By John K. Rossman
This article was originally published on January 8, 2024 in InsideARM:
On December 15, 2023 the Consumer Financial Protection Bureau (CFPB) entered into a consent order alleging that a furnisher/debt collector failed to properly investigate disputes, failed to complete investigations within the requisite 30 days and that the furnisher deleted too many credit bureau tradelines in response to indirect disputes (see InsideARM article below):
In this December 2023 Consent Order, the CFPB wrote:
1. “Respondent failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information it furnished to Consumer Reporting Agencies (CRAs) and failed to consider and incorporate the guidelines of Appendix E of Regulation V in developing such written policies and procedures, in violation of Sections 1022.42(a) and (b) of Regulation V, 12 C.F.R. § 1022.42(a) and (b) (Emphasis added).”
2. “Respondent has also not established and implemented written policies and procedures containing internal controls regarding the accuracy and integrity of information about consumers furnished to CRAs. Respondent does not, for example, verify random samples of information provided to CRAs.” (Emphasis added).
3. “Respondent has not established and implemented any written policies and procedures requiring it to review its records to identify dispute handling practices that could compromise the accuracy or integrity of information furnished to CRAs, such as a requirement to audit its dispute handling processes and practices.” (Emphasis added).
4. Respondent has also failed to establish and implement any written policies and procedures requiring it to review records reflecting historic dispute trends, which would have been critical to its ability to identify, for instance, recurring disputes with the same root cause or clients with particularly high dispute rates. (Emphasis added).
Please note the very first item that the CFPB addresses in this Consent Order (on page 1) is the failure of the debt collector furnisher to consider and implement the CFPB’s guidance promulgated in Appendix E to 12 CFR Part 1022 (“Appendix E”). Further, this entire consent order is built around the requirements of Appendix E similar to the June 8, 2023 CFPB Consent Order involving a different furnisher/debt collector:
The December 2023 consent order makes clear that a furnisher will be potentially subject to bans and fines from the CFPB if the furnisher does not maintain policies and procedures that:
1. Consider the requirements of Appendix E (discussed in detail below).
2. Verify random samples of data furnished to the credit reporting agencies.
3. Audit dispute processes and practices.
4. Review historic dispute trends.
The Proven Strategy to Avoid CFPB Fines/FCRA Liability: Appendix E Must be the Cornerstone of Every Credit Reporting Policy.
Below is a link to the four-page Appendix E issued by the CFPB which identifies the nature and scope of a furnisher’s credit reporting policies, provides specific objectives for the policy, identifies three considerations for implementation of the credit reporting policy and itemizes 13 specific components that should be included in the policies and procedures:
Appendix E to Part 1022 - Interagency Guidelines Concerning the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies | Consumer Financial Protection Bureau (consumerfinance.gov)
For instance, Appendix E recommends the following specific items listed below must be addressed in any furnisher credit reporting policy:
II. Specific Components of Policies and Procedures
In developing its policies and procedures, a furnisher should address the following, as appropriate:
(a) Establishing and implementing a system for furnishing information about consumers to consumer reporting agencies that is appropriate to the nature, size, complexity, and scope of the furnisher's business operations.
(b) Using standard data reporting formats and standard procedures for compiling and furnishing data, where feasible, such as the electronic transmission of information about consumers to consumer reporting agencies.
(c) Maintaining records for a reasonable period of time, not less than any applicable recordkeeping requirement, in order to substantiate the accuracy of any information about consumers it furnishes that is subject to a direct dispute.
(d) Establishing and implementing appropriate internal controls regarding the accuracy and integrity of information about consumers furnished to consumer reporting agencies, such as by implementing standard procedures and verifying random samples of information provided to consumer reporting agencies.
(e) Training staff that participates in activities related to the furnishing of information about consumers to consumer reporting agencies to implement the policies and procedures.
(f) Providing for appropriate and effective oversight of relevant service providers whose activities may affect the accuracy or integrity of information about consumers furnished to consumer reporting agencies to ensure compliance with the policies and procedures.
(g) Furnishing information about consumers to consumer reporting agencies following mergers, portfolio acquisitions or sales, or other acquisitions or transfers of accounts or other obligations in a manner that prevents re-aging of information, duplicative reporting, or other problems that may similarly affect the accuracy or integrity of the information furnished.
(h) Deleting, updating, and correcting information in the furnisher's records, as appropriate, to avoid furnishing inaccurate information.
(i) Conducting reasonable investigations of disputes.
(j) Designing technological and other means of communication with consumer reporting agencies to prevent duplicative reporting of accounts, erroneous association of information with the wrong consumer(s), and other occurrences that may compromise the accuracy or integrity of information provided to consumer reporting agencies.
(k) Providing consumer reporting agencies with sufficient identifying information in the furnisher's possession about each consumer about whom information is furnished to enable the consumer reporting agency properly to identify the consumer.
(l) Conducting a periodic evaluation of its own practices, consumer reporting agency practices of which the furnisher is aware, investigations of disputed information, corrections of inaccurate information, means of communication, and other factors that may affect the accuracy or integrity of information furnished to consumer reporting agencies.
(m) Complying with applicable requirements under the FCRA and its implementing regulations.
Use Appendix E to Create Your Company’s Credit Reporting Policy
The CFPB has published its specific requirements for furnishers to include in their credit reporting policies and procedures in Appendix E. Further, the CFPB cites to the failure of two furnishers to even consider Appendix E in their credit reporting policies in two recent consent Orders. Thus, to avoid liability with the CFPB, every credit reporting policy and procedure should include all of the requirements set forth in Appendix E. Every furnisher should review its credit reporting policies and procedures with qualified counsel to ensure compliance with the law.
This article is provided only as a general discussion of legal principles and ideas. Every situation is unique and must be reviewed by a licensed attorney to determine the appropriate application of the law to any particular fact scenario. If you have a legal question, consult with an attorney. The reader of this publication will not rely upon anything herein as legal advice and will not substitute anything contained herein for obtaining legal advice from an attorney. No attorney-client relationship is formed by the publication or reading of this document. Rossman Attorney Group, PLLC assumes no liability for typographical or other errors contained herein or for changes in the law affecting anything discussed herein.
[i] This article was inspired by a spirited exchange I had with my colleague John Bedard of the Bedard Law Group. John has wisely urged furnishers to comply with Appendix E since its issuance.
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