Consumer Finance Law Quarterly Report
Special Section on the FCRA
IMPACT OF THE FEDERAL FAIR CREDIT REPORTING ACT ON DEBT COLLECTION ACTIVITIES
David E. Worsley [FNa1]
Copyright © 2002 by Conference on Consumer Finance Law; David E. Worsley
Suppose that a debt collection agency or other debt collector requests a summary of its duties under the federal Fair Credit Reporting Act (FCRA) with regard to information provided to a credit reporting agency (CRA) and information received regarding consumer disputes. Many debt collectors feel that they have their hands full in trying to comply with the Fair Debt Collection Practices Act, [FN1] and may cringe (or go into denial) at the thought of yet another layer of compliance responsibilities. But the reality is that debt collectors have no alternative to such compliance, if they want to avoid potential risks and liabilities.
II. FCRA Section 623
FCRA section 623 [FN2] took effect on September 30, 1997 and is summarized below. Section 623 sets forth the requirements for persons who furnish information to CRAs and the duties of such persons when notified of a dispute regarding such information.
A. Application of Section 623 to Debt Collection Agencies
A debt collection agency is subject to section 623 if it furnishes information to CRAs on behalf of its customers or with regard to information furnished to CRAs on accounts that it has purchased.
B. Application of Other Laws to the Debt Collection Agency
Even if the FCRA does not apply to the debt collection agency, the FCRA likely sets a standard for accuracy and dispute resolution that could be the basis for an action by the Federal Trade Commission (FTC) under its general authority to stop unfair and deceptive practices, and also could support a private right of action under state consumer protection acts and deceptive and unfair acts and practices statutes.
III. Duties to Report Under Section 623
A. Duty to Report Accurate Information
1. Alternate Requirements
Under section 623, there are alternate requirements with regard to reporting information accurately to CRAs.
First, the debt collection agency may not report information to CRAs if it "knows or consciously avoids knowing that the information is inaccurate." [FN3]
Second, instead of being subject to this broad general requirement, the debt collection agency may, but is not required to, provide an address to consumers so they can advise the debt collection agency if any information reported was inaccurate. If this alternative is used and a consumer notifies the debt collection agency of inaccurate information, the debt collection agency can no longer report such information if it determines that the information is, in fact, inaccurate. [FN4]
2. Providing Consumer Notice
There are no specific requirements as to how notice of an address must be provided to consumers, other than that it must be clear and conspicuous. A single notice in a mailing would be sufficient. Such a notice could read:
*66 Contact us at ___ (address) if you believe any information that was furnished to a credit bureau regarding your account is not accurate. Please specify what information you believe to be inaccurate and an explanation of why you believe the information is inaccurate.
Although section 623(a) does not contemplate enforcement by consumers, it may, nevertheless, be desirable to provide this notice. Using the notice provides a safe harbor in the event of FTC enforcement actions. This should be helpful to the debt collection agency, to the extent that it reports information received from others and may inadvertently report inaccurate information.
Even if the debt collection agency is not furnishing information to CRAs for certain accounts, it may be desirable to provide a similar notice to indicate that it is taking reasonable steps to insure that the information it uses is accurate. This would go beyond the validation notice required under federal Fair Debt Collection Practices Act section 809. [FN5]
B. Duty to Report Correct and Updated Information
If the debt collection agency determines that any information previously provided by it or, with regard to a purchased account, by the prior creditor, to a CRA was not accurate, not complete, or no longer accurate, the debt collection agency must notify the CRA that the prior information must be changed. This notice must be sent to all CRAs to which this information was previously sent. Thereafter, the debt collection agency must report correct and complete, and maintain current, information on this point.
This imposes a duty on the debt collection agency to act on its own initiative, as discussed further at Part V below.
C. Duty to Report Notice of Customer Dispute
If a consumer gives the debt collection agency notice that the consumer disputes the accuracy or completeness of any information, the debt collection agency must thereafter indicate when it furnishes the information to the CRA that such information is disputed. [FN6] This requirement likely applies even if the debt collection agency determines that the information is accurate, if the consumer continues to dispute the information. Since the FCRA does not require that the consumer notify the debt collection agency of the dispute in writing, the debt collection agency must train its staff to be alert to indicate consumer disputes in its records if consumers question information, even if there is no basis for such a dispute.
D. Duty to Report Closed Accounts
FCRA section 623(a)(4) requires that a creditor report if a credit account is voluntarily closed by a consumer in information regularly furnished for the time period in which the account is closed. This would not seem to apply to the debt collection agency.
E. Duty to Report Dates of Delinquencies
Within 90 days after an account is charged off, placed for collection, or there is similar action, a creditor must report the month and year of the initial delinquency that resulted in this action. [FN7] This action may have already have been taken before the debt collection agency begins collection efforts. However, if the debt collection agency purchases the account, it would be advisable to determine whether the prior creditor correctly reported the delinquency date. It should be noted that the FTC has brought at least one enforcement action under section 623 against a debt collection agency which did not correctly report initial delinquency dates.
The policy behind this requirement is to establish a clear rule for reporting delinquencies, so that CRAs can correctly determine when the 7-year period for reporting such adverse information will end. This requirement applies to all reports of such adverse action on and after December 29, 1997. Staff Opinion Letter, June 4, 1999.
IV. Duty Regarding Disputes Under Section 623
As indicated above, FCRA section 623 imposes a general duty to investigate a dispute when notified by a consumer. However, there are specific requirements and time limits when a CRA notifies the debt collection agency that a consumer disputes any information reported by the debt collection agency. [FN8]
Also, if the debt collection agency obtains such information from a CRA on behalf of a client, the debt collection agency needs to be sure that it or the client comply with this section.
B. Requirements for CRAs
This requirement is tied to FCRA section 611. Section 611(a)(1)(A) provides that a credit bureau must investigate any consumer dispute and, within 30 days from the date the CRA receives notice of the dispute, the CRA must take some action to delete or correct the information, or continue to show it as disputed. The 30-day period can be extended for 15 additional days if the consumer provides additional information related to the dispute.
Section 611(a)(2)(A) requires that the CRA notify the debt collection agency of any consumer dispute within five business *67 days after receiving a consumer dispute.
C. Requirements Under Section 623
After the debt collection agency receives notice of a consumer dispute from a CRA, along with any additional information received from the CRA, it must conduct its own investigation, review material from the CRA, and report its determination to the CRA within the time-frame above. [FN9] This requires that the debt collection agency must act promptly when it receives notice of a dispute.
V. Compliance with Section 623
A. Employee Training
As indicated above, the debt collection agency must have instructions and procedures in place so the employees can be trained to be alert to possible inaccuracies in information in a customer file that it (or a prior creditor for a purchased account) has provided to a CRA, and document when a consumer disputes any such information. In either case, the employee should investigate the accuracy of the information, document the results of the investigation and note any continuing customer dispute.
B. Communications with CRAs
In addition to training employees on compliance with section 623, if the debt collection agency is furnishing information to CRAs, the debt collection agency should respond to CRAs regarding any changes to information previously provided, and document all steps taken by the debt collection agency related to its reporting.
C. Agreements with Creditors
In its agreements with creditors, the debt collection agency should require that the creditor represent that it has complied with section 623 with regard to information provided to CRAs and with respect to consumer disputes that arose before the debt collection agency purchased the account or began collection efforts. The debt collection agency may want to consider asking for indemnification from the initial creditor for any failure to comply with section 623. Also, if the debt collection agency is passing on information to clients on inaccuracies or consumer disputes, the client should acknowledge that it has taken appropriate action.
D. Identify Theft
The debt collection agency particularly needs to train its employees to be alert to identity theft issues, which have become increasingly common. Failure to take action on such issues can lead to litigation under FCRA and state law. The debt collection agency may also wish to keep advised of efforts being made by Associated Credit Bureaus to report identity theft problems and other consumer disputes.
VI. Liability Under Section 623
Only the FTC, and certain other federal and state agencies, can seek direct enforcement of section 623(a) with regard to the accuracy of information reported to CRAs. However, the FCRA requirements might be the basis for claims of unfair or deceptive practices under state law. [FN10]
Moreover, civil suits by consumers are allowed for violations of section 623(b), which deals with the duties of furnishers of information upon notice of a dispute given to a consumer reporting agency. [FN11]
VII. Summary--Section 623
The requirements of section 623 are clear. The challenge is for a furnisher of information to a CRA to establish procedures and train employees so that any inaccuracies or disputes can be acted on within the time period required and that the results of such actions and communications with CRAs are documented. Even if the debt collection agency is not subject to the FCRA because it is not reporting information to CRAs, or is not acting as a creditor's agent, there may be other state and federal laws that require the debt collection agency to insure the accuracy of information it uses and to assist consumers when any information is disputed. Documentation is needed so that the debt collection agency will have proof of compliance in the event of any agency enforcement action or civil litigation, whether based on the FCRA or other law.
[FNa1]. David E. Worsley is a Partner at Chapman and Cutler, Chicago, Illinois. He has extensive experience in all aspects of consumer credit, including licensing, compliance, product development, and litigation.
David received his B.A. in Political Science and Psychology from the University of Iowa in 1969 and his J.D. with distinction from the University of Iowa College of Law in 1973.
David is a member of the Illinois, Iowa, American, and Chicago Bar Associations. He has served as the Chairman of the Law Department Management Sub-Committee of the American Financial Services Association. He has also served as the Vice Chairman and Chairman of the Consumer Credit Committee of the Chicago Bar Association. David is the Vice Chairman of the Legislative Committee of the Illinois Mortgage Bankers Association and is a member of the Board of Directors of that Association.
David gratefully acknowledges the contributions of Christian T. Jones, a partner at Chapman and Cutler, to this article.
[FN1]. 15 U.S.C. §§ 1692-1692o.
[FN2]. 15 U.S.C. § 1681s-2.
[FN3]. FCRA § 623(a)(1)(A).
[FN4]. FCRA § 623(a)(1)(B).
[FN5]. 15 U.S.C. § 1692g.
[FN6]. FCRA § 623(a)(3).
[FN7]. FCRA § 623(a)(5).
[FN8]. FCRA § 623(b).
[FN9]. FCRA § 623(b).
[FN10]. FCRA § 623(d).
[FN11]. See, for example, Dornhecker v. Ameritech Corp., 99 F.Supp.2d 918 (N.D. Ill. 2000).