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Guest Post: CFPB Puts Companies On Notice About Duty To Investigate Consumer Credit Report Disputes


This a guest post written by Associate Attorney Dan McGarry:

It happens all the time. Inaccurate information routinely finds its way into the credit file of an unsuspecting consumer. Credit reports contain financial information, including detailed account payment history, and are used by lenders and employers to determine an individual's credit risk or trustworthiness; it's important to make sure it's accurate. Often times, a consumer is unaware of the inaccurate information until it results in a credit denial.

In fact, one out of five Americans has an error on their credit report, and one out of ten has an error on their credit report that might lower their credit score, according to a Federal Trade Commission (FTC) study of the U.S. credit reporting industry released in December 2012.

"These are eye-opening numbers for American consumers," said Howard Shelanski, Director of the FTC's Bureau of Economics. "The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don't, they are potentially putting their pocketbooks at risk."

Credit Reporting Agencies (CRAs) publish credit account information and other public records relating to a consumer's financial history. The most common CRAs are Equifax, Experian, and TransUnion. CRAs obtain information directly from creditors who own each particular account, known as furnishing creditors or furnishers of information.

So what can a consumer who finds inaccurate information in their report do to fix the error and protect their credit rating? Under the Fair Credit Reporting Act (FCRA), a consumer may dispute items of information with either the CRA or the furnisher of information directly. The FCRA requires that CRAs and the furnishing creditors conduct a "reasonable investigation" into such a valid dispute, including reviewing all relevant documentation sent by the consumer.

Unfortunately, it is unlikely that the CRAs and the furnishing creditors will actually conduct a meaningful investigation. Recently, 60 Minutes ran a report titled, "40 Million Mistakes," in which three former Experian dispute agents at Experian's national consumer assistance center in Santiago, Chile were asked about Experian's handling of these customer disputes.

According to the former dispute agents, all they did was read the disputes and reduce them to a two-digit code like "never late" or "not mine." It was then sent with a two or three-line summary and no documentation back to the bank or department store that furnished the original information.

Due to the recent exposure of the lack of compliance with the dispute procedure outlined by the FCRA, last week the CFPB issued a bulletin clarifying the duties of furnishers. The Bureau cautioned that furnishers have to review all relevant information they receive about the disputes, including "documents that the CRA includes with the notice of dispute or transmits during the investigation, and the furnisher's own information with respect to the dispute."

Consumers who believe that their credit file contains inaccurate information should continue to dispute the information with one of the CRAs. The recent CFPB bulletin makes it clear that a furnishing creditor must maintain a process by which it reviews all relevant information, and that practices that violate the FCRA will be subject to corrective measures by the CFBP.