Creditors and debt collection services that furnish information to consumer reporting agencies are “data furnishers” or “furnishers of information” (“FOI”s) under the Fair Credit Reporting Act (“FCRA”) and must fulfill the duties of only making “fair”debt credit reports imposed under that act. In addition, FCRA was recently amended by the Fair and Accurate Credit Transactions Act (“FACTA”), which imposed additional restrictions on credit originators and by extension on the debt collection services that work for them.
These duties are predominantly contained in Section 623 of FCRA and concern providing the most accurate, most complete, and most currently updated information available to the consumer reporting agencies.
- One may not furnish information that is known or should be known to contain errors and one may not consciously avoid knowing of errors.
- Upon determination that any information reported to an agency is inaccurate or outdated, the data furnisher must promptly notify the reporting agency and provide the agency the correct information.
Consider Reading – What does a debt collection agency do?
The definition of “should be known” to contain errors is when a data furnisher has specific knowledge which would “cause a reasonable person to have substantial doubts about the accuracy of the information.” Therefore, even the hint of inaccuracy must be investigated and the results of the investigation must be forwarded to the consumer reporting agency.
Upon receiving a notice of a dispute concerning the completeness or accuracy of a debt upon which information has been furnished to a reporting agency, anyone having reported the original information and having knowledge of the dispute must notify the reporting agency of the dispute, regardless of the weakness of the dispute.
It is important for debt collectors to know that any dispute, oral or written, triggers the dispute reporting requirements of FCRA. Therefore, it is also important for the debt collector to know whether the account that is being working has been reported to a consumer reporting agency.
How long can a collection agency attempt to collect a debt?
Date of Delinquency
FCRA bars furnishing information on “accounts placed for collection or charged to profit and loss that antedate the report by more than seven years.” Therefore, it is important for a data furnisher to determine accurately the date of delinquency. The date of delinquency should be included in the data for all accounts being collected by a debt collector or agency.
The seven-year period begins, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180 day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action. Therefore, consumer reporting agencies must remove information that is more than 7 years plus 180 days past the date of delinquency. This is one reason that FCRA requires data furnishers to provide accurate information in general and about the date of delinquency in particular.
There are three ways in which to determine the date of delinquency. If the original creditor reported the debt and included the date of delinquency, then a subsequent reporter of the same debt may use the same date of delinquency. This is the preferred method of determining the date of delinquency, because the original creditor having had the original records of the transaction was putatively in the best position to make such an initial determination.
A second method of determining the date of delinquency may be used when the original creditor did not report the date of delinquency. In this situation, the data furnisher may use reasonable means to obtain the date of delinquency from the original creditor or, if the data furnisher is unable to obtain the original date of delinquency from the original creditor, then from another reliable source, and report that date.
A third method is used in the circumstances where no original or alternative source of a reasonable date of delinquency is available is. In this situation, a data furnisher must use reasonable means to report a date of delinquency that predates any actual date of delinquency.
It is important that debt collectors understand the date of delinquency concept, because many debts being collected may be well over seven and a half years old. If a debt collector is attempting to collect on debts that are so old that they cannot be reported to a consumer reporting agency, then the debt collector must be careful not to threaten to make such a report as part of the negotiation process.
FCRA requires financial institutions that extend credit to a customer and furnish negative information regarding the credit to a consumer reporting agency to furnish the debtor with a notice of the furnishing of the negative information. The definitions of a “financial institution,” a “customer,” and “extension of credit” are very broad. Simply put, a trader, manager, or third party collector of receivables would not be a financial institution because they do not create a customer relationship with the debtor. The owner of a delinquent receivable who directly or through a third-party collection agency enters into a payment plan with the debtor, however, does enter into a creditor- customer relationship and is required to give the debtor/customer notice of furnishing negative information if the payment terms are not fulfilled as agreed
The negative information notice must be clear and conspicuous and it only needs to be given once for each entire extension of credit. The Federal Reserve Board has developed two safe harbor negative information notices that may be used depending on whether the notice is given before or after the furnishing of negative information. These safe harbor notices are:
- We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on you account may be reflected in your credit report.
- We have told a credit bureau about a late payment, missed payment, or other default on your account. This information may be reflected in your credit report.
The negative information notice must be given either prior to or within thirty days after the furnishing of negative information. While it may not be given as part of the initial disclosures required by the Truth In Lending Act, FCRA states that the notice may be given early in the ordinary course of collection activity even though the financial institution never actually ends up furnishing any negative information. The question remains, however, whether placing such a notice on a collection notice without the present intention to actually make a report about the transaction to a consumer reporting agency is a misrepresentation prohibited by the FDCPA.
It is important that debt collectors know what this negative information notice is and means, because once the warning is included in a letter to a debtor, that debtor is likely to ask whether a negative report has in fact been made. If the prospective warning is used, then the collector needs to know that the key word in the warning is “may,” as in “we may report” as opposed to “we have reported.”
If a debtor asks the collector whether a negative report has been made, then the collector needs to be prepared to answer the question correctly.
Disputes and Investigations
FCRA also requires a data furnisher to receive disputes directly from a consumer and to make a reasonable investigation of disputes. The dispute does not have to be in writing to trigger a data furnisher’s investigatory duties. The dispute must, however, challenge the accuracy or completeness of an item of information in the consumers file.
The investigation must include a good faith effort to determine the accuracy of the disputed information. The investigation should be completed within thirty days of receiving the debtor’s notice of the dispute. If the information disputed is found to be inaccurate, then the data furnisher must notify all consumer reporting agencies to which the furnisher originally reported the inaccurate information and provide them with the new accurate information.
Frivolous or irrelevant consumer-initiated disputes do not require reinvestigation. A consumer-initiated dispute may be determined to be frivolous or irrelevant if (1) the debtor fails to provide sufficient information to investigate the disputed information or (2) the debtor has previously submitted substantially the same dispute either directly to a data furnisher or indirectly through a consumer reporting agency and the data furnisher has already investigated and reported on the dispute. If a data furnisher determines that a dispute is frivolous or irrelevant, the data furnisher must notify the debtor of that determination in writing within five business days of making such a determination and include in the notice the reasons for the determination and identification of any documents needed to investigate the dispute, which may be a general standardized notice.
In addition to directly making disputes with a data furnisher, consumers may also make disputes through a consumer reporting agency. A consumer reporting agency must report any dispute received to the data furnisher within five days of receipt. The data furnisher then must investigate and report the results of the investigation in the same manner as it would upon receipt of a dispute directly from the consumer.
When the consumer reporting agency receives a notice of dispute, it must report the dispute to the data furnisher and make its own investigation and notify the debtor of the results. The notice must include a statement that the debtor may include a statement of the debtor’s position on the disputed information up to a limit of one hundred words. A consumer reporting agency may avoid all of these notice requirements if it makes a determination that the information is inaccurate and deletes it from the debtor’s record within three days of receiving the dispute.
If a consumer reporting agency deletes information and the data furnisher then certifies that the information is complete and accurate, the consumer reporting agency may then reinsert the information and notify the debtor of the reinsertion.
It is interesting to note that FCRA specifically does not afford a consumer a right to sue a data furnisher for failure to investigate and report on a consumer-initiated dispute directly made to the data furnisher at the same time that FCRA is silent about a consumer having a right to sue a data furnisher for failure to investigate and report on a dispute made through a consumer reporting agency. Many courts and the Federal Trade Commission, however, have used this incongruity to find that a consumer can sue and recover damages from a data furnisher who fails to investigate and report on a dispute made by a consumer through a consumer reporting agency. Therefore, while performance of investigations of all consumer disputes should be encouraged, the investigations of and reports on consumer disputes through credit reporting agencies should be mandated by a data furnisher to be always completed and documented.
It is important that debt collectors understand that a dispute does not have to be in writing to trigger the investigation requirements under FCRA. It is also important that debt collectors recognize and report even mild disputes to their supervisors immediately, because the dispute investigation process must be completed within thirty days of the debtor making the dispute.
FCRA places heavy restrictions on the use and disclosure of medical information. These medical information provisions of FCRA are pertinent to traders, managers and collectors of medical accounts.
“Medical information” is essentially anything obtained from a health care provider or the debtor that relates to the debtor’s health, the debtor’s health care, or payment for the debtor’s health care. “Medical information furnishers” are health care providers or their agents or assignees who furnish information to a consumer reporting agency. Health care providers and their agents must register as such with any consumer reporting agencies to which they report data. Consumer reporting agencies must then encode this identifying data so that it is not discernible on a credit report.
It is very important that debt collectors understand the implications of using medical information when collecting medical-related accounts.
Information Sharing with Affiliates
FCRA now prevents affiliates from sharing information about consumers between themselves for the purposes of making marketing solicitations, unless the debtor is first notified in writing that such information sharing is possible and the debtor is offered an opportunity and method to opt out of the information sharing. Therefore, one affiliate dealing with a delinquent receivable may not share information about the debtor having that account with a related affiliate to use for selling the debtor any good or service. For example, a debt trader cannot exchange names with an affiliated equity loan provider without first complying with the notice and opt out provisions.
FCRA prohibits the sales, transfer, or placement for collection of any debt that is alleged to be the result of identity theft. Exceptions to the rule include the repurchase of accounts sold and returned pursuant to an agreement to buy back accounts found to be the result of identity theft.
If a debt collector or user of a consumer report discovers that information about the debt may be the result of identity theft, then the debt collector or user of the debtor report must notify the other relevant parties, including but not limited to the current creditor, that the information may be the result of identity theft.
FCRA requires all parties accepting credit and/or debit cards to print no more than the last five digit of the card number on the receipt provided to the consumer. FCRA also prohibits printing the expiration date of a card on the receipt given to the consumer.
Disposal of Records
FCRA requires anyone having information in or derived from a consumer report to dispose of that information properly. Disposal policies should be in writing and reasonably scaled based on the scope of the entity having the information.
Examples of reasonable methods is to burning, pulverize, or shred the paper records and electronically destroy and erase electronic data that is no longer needed in a manner that cannot be reconstructed. Outside records destruction agencies should only be used following a due diligence inspection of the outside agency including the review of an independent audit of the agency’s operations.
Enforcement and Liability
Violators of FCRA are liable for
- Actual damages, including out of pocket damages, damages for humiliation, emotional stress, reputational damages, and damages to creditworthiness.
- Statutory damages ranging from $100 to $1,000
- Punitive damages
- Reasonable attorneys’ fees
- Regulatory fines of $2,500 per violation
The Statute of Limitations is the earlier of two years from discovery of the violation or five years from the time that the cause of action arose, which is the time of the violation.