Consumers' lives can be seriously affected by the information included on their credit reports: bad scores can mean higher loan interest rates or denials of mortgage refinancing plans or other loans altogether. The information on consumers' credit reports comes from "furnishers of information," which contribute information to consumer reporting agencies (CRAs), who, in turn, compile the information into a consumer report and distribute that report. If, at any point in this process, incorrect information is included on a consumer's credit report, the consumer's life could be disrupted--and any furnishers of information who provided incorrect information or failed to properly respond to a consumer's dispute over the information in their report could face liability under the Fair Credit Reporting Act (FCRA).
The FCRA, which seeks to protect consumers from having their lives disrupted by incorrect information, imposes duties on furnishers of information (such as mortgage lenders, loan servicers, and credit bureaus, among others) to ensure that consumer information is being reported correctly and accurately to CRAs. (1) A furnisher's obligations are found in the FCRA, 15 U.S.C. [section]1681s-2, and the associated regulations, known as the "Furnisher Rule," at 16 C.F.R. [section]660. Furnishers under the FCRA must be aware of and comply with these duties not only so they can avoid the hassle of litigation, but so they can also avoid regulatory penalties.
Furnishers Must Report Accurate Consumer Information
A furnisher's first duty is simple: A furnisher must report accurate consumer information to CRAs. (2) Although simple on its face, this duty manifests itself in different ways. First, the FCRA expressly prohibits a furnisher from sharing information if the furnisher knows or has reasonable cause to believe that information is inaccurate. (3) A furnisher has "reasonable cause to believe that the information is inaccurate" if it has "specific knowledge, other than solely allegations by the consumer," that would give the furnisher "substantial doubts" about the information's accuracy. (4)
Second, once a consumer notifies a furnisher that specific information is inaccurate, the furnisher cannot provide that information to a CRA if the information is, in fact, inaccurate. (5) Even if it's accurate, the furnisher still may not report that information to a CRA unless the furnisher also notifies the CRA that the consumer has disputed the information. (6)
Third, when a furnisher determines that information it previously reported about a consumer is inaccurate or incomplete, it must promptly notify the CRA of that determination. (7) It must also correct the information or provide additional information to make the information it previously reported accurate and complete--and it must refrain from reporting the inaccurate or incomplete information in the future. (8)
Fourth, financial institutions that extend credit and regularly furnish information to CRAs in the ordinary course of business should note that, if the institution reports negative information (i.e., information concerning a customer's delinquencies, late payments, insolvency, or any form of default) (9) to a CRA about credit that the institution extended to a customer, the institution must notify the customer that it shared the negative information. (10) The notice to the customer must be in writing and must be given either before, or no later than 30 days after, furnishing the negative information. (11) The notice may be included with other materials provided to the consumer, including a notice of default or a billing statement, so long as the notice is
"clear and conspicuous." (12)
Once the furnisher provides this notice, the institution can provide a CRA with other negative information related to the same transaction, extension of credit, account, or customer without having to provide the customer with notice again. (13) Importantly, the FCRA provides a safe harbor for financial institutions that fail to comply with these requirements so long as the financial institution either maintained reasonable policies and procedures to ensure compliance or reasonably believed that it was prohibited by law from contacting the consumer. (14)
Fifth, a furnisher must "have in place reasonable procedures to respond to any notification that it receives" from a CRA "relating to information from identity theft so as to not re-report that blocked information." (15) It is the CRA's responsibility to notify the furnisher that specific information may be the result of identity theft; that a report has been filed; that the consumer has requested a block of the information; and that the block will be effective for specific dates. (16) The consumer may also notify the furnisher directly about a claim of identity theft. (17) If the consumer submits an identity theft report to a furnisher at the appropriate address designated for such reports, the furnisher may not report information that supposedly relates to the consumer unless the furnisher later knows or is informed by the consumer that the information is correct. (18)
When a Consumer Disputes Reported Information
Because both CRAs and furnishers report information, consumers can dispute inaccurate or incomplete information to the CRA or directly to the furnisher. Regardless of whether the furnisher receives notice of the dispute directly, it is still obligated to investigate the information and report back to the CRA.
* Duties of Furnishers After Receiving a Direct Dispute--The Furnisher...