In just a matter of weeks, the unprecedented coronavirus pandemic has drastically changed our lives, our work and the economy. In response, new laws such as the Families First Coronavirus Response Act – providing employees with expanded family and medical leave rights – have already been passed. Headlines report the introduction of legislation to stop negative credit reporting. The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) has also just published information directed towards helping consumers protect their credit during the coronavirus pandemic; including directing consumers to contact their lenders if they feel they cannot make payments, and directing consumers to report and dispute inaccurate information. ¹
All of this is happening after a recent study reports that Fair Credit Reporting Act (“FCRA”) suits more than doubled in the last decade; and increased more than 150 percent during this period.² The FCRA regulates those who compile and use consumer reports and furnish consumer information to a consumer reporting agency. And more recently, in the three-year period from 2016 to 2018, the most active lawsuit defendants were credit reporting companies. Multi-million dollar verdicts and settlements have been reached in these suits. The rise in FCRA claims may very well be due to an increased number of credit report inquiries and background checks.
Of particular note during these unprecedented times is the CFPB’s recent focus on credit reporting. The CFPB recently published its Fall 2019 Special Edition Supervisory Highlights on Consumer Reporting; which was preceded by the Summer 2019 Supervisory Highlights addressing the furnishing of consumer information to consumer reporting companies (CRCs). The CFPB regularly publishes Supervisory Highlights (“Highlights” or “Supervisory Highlights”) in which it shares with the public key findings from its supervisory work. The Bureau does this, in its own words, to help the industry limit risks to consumers, comply with federal consumer financial law, and to help institutions better understand how it examines institutions for compliance with relevant laws and regulations. The Highlights often focus, in part, on the conduct of auto finance creditors. While it is important to remember that institutions are subject only to the requirements of relevant laws and regulations, and the Highlights do not impose any new or different legal requirements, the Highlights describe “legal violations” found by the Bureau in examinations. Because the conduct underlying these findings may lead to similar findings against other auto creditors under like facts/circumstances, or be the basis for a customer’s claim or lawsuit, auto finance creditors should take special note.
Supervisory Highlights
The Supervisory Highlights published in Summer 2019 and in December 2019 cover a number of supervisory observations resulting from examinations in the areas of consumer reporting and furnishing of information to CRCs pursuant to the FCRA and its implementing regulation, Regulation V. In these Highlights, the Bureau points out deficiencies in furnisher compliance with FCRA accuracy and CMS (compliance management system) weaknesses, as follows:
Establishing and implementing reasonable written policies and procedures. Regulation V requires furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information which furnishers provide to CRCs; which policies and procedures must be appropriate to the nature, size, complexity and scope of the furnisher’s activities. Notably, in review(s) of auto loan furnishers, examiners found that the furnishers’ policies and procedures did not provide sufficient guidance for conducting reasonable investigations of indirect disputes containing allegations of identity theft. The furnishers’ policies and procedures did not specify that agents investigating identity theft disputes should review internal records of fraud investigations before completing dispute investigations and responding to CRCs. As a result, those furnisher(s) are developing and implementing policies and procedures to rectify these issues.
Reporting information with actual knowledge of errors. The FCRA prohibits furnishers from furnishing any information relating to a consumer to any CRC if the furnisher “knows or has reasonable cause to believe that the information is inaccurate.” The Highlights note that a furnisher is not subject to this prohibition if it “clearly and conspicuously specifies to the consumer an address” at which consumers can send notices that furnished information is inaccurate. Examination found that furnisher(s) furnished information they knew or had reasonable cause to believe was inaccurate when the furnisher(s) reported thousands of accounts to CRC(s) with inaccurate derogatory status codes. The consumers had filed disputes with CRC(s) identifying the errors. The disputes were forwarded to the furnishers for investigation, but the furnishers failed to conduct a “root-cause analysis” that would have identified the issue. The furnishers also did not clearly and conspicuously specify to consumers an address at which consumers could send notices that furnished information was inaccurate.
Duty to correct and update information. The FCRA requires that if a furnisher determines that previously furnished information is not complete or accurate, the furnisher must promptly notify the CRC of that determination and provide the CRC with any corrections to that information, or any additional information, necessary to make the information complete and accurate. In reviews of auto loan furnishers, examiners found that the furnishers failed to provide prompt notifications to CRCs of their determinations that information they had previously furnished was inaccurate, when the furnishers found that the loans had been opened as a result of identity theft. As a result of the Bureau’s findings, furnisher(s) are developing and implementing policies and procedures to ensure that they promptly notify CRCs and/or correct information furnished if they find that information previously furnished is inaccurate.
Duty to provide notice of delinquency of accounts. The FCRA requires furnishers of information regarding delinquent accounts to report the date of delinquency to the CRC within 90 days, and that the date of the first delinquency reported by the furnisher “shall be the month and year of the commencement of the delinquency on the account that immediately preceded the action.” In review(s), furnishers reported the incorrect date of the first delinquency. Furnisher(s) of auto loans furnished the date of repossession of the vehicle, rather than the date of first delinquency (the repossession date was several months after the date of the first missed payment).
Obligations upon notice of dispute. Consumers can file disputes concerning the accuracy of information contained in a consumer report with the CRCs as well as directly with the furnisher of that information. Whether filed directly or indirectly, the furnisher must conduct a reasonable investigation of the dispute. For direct disputes, the furnisher must complete its investigation and respond to the consumer before the expiration of the time period set forth in the FCRA (generally 30 days). And, if the furnisher determines that a direct dispute is frivolous or irrelevant, it must provide notice of that determination to the consumer.
Effects of noncompliance
Engaging in conduct underlying the Bureau’s findings may lead to the Bureau making similar findings against other auto finance creditors under like facts/circumstances, or may serve as the basis for FCRA claims and lawsuits by consumers and plaintiff’s attorneys. When the conduct underlying such claims occur in a similar, repeated and recurring fashion; they may be framed as a dreaded “class” action.
Takeaways and best practices
In light of the above, you should ensure that you are properly complying with the law, and consider taking action including the following corrective actions set forth in the Highlights:
• Establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information provided to CRCs, which policies and procedures are appropriate to the nature, size, complexity and scope of the furnisher’s activities (including policies and procedures with respect to identity theft disputes);
• Clearly and conspicuously specify to the consumer an address at which consumers can send notices that furnished information is inaccurate and avoid furnishing consumer information to CRC(s) if it is known or believed that the information is inaccurate;
• If previously furnished information is not complete or accurate, promptly notify CRCs of that determination and provide the CRC with any corrections to that information, or any additional information, necessary to make the information complete and accurate; and
• Report the correct date of the first delinquency, which should be the date of the first missed payment and not the date of repossession.
¹ See CFPB website “Protecting your credit during the coronavirus pandemic” dated March 19, 2020.
² Lex Machina (a LexisNexis company) October 23, 2019 Consumer Protection Litigation Report.