FTC, CFPB say furnishers must investigate indirect disputes
On September 13, the FTC and CFPB (agencies) filed a joint amicus brief with the U.S. Court of Appeals for the Third Circuit, seeking the reversal of a district court decision that held furnishers of credit information are only obligated to investigate “bona fide” indirect disputes and may choose to decline to investigate other indirect disputes raised by consumers that are deemed frivolous. The agencies argued that this “atextual, judge-made exception” could undermine a key FCRA protection that allows consumers to dispute and correct inaccurate information in their credit reports, leading to a likely increase in consumer complaints related to credit reporting inaccuracies. Under the FCRA, consumers may file a direct dispute with a furnisher or file an indirect dispute with a consumer reporting agency (CRA), which may refer the dispute to the furnisher.
The case involves a direct dispute submitted by a plaintiff to a cable company, requesting an investigation into an allegedly fraudulent delinquent account listed on his credit report. The plaintiff informed the cable company that he was a victim of identity theft and that the account was opened in his name without his authorization. The cable company eventually referred the account to a debt collector (defendant) for collection after the plaintiff failed to provide requested information showing his account was opened due to fraud. An indirect dispute was later filed by the plaintiff with the CRA, which in turn sent the dispute to the defendant as the furnisher of the allegedly inaccurate information. After a second indirect dispute was filed noting the allegedly fraudulent account was the subject of litigation, the defendant removed the account from the plaintiff’s credit report and ceased collections. The plaintiff sued, asserting claims under the FCRA, FDCPA, and Pennsylvania law. The district court granted summary judgment in favor of the defendant, ruling that the plaintiff failed to provide evidence substantiating the basis of his dispute, and that “a furnisher is obligated to investigate only ‘bona fide’ indirect disputes and may therefore decline to investigate any indirect dispute it deems frivolous.”
In urging the appellate court to overturn the decision, the agencies countered in their amicus brief that the text of the FCRA is unambiguous—“furnishers must investigate all indirect disputes.” Nothing in the text suggests that a furnisher can choose not to investigate an indirect dispute if it determines it to be frivolous, the agencies stressed, further noting that if Congress intended to “create an exception for frivolous disputes, it knew how to do so,” and that in other parts of the statute Congress expressly provided that certain frivolous disputes do not need to be investigated.
The amicus brief also pointed out that under the FCRA, consumers are entitled to be notified about the outcome of their disputes, as well as given an opportunity to cure any deficiencies. The district court holding, the agencies said, would circumvent these requirements, thereby undercutting a central remedy under the FCRA that ensures consumers are able to dispute and correct inaccurate information in their credit reports. If furnishers were able to ignore disputes referred to them by CRAs, it could open an unintended loophole that would allow disputes to disappear “into a proverbial black hole,” the agencies asserted, emphasizing that if the district court’s interpretation is affirmed, consumers who submit an indirect dispute that is deemed frivolous by a furnisher may never receive any notice of that determination, and therefore, may never be able to cure any deficiencies or correct erroneous information in their credit reports.
The agencies also challenged whether the exception created by the district court’s ruling is necessary, as the FCRA already provides protections to furnishers from investigating frivolous disputes. Specifically, the statute allows CRAs to determine if a dispute a frivolous before forwarding a dispute to the furnisher. Moreover, furnishers “are not required to conduct an unreasonably onerous investigation into a conclusory or unsubstantiated dispute,” the agencies explained, stating that whether a furnisher has satisfied its obligation to conduct a reasonable investigation is normally a fact-intensive question for trial.
The Bureau noted in an accompanying blog post that it has also filed several other amicus briefs in other pending FCRA cases (previously covered by InfoBytes here) related to consumer reporting obligations.