is relieved frm investigating infrmatin nt disputed by the cnsumer. If the CRA Ntice f Dispute cntains infrmatin related t infrmatin prvided directly by the cnsumer, best practice is t take that infrmatin int accunt when perfrming an investigatin. It is a very fact-based inquiry.

31 WHAT IS REASONABLE? What cnstitutes a reasnable investigatin by a furnisher is dependent n the nature f the investigatin request frwarded by the CRA which is generated by the cnsumer s dispute t the CRA.

32 WHAT IS REASONABLE?

33 ACCURACY Furnishers have a duty t prvide accurate infrmatin under 1681s-2(a). N private right f actin. Hwever, civil liability under the FCRA, is determined by whether the furnisher perfrmed a reasnable investigatin. In thery, this means a furnisher cannt be fund civilly liable fr merely reprting inaccurate infrmatin.

34 D NOT Ignre a dispute frm a CRA! Only reprt accurate, verifiable infrmatin. Have written prcedures in place fr investigating and respnding t dispute ntices frm a CRA and fllw-them! Take cnsumer disputes seriusly, even if n dispute made with a CRA. Watch ut fr Chapter 13 (and Chapter 12) bankruptcies.

35 DAMAGES WILLFUL NON-COMPLIANCE Any persn wh willfully fails t cmply with any requirement impsed under the FCRA is liable t that cnsumer in an amunt equal t the sum f: Actual damages r statutry damages nt mre than $1,000; r in the case f btaining a cnsumer reprt withut a permissible purpse, actual damages r $1,000, whichever is greater; Punitive damages; and Csts and reasnable attrneys fees. See 15 U.S.C. 1681n.

36 DAMAGES NEGLIGENT NON-COMPLIANCE Any persn wh is negligent in failing t cmply with FCRA is liable t that cnsumer in an amunt equal t the sum f: any actual damages sustained by the cnsumer as a result f the failure; and in the case f any successful actin t enfrce any liability under this sectin, the csts f the actin tgether with reasnable attrneys fees as determined by the curt. See 15 U.S.C

37 RECENT DEVELOPMENTS March 2, 2017 Remve That Liability Waiver Frm Yur FCRA Disclsure Frm (available at: Ninth Circuit recently held that a prspective emplyer willfully vilated the FCRA by including a liability waiver in its FCRA mandated disclsure frm it prvided t jb applicants. Syed v. M-I, LLC, 846 F. 3d (9th Cir. 2017). March 12, 2017: Credit Reprts t Exclude Certain Negative Infrmatin, Bsting FICO Scres, Wall Street Jurnal (available at: Equifax, Experian, and TransUnin have decided t stp reprting tax lien and civil judgment data that d nt include at least three f the fllwing: name, address, and either scial security number f date f birth

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