CFPB Warns of Possible Direct Dispute Violations
Credit reports – a wealth of information about a person’s financial habits that can serve as the determining factor in credit decisions or even employment decisions or background checks. Given the outsized impact a credit report can have on a person’s life, it’s important that the information contained in the credit report be accurate, and that credit unions handle disputed information appropriately. Last week the Consumer Financial Protection Bureau (CFPB or bureau) provided guidance on this topic by publishing a new consumer financial protection circular on the topic of consumer reporting disputes.
The FCRA and Disputes
Let’s review some basics. The Fair Credit Reporting Act (FCRA) governs “consumer reports,” which are reports of a consumer’s financial history and habits – this term commonly covers credit reports, but also may cover reports from companies like Chex Systems. These reports are compiled by “consumer reporting agencies” (CRAs). The information a CRA includes in a consumer report is often provided by a data furnisher (or simply “furnisher”). Credit unions can be furnishers if they provide information to CRAs about their members – such as their members’ accounts, transactions, and debts. Notably, credit unions are not required to furnish data to CRAs, but credit unions which choose to furnish data will be subject to certain requirements in the FCRA and Regulation V. For example, section 1022.42 of Regulation V requires credit unions that act as furnishers to have “reasonable written policies and procedures regarding the accuracy and integrity” of the information furnished.
For credit unions, some of the biggest data furnisher obligations relate to handling disputes over the information the credit union has furnished. Under the FCRA there are two types of disputes. The first are disputes in which a consumer first submits their dispute to the CRA. Under the FCRA, the CRA is then required to notify the furnisher within 5 business days, and the furnisher is then required to investigate the dispute and report the results to the CRA before the expiration of the CRA’s 30-day investigation period. I’ll refer to these as “indirect disputes” because they come to the credit union indirectly – i.e., through the CRA rather than directly from the consumer.
The other type of dispute is known as a “direct disputes,” in which the consumer submits the dispute directly to the furnisher (a credit union for our purposes). Section 1022.43 of Regulation V provides a number of requirements for credit unions to follow when handling “direct disputes,” such as the requirement to conduct a “reasonable investigation,” to “[r]eview all relevant information provided by the consumer,” and to complete the investigation within 30 days. Notably, the FCRA and Reg V state that a credit union is not required to investigate disputes that are reasonably determined to be frivolous or irrelevant, or disputes submitted by credit repair organizations.
When a consumer submits a direct dispute to a furnisher – such as a credit union – section 1022.43(d) requires the notice of dispute to contain certain information in order to be valid and to trigger the investigation requirements. The notice must include “sufficient information to identify the account or other relationship,” as well as “[t]he specific information that the consumer is disputing and an explanation of the basis for the dispute,” and must also include “all supporting documentation or other information reasonably required by the furnisher to substantiate the basis of the dispute.” Notably, the regulation states that “supporting documentation” could include a portion of the consumer report, a police report, fraud or identity theft affidavit, a court order, and more.
Recent CFPB Guidance
The CFPB’s recent circular discusses the rights of consumers to dispute information in their consumer reports, and notes that the bureau received over 500,000 complaints relating to credit reporting between January and September 2021, and that the accuracy of the information reported was the leading issue amongst those complaints. Issues with investigations into disputes was also a top issue in credit reporting complaints received by the bureau in recent years.
In particular, the circular warns CRAs and furnishers that imposing “obstacles” to the submission of a dispute could be a violation of the FCRA and Regulation V. The circular provides the following examples:
- Furnishers that require a consumer to provide additional specific documents even though the consumer has already provided the supporting documentation or other information reasonably required to substantiate the basis of a direct dispute; and
- …[F]urnishers that require a consumer to attach a completed proprietary form before investigating the consumer’s dispute.
Thus, according to the CFPB, credit unions which require submission of additional documents beyond those needed to substantiate the basis of the dispute, or credit unions which require use of a proprietary form as a prerequisite to investigating a direct dispute could be in violation of the FCRA and/or Regulation V and could face action from “enforcers” (agencies empowered to enforce the FCRA).
Strangely, however, the bureau states:
“Enforcers may bring claims if consumer reporting agencies and furnishers limit consumers’ dispute rights by requiring any specific format or requiring any specific attachment such as a copy of a police report or consumer report beyond what the statute and regulations permit.”
This specific example of requiring a police report is a bit odd considering – as discussed above – section 1022.43(d) explicitly lists a police report as the type of document that could be “reasonably required by the furnisher to substantiate the basis of the dispute.” Reading between the lines, it seems that the bureau is stating that police reports can be required by a credit union when the police report is actually “reasonably required” to substantiate the basis of the dispute. However, requiring police reports in all cases – even when a police report would not help substantiate the basis of the dispute – could amount to an “obstacle” to submitting disputes that would violate the FCRA and Regulation V. The same logic applies beyond police reports to any type of document required by a credit union when receiving a direct dispute notice. Whether the document is actually required to substantiate the basis of the dispute – and thus whether the credit union has violated the FCRA and could be subject to action from “enforcers” – will seemingly depend on the specific facts and circumstances of the dispute. In light of this circular, credit unions may want to review their policies and practices regarding direct disputes to determine if they are currently requiring any documents that are not necessary to substantiating the basis of the dispute.
Additionally, the circular also discusses indirect disputes and notes that when a CRA receives a notice of dispute, the CRA is required to provide the furnisher with “all relevant information” regarding the dispute that the CRA has received. The bureau notes that “[t]he consumer reporting agency’s failure to provide the furnisher with all relevant information limits the furnisher’s ability to reasonably investigate the dispute.” Thus, this circular could have the positive effect of requiring CRAs to provide more information to credit unions relating to indirect disputes.
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About the Author
Nick St. John, was named Director of Regulatory Compliance in August 2022. In this role, Nick helps credit unions with a variety of compliance issues.