Key Takeaways for Furnishers from the CFPB’s Recent Supervisory Highlights on Credit Reporting
In December 2019, the Consumer Financial Protection Bureau (CFPB) issued its Supervisory Highlights covering its findings from examinations in the areas of credit reporting and the furnishing of credit information to consumer reporting agencies (CRAs). The following are a few of the key takeaways from the CFPB’s findings and comments.
1. The Lack of Procedures Necessary to Fit a Furnisher’s “Nature, Size, Complexity and Scope of Activities”
The CFPB highlighted that a furnisher’s policies and procedures must be appropriate to fit the nature, size, complexity, and scope of a furnisher’s activities. This includes, among other things, sufficient direction on what documentation and information a representative should review when investigating a dispute. In our experience, what documents can and should be reviewed varies significantly from dispute to dispute. The CFPB also noted the importance of retaining “dispute investigation documents and records,” and highlighted a furnisher’s updated procedures which called for the retention of “imaged screenshots, for a minimum of seven years.” This is an area of weakness we continue to see in various policies and procedures. It is important from both a regulatory and a litigation perspective that furnishers develop procedures that document what steps a representative undertook for a particular search, and that such documentation be retained for a sufficient period of time. While testimony and evidence relating to investigative policies and procedures generally is useful, it is important to document that a representative followed those policies and procedures in each instance.
The CFPB also noted that a furnisher’s policies and procedures should be designed to ensure that account information is timely updated to reflect the “current status of a consumer’s account.” Specifically, the CFPB noted a furnisher’s failure to provide prompt notifications to the CRAs upon a furnisher’s determination that an account had been improperly opened as a result of identity theft. The CFPB also noted various failures to promptly update or correct information where a consumer’s charged-off balances had been discharged in bankruptcy, or where a consumer paid a charged-off balance in full. The CFPB noted that the furnishers updated their internal systems with this information, but failed to update and correct the information being furnished to the CRAs.
2. The Lack of Reasonable Procedures Relating to Allegations of Identity Theft
The CFPB noted that one auto finance company failed to provide sufficient policies and procedures to conduct a reasonable investigation of indirect disputes containing allegations of identity theft. Specifically, the CFPB noted that the furnisher “did not specify that agents investigating disputes alleging identify theft should review internal records of fraud investigations before completing dispute investigations and responding to CRAs.” This is an area of weaknesses we continue to see and it is important that furnishers investigate more than just a “single screen” relating to a consumer’s demographic or account information when considering allegations of identity theft. It is important for furnishers to examine communications and findings of other departments, including, as the CFPB notes, any completed or ongoing fraud investigations.
3. The Importance of Conducting a Root-Cause Analysis
At two different points in its Supervisory Highlights, the CFPB noted the importance of conducting a root-cause analysis for disputes in order to identify “systemic errors” in its reporting processes. Specifically, the CFPB noted finding one or more furnishers who reported thousands of accounts with inaccurate dispute codes because of “coding errors.” The CFPB noted that the furnishers’ investigations “failed to conduct a root-cause analysis that would have identified the issue as a systemic source of inaccuracy.” The CFPB stated that these obligations arose from the FCRA’s prohibition on furnishing any information that the furnisher “knows or has reasonable cause to believe that this information is inaccurate.” The CFPB’s comments regarding a furnisher’s obligations to effectively detect systemic issues in its credit reporting highlight the need for robust sampling and monitoring procedures to ensure that a furnisher’s reporting and investigation procedures are working as expected.
4. Issues with Direct Dispute Policies and Procedures
The CFPB noted a variety of issues with the policies and procedures developed by furnishers for handling direct disputes from consumers. The first was the failure of furnishers to timely respond to disputes within the requisite 30 days (45 days if extended). The CFPB noted furnishers with backlogs of thousands of uninvestigated and unresponded to direct disputes due to inadequate dispute procedures. The second was the insufficient procedures for notifying consumers of a furnisher’s determination that a dispute was “frivolous or irrelevant.” While the CFPB correctly noted that a furnisher has the right to decline to investigate a dispute where the furnisher reasonably believes the dispute is “frivolous or irrelevant,” the CFPB noted failures in informing consumers of this determination and the reasons for the same. The CFPB noted that furnishers were improperly: (i) failing to notify consumers of the determination that a dispute was frivolous or irrelevant; (ii) failing to provide such notification within the requisite time frame (i.e., no later than 5 days after the determination is made); (iii) and/or failing to provide the reasons for such determination, but instead, simply indicating there would be no further correspondence without additional information.
The CFPB’s findings highlight the importance of continuing to revise and update your FCRA policies and procedures. The FCRA continues to be an area of focus for CFPB examinations, as well as a significant area of litigation. We will continue to monitor and report on key developments in the FCRA. Please contact Ryan DiClemente, Esq. for more information on FCRA compliance and litigation strategies.