The Fair Credit Reporting Act

This article provides a high level overview of the The Fair Credit Reporting Act, including its statutory authority and the goals of the Act.  The article examines what steps a furnisher of information, like a bank, credit union, or credit card company, should take when it receives a dispute.  Finally, the article address some tips for litigating claims under the Act, from the perspective of the defendant furnisher.

FCRA Basics

The Fair Credit Reporting Act (“FCRA”), enacted in 1970, under 15 U.S.C. § 1681, provides a mechanism for consumers to ensure that credit reports, produced and  maintained by credit reporting agencies (“CRA”) such as Equifax, TransUnion, and Experian, are accurate.  Incorrect information contained within the credit reports could adversely impact a consumer’s ability to obtain a loan, enter into employment, sign a lease, or be considered for credit.  After receiving a copy of their credit report, a consumer may dispute the validity of how a “furnisher” of information, such as a bank or credit card company, is reporting an account to a CRA.

If a consumer disputes the validity of the information, but the furnisher fails to conduct the appropriate inquiry, the furnisher may be liable for the actual damages to the consumer, as well as the consumer’s attorney’s fees.  15 U.S.C. § 1681(o).  For instance, if a consumer fails to obtain a loan at a lower interest rate due to the incorrect information on their credit report and takes out a higher interest loan, the furnisher may be liable for the difference in the amount paid in interest, plus the attorney’s fees.  In addition to these damages which are objectively quantifiable, a furnisher may be liable for damages for emotional distress suffered as a result of the inaccurate information.

What to do when a consumer disputes their credit report

After a consumer receives their credit report from a CRA, they may dispute the validity of information with the CRA or the furnisher directly.  If a consumer disputes a certain line item within the credit report, within five days of receiveing the dispute, the CRA must provide notice to the furnisher of the information.  15 U.S.C. § 1681(i).  The furnisher must then verify the information provided to the CRA and determine the accuracy of the information reported.  Within thirty days of the consumer requesting verification from the CRA, the CRA and furnisher must have completed a “reasonable investigation” into the validity of the item; if the information is invalid, the information should be removed from the file.

A reasonable investigation should verify all relevant data associated with the account.  This verification should include:

1. Verification of the consumer’s personal information

In this step a furnisher’s inquiry should be directed to ascertaining if the disputed information is properly linked a particular consumer.  For instances, if consumer John Doe, date of birth Janurary 1, 1950, is disputing an account that is appearing on his credit report, the furnisher should verify that they are not incorrectly reporting the subject account that was opened in the name of John Doe, date of birth Janurary 1, 2000.  Additional personal information should be cross-compared to ensure the furnisher is linking the correct account with the correct consumer.

2. Verification of the account information

Next, the inquiry should to turn to what the consumer substantively disputes with the account.  Does the consumer believe that the account was settled and is now incorrectly reporting an outstanding balance?  The furnisher should look to their files to determine what information supports how the account is reported to the CRAs.  If the consumer has documentation or facts that shed any light on the account status, the furnisher should attempt to reconcile this evidence with their own file in order to make a determination if the account information is being correctly reported.

3. Documentation of the process

A furnisher may be able to dispose of a lawsuit on summary judgment by showing their “reasonable investigation.” In an effort to ensure that a furnisher’s employees or agents fully investigate disputed accounts, it would be helpful, but not necessary, to develop a “standard operating procedure” or “check lists” to ensure a consistently through investigation.  During the investigation, the furnisher should make a contemporaneous memorandum as to what documents or sources were used to verify the disputed account. Should there be any dispute about the process in the future, the furnisher can then refer to their notes and procedures to demonstrate the diligence of their investigation.

What to do if you are sued under the FCRA

FCRA cases generally are filed in federal court, as the matter has federal question jurisdiction. To the extent that a case is brought within state court, a furnisher may remove the action to the federal court, regardless of the amount in controversy.  15 U.S.C. § 1681(p).   Given the federal judiciary’s resources vis-a-vis most state courts, there will tend to be a higher level of judicial intervention into the matter, and thus, greater legal bills incurred on both sides.

Given the relative straightforward facts of most FCRA cases, some courts place these cases on a fast track “rocket docket,” which will expedite the timeframe for resolution.  These dockets tend to favor the furnisher, as it may reduce the overall amount of discovery and reduce potential attorney’s fees for the consumer.

Case will need majority of attention on the front end

The first step in assessing and investigating the FCRA suit should be verification of what the consumer perceives to be the error.  A consumer may have a mistaken belief about their account due to lack of sophistication, or due to the passage of time.   For instances, a consumer may believe that they settled a delinquent account for a full balance, and it should not contain negative reporting information.  However, the reality may be that the furnisher and the consumer agreed that the account was being settled for less than its full balance, and the consumer forgot this information, or, the consumer never understood what this meant from the beginning.  If possible, locate documentary evidence between the furnisher and the consumer that memorializes the negative reporting event, such as the letter that settled the account.

Next, counsel for the furnisher will need to identify a witness who can succinctly and accurately testify as to the verification process employed by the furnisher.  This witness will also need to understand the communications between the consumer and the furnisher regarding the subject account from the invitation of the dispute onward.  This witness should be able to verify the steps that were taken in the verification process.

Counsel should be provided all documents from the furnisher detailing when the dispute came to the furnisher, what the furnisher did in response to the dispute, and what action or resolution the furnisher came to at the conclusion of the dispute. Collecting these documents at the front end will expedite any discovery and help to control the cost of the litigation.

Pushing Back On the Consumer

Although FCRA suits serve a legitimate interest in protecting consumers, these suits may be abused.  Credit disputes may be launched on a consumer’s behalf by less than scrupulous credit repair groups, who promise consumers that they can “fix” the consumer’s credit.  The repair group may send the initial dispute and then, when the account continues to report, refer the consumer to an attorney who is willing to sue the CRAs and the furnishers. If the suit is being driven by the consumer’s attorney, rather than the consumer, the consumer may have a limited insight into how their credit report is purportedly flawed and may have little to no actual damages.

In an effort to push back on the consumer, the furnisher may wish to undertake limited, targeted discovery.  If the consumer is represented, general interrogatories, such as “please list your damages,” or general requests for production, such as “all documents that support your claim,” are unlikely to yield any probative information.  Rather, targeted questions such as “Which bank deined you a loan because of the alledged inaccuracy,” or “Please provide documents from Us (the furnisher) which supports your contention that the account was settled in 2015,” will provide better insights.  Additionally, if the consumer is non-responsive to these limited requests, the furnisher will have a greater chance of having sanctions awarded in a motion to compel.

An early deposition of the consumer may help in putting the case to rest.  In such a deposition, the furnisher can further explore what facts, if any, support the consumer’s position that the account is inaccurately reporting, or that the investigation was not reasonable.  Further, there can be an answer as to what specific damages were experienced by the consumer, instead of general assertions that the consumer’s “ability to obtain credit was hurt,” or that the consumer experienced “emotional distress.”  Lastly, if the furnisher’s settlement offers have gone unanswered, a deposition may provide the opportunity for the furnisher to revive these discussions.

Conclusion

 The FCRA provides a tool for consumers to ensure that their credit reports are accurate, and in the case of inaccuracy, a way to work with the CRAs to cure the inaccuracy.  However, the FCRA may be abused by consumers, resulting in litigation for furnishers of information.  In order to protect both consumers and itself, a furnisher should conduct investigations into disputes and document the same.  If the consumer files suit, the furnisher and its counsel should take steps early in the litigation to limit scope of the action and to keep any legal fees contained.