Defense Bar The Fair Credit Repor/ng Act: What You Really Need to Know In Our New World and Answers to Your Ques8ons

Transcription

1 Defense Bar The Fair Credit Repor/ng Act: What You Really Need to Know In Our New World and Answers to Your Ques8ons OCTOBER 17, 2015 David J. Kaminski, Esq. CARLSON & MESSER LLP Keith Wier, Esq. BUSH & RAMIREZ PLLC

2 David Kaminski is a partner at Carlson & Messer LLP in Los Angeles, and specializes in the defense of banks, credit grantors, collec8on law firms and collec8on agencies in all areas of financial services li8ga8on. He is a recognized authority regarding consumer li8ga8on statutes and has substan8al experience in class ac8on and MDL li8ga8on involving the FCRA, FDCPA, TCPA and the EFTA. David regularly gives presenta8ons at the leading industry trade organiza8ons throughout the U.S., is a frequent contributor to numerous trade publica8ons, and is the Chair of the A[orney s Division of the ACA, Int l. David serves as outside compliance counsel to the financial services industry and has developed policies and compliance/training programs to minimize their risks of liability. He regularly defends clients in inves8ga8ons and proceedings ini8ated by the FCC, the FTC, the CFPB, and other federal and state regulatory agencies. h[p://cmtlaw.com/cm/ 2

3 Today s Agenda Ø Overview of the Fair Credit Repor8ng Act (FCRA) Ø Reportable Informa8on Ø Du8es of Users of Credit Reports Ø Du8es of Data Furnishers Ø Iden8ty Theb Ø Permissible Purpose Ø Reasonable Inves8ga8on Ø eoscar Ø The CFPB and the FCRA 3

4 Overview: The FCRA The FCRA is a Federal Law Regulates Collec8on, Dissemina8on, and Use of Credit Repor8ng Info Companion of the Fair Debt Collec8on Prac8ces Act Enforced by the Federal Trade Commission and CFPB 4

5 Overview: The FCRA Debt Collec8on Obliga8on: Data Furnishers to CRAs Debts reported to CRAs Credit Bureau Obliga8on: Assembling/Furnishing Info How Long is a Delinquent Account Reportable? 7 years from 180 days from the date of first delinquency How Long is a Bankruptcy Reportable? 10 years from bankruptcy discharge. 15 U.S.C. 1681c(a)(1) 5

6 Overview: The FCRA With respect to debt colleckon, the main areas of liability relate to: Du8es of furnishers of credit informa8on to the credit bureaus Du8es of users of consumer reports Ex. Obtaining credit reports for various purposes 6

7 Willful noncompliance of Credit ReporKng Laws 15 U.S.C. 1681n - FCRA imposes liability on person who willfully fails to comply with FCRA - Supreme Court - willfulness includes knowing and reckless violakons - Safeco Insurance Co. of America v. Burr, 551 U.S. 47, 60, 69 (2007) Damages for Willful ViolaKon - (15 U.S.C. 1681n(a)(1)) include: Actual damages or statutory damages from $ to $1,000 (if false pretenses or lack of permissible purpose (greater of actual damages or $1k) Puni8ve damages A[orney s fees and costs Negligent noncompliance 15 U.S.C. 1681o Damages (15 U.S.C. 1681o(a)(1) include: Actual damages 7

8 The CFPB Role Re FCRA The CFPB has joint responsibility with FTC for public enforcement of the FCRA, BUT CFPB is the primary agency regula8ng FCRA. The CFPB has broad enforcement powers, including the ability to: Conduct inves8ga8ons of any person regarding FCRA viola8ons Conduct hearings and adjudica8on proceedings Issue Cease and Desist Orders Commence a civil enforcement ac8ons to impose civil penal8es The CFPB warned: if furnisher engaged in acts/prac8ces that violate the FCRA, it will implement appropriate supervisory and enforcement ac8ons and seek appropriate correc8ve measures, including remedia8on of harm to consumers

9 The Furnisher Reportable InformaKon Must report date of delinquency within 90 days of furnishing informakon - SecKon 1681s 2(a)(5)(A) - When furnisher provides collec8on account or account charged to profit/loss to CRA, furnisher has 90 days to no8fy CRA of date of delinquency - Seamans v. Temple Univ., 744 F.3d 853, (3d Cir. 2014); 1681s 2(a)(5)(A). The CRA Accounts placed for collec8on or charged to profit and loss which antedate the report by more than 7 years c(a)(4). The date of delinquency enables CRA to calculate 7 year window without it, CRA cant determine when account placed for collec8on - cant calculate end date. Seamans, 744 F.3d at (ci8ng 15 U.S.C. 1681c(a)(4) and 15 U.S.C. 1681c(c)(1). 9

10 Reportable InformaKon Date of Delinquency Date of delinquency - not necessarily 30 days aber last payment, but whenever plain8ff is considered to no longer bear responsibility on account. See Agosta v. InoVision, Inc., 2003 WL , at *4 (E.D. Pa. Dec. 16) Batdorf v. Trans Union, 2002 WL , at *4 (N.D. Cal. May 15, 2002) (charge off date established date of delinquency for commencement of 7 year period) Mierek v. Bank of Am. Corp., 2008 WL , at *6, n.4 (D.S.C.) (7 year period does not run from the date of last transac8on. (See 15 U.S.C c(c)(1). ) q PRACTICE POINTER: To be safe, use 30 days aber last payment or date of charge-off as delinquency date. When do terms claim consumer is delinquefault??? If Date of First Delinquency not available, prudent to use the oldest date associated with account. (Usually original date opened.) 10

11 ReporKng Period 7 years from 180 days SecKon 1681c(a)(4). FCRA prohibits CRAs from repor8ng accounts in collec8on/charged to profit-loss more than seven years. 15 U.S.C. 1681c(a)(4). The seven year period begins to run 180 days aber the account is placed in collec8on or charged off by the creditor so the effec8ve result is a seven and one-half year period from the original delinquency. Gillespie v. Equifax Info. Servs., L.L.C., 484 F.3d 938, 940 (7th Cir. 2007). See also Batdorf, WL , at *4 ; 15 U.S.C. 1681c(c)(1). PRACTICE POINTER use 30 days aber date of last payment as the delinquency date as trigger rather than date of charge-off or assignment is more conservakve approach 11

12 Reportable InformaKon Bankruptcy IMPACT if a bankrupt account was current when bankruptcy was filed, you populate the filing date for Date of First Delinquency. Nagim v. Equifax Info. Servs., LLC, No. 09-CV PAB-KLM, 2011 WL , at *4 (D. Colo. Feb. 8, 2011) The bankruptcy that led to the order of discharge of the account can be reported for 10 years Nagim, supra. 12

13 DuKes of Data Furnishers DefiniKon of a Data Furnisher Defines a furnisher as an en8ty that provides informa8on rela8ng to consumers to one ore more CRAs for inclusion in a consumer report. An en8ty that reports consumer account informa8on to the consumer credit bureaus. Though not defined by the FCRA, typically includes: creditors, lenders, u8li8es, debt collec8on agencies and the courts (i.e. public records) with whom a consumer has had a rela8onship or experience. 13

14 DuKes of Data Furnishers Info obtained from lender/original owner what is needed and why q Complete iden8fying informa8on for each liable borrower including: Surname First Name FULL Middle Name (where provided) Genera8onal informa8on correctly placed in the GeneraKon Code field. Full address SSN Dates of Birth 14

15 DuKes of Data Furnishers Rules Addressing Accuracy and Integrity of Reported InformaKon and Direct Disputes These rules are generally do not have a private right of ackon Responsibili8es of data furnishers are: (1) to establish and implement reasonable wri[en policies and procedures regarding the accuracy and integrity of informa8on furnisher provides about a consumer to a CRA (2) to conduct a reasonable inves8ga8on of a direct dispute submi[ed to the furnisher by the consumer. 15

16 DuKes of Data Furnishers q Duty to report accurate and complete informakon q Duty to respond to disputes that are not considered frivolous or irrelevant Frivolous/Irrelevant Too li[le informa8on to conduct a reasonable inves8ga8on Resubmits an already inves8gated complaint Comes from a credit repair agency If a dispute is found to be frivolous/irrelevant by CRA The CRA must respond to the consumer of the determina8on within 5 business days. E.G. if consumer fails to provide sufficient informa8on. 1681i(3)(a) 16

17 DuKes of Data Furnishers InformaKon Submieed to data furnisher by Consumer Data furnisher must: Conduct reasonable inves8ga8on Review informa8on provided by consumer including any suppor8ng documenta8on received Update informa8on if you reported to CRA inaccurately using eoscar as well as correc8ng informa8on in the account screen so that the CRAs do not have bad informa8on 17

18 Reasonable Investigation When Consumer Disputes Through Credit Bureau q The FRCA requires that a furnisher investigate a dispute received from a CRA. 15 U.S.C. 1681i. The furnisher must review relevant information provided by the CRA; report the results to the CRA. 15 U.S.C. 1681s-2(b)(1) (A)-(C) See also September 2013 CFPB Bulletin. Upon notice, furnisher must conduct reasonable investigation and update inaccurate or incomplete information. Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009) There Insight from is NO a CFPB, PRIVATE FDCPA, RIGHT and TCPA OF legal ACTION expert and - against Operations a furnisher Veterans not made via the CRA; See Nelson v. Chase Manhattan Mortgage Corp., 282 F.3d 1057, 1060 (9th Cir.2002) - private right of action against furnisher until consumer notifies the CRA and no duty to investigate arises until furnisher receives dispute.) 18

19 FCRA - Reasonable Investigation Furnishers must also report bona fide disputes; no obligation to "report a meritless dispute, because reporting an actual debt without noting that it is disputed is unlikely to be materially misleading." Gorman, 690 F.3d at Information can be inaccurate or incomplete if it is "patently Insight from a CFPB, FDCPA, and TCPA legal expert and Operations Veterans incorrect, or because it is misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions." Drew v. Equifax Info. Servs., LLC, 690 F.3d 1100, 1108 (9th Cir. 2012). 19

20 FCRA - What is a Reasonable Investigation Whether an investigation is reasonable under the FCRA is a question of fact for the jury. Edeh v. Midland Credit Mgmt., Inc., 748 F.Supp.2d 1030, 1039 aff'd; 413 F. App'x 925 (8th Cir.2011) Sine furnisher's obligation to conduct reasonable investigation under 1681s 2(b) arises when it receives notice of dispute from a CRA, it need investigate based description in the CRA's notice of dispute. Anderson v. EMC Mortgage Corp., 631 F.3d 905, 908 (8th Cir.2011) Insight What from is a a CFPB, reasonable FDCPA, and TCPA investigation legal expert and varies Operations under Veterans circumstances. Limited investigation may be appropriate when CRAs provide furnisher with vague or cursory information about a consumer's dispute. ; Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir.2009). 20

21 Reasonable Investigation If Consumer provides information independent of info. received from CRAs, should consider in investigation. Chiang v. Verizon New England Inc., 595 F.3d 26, 40 (1st Cir. 2010) Mere disputes insufficient to establish an unreasonable investigation. Id. FCRA does not require CDV investigation be correct; only must be reasonable. Main v. Inv. Retrievers, Inc., 2014 WL , at *4 (D. Or. July 18, 2014) Insight from a CFPB, FDCPA, and TCPA legal expert and Operations Veterans Simple review of dispute ok where CRA provides no details re dispute. CRA Gustafson v. Experian Info. Solutions Inc., 2015 WL , at *5 (C.D. Cal. June 2, 2015) If investigation not reasonable, no liability if information furnished was accurate. Davidson v. Capital One, N.A., No CIV, 2014 WL , at *4 (S.D. Fla. Nov. 25, 2014) 21

22 Reasonable Investigation Direct Disputes Under the Furnisher Rule, furnishers must also conduct a reasonable inves8ga8on of disputes received directly from consumers in most circumstances. 16 C.F.R (except nonreceipt of sufficient informa8on must send le[er in 5 business days reques8ng addi8onal informa8on) No Insight private from cause a CFPB, FDCPA, of ackon and TCPA exists legal expert for failure and Operations to inveskgate Veterans a direct dispute 1681s 2(a), because the statute plainly restricts enforcement of that provision to federal and state authori8es. Corcia v. Asset Acceptance, LLC, No. 13-CV-6404 JFB GRB, 2014 WL , at *5 (E.D.N.Y. July 22, 2014) 22

23 IdenKty Theg Need to validate informakon associated with red flag dispute codes: Ø Address mismatch Ø Social security mismatch Ø Pro-Tip: When evaluakng a poriolio, you might want to include the seller's red flag controls as part of the duediligence process 23

24 Must Conduct Reasonable Investigation ID Theft Claim Impact of Lack of Identity Theft Affidavit - Requiring a fraud affidavit as company policy does not obviate investigation. Boggio v. USAA Fed. Sav. Bank, 696 F.3d 611, 620 (6th Cir. 2012)( Failure of a consumer to provide identify-theft information listed under 1681g cannot obviate a furnisher's 1681s 2(b) duty; Congress would have indicated by including or cross-referencing the same language of 1681g within 1681s 2(b) itself. ) Insight from a CFPB, FDCPA, and TCPA legal expert and Operations Veterans Therefore, a reasonable investigation with respect to an identity theft claim likely has to go beyond the pleadings. 24

25 Permissible Purpose q must have a permissible purpose for obtaining a consumer report. See 15 U.S.C. 1681b(f)- Good faith belief account subject to debt collec8on = ok. q Permissible purpose debt collec8on. 15 U.S.C. 1681b(a)(3) (No prior dealings with consumer needed). Romanello v. Selene Fin., LP, 2015 WL , at *1 (E.D.N.C. May 19, 2015)) VOLUNTARY TRANSACTION - To pull credit report in debt collec8on context, debt must stem from a transac8on ini8ated by the consumer. Pintos v. Pac. Creditors Ass'n, 565 F.3d 1106, 1114 (9th Cir.2009)(not towing debt; taxes; gov t. fines) Permissible purpose includes: Legi8mate business need 15 U.S.C. 1681b(a)(F) (I). - Catch-all provision - To be narrowly construed 25

26 Permissible Purpose to Obtain Consumer Credit Report Sog Pull Sob pulls won't post an inquiry to a consumer's credit report Won't impact the score. You have to get a code from the bureau. Won't give you a full report. Oben used in skip-tracing Hard Pull Gives you the en8re account detail Will affect the consumer s credit score 26

27 Permissible Purpose Permissible purpose for Review of poryolio -15 U.S.C. 1681b(a)(3) (E) Applies to buyers, insurers and servicers of accounts evalua8ng an exis8ng account before agreeing to purchase, insure or service the account - 15 U.S.C. 1681b(a)(3)(E) Careful Catch 22 with review of poryolio proof/evidence? Permissible purpose for extension of credit - 15 U.S.C. 1681b(a)(3) (A) 27

28 E-Oscar Industry standard for entering and replying to disputes An ACDV is one where the dispute is received from the bureau You may not have the full 30 days An AUD is what you would use to enter a direct dispute (received directly from the consumer) The 30 day inves8ga8on starts from the date the direct dispute (coun8ng from when the mail is opened) is received via E-Oscar Ability to receive and respond in batch. This aids in analy8cs. 28

29 FCRA and State Laws - OH MY, MORE??? Sec8on 625 of the FCRA regulates the rela8onship between state and federal credit repor8ng laws. Generally, the FCRA does not preempt state credit repor8ng law unless the state law is inconsistent with the FCRA. If the state law gives greater protec8on to the consumer, it is not preempted and the more restric8ve state law would apply. Review ACA SearchPoint No State Credit Repor8ng rules

30 The CFPB and the FCRA In March CFPB Bulletin warned furnishers of consumer data information to CRAs they must comply with FCRA's re-investigation requirements. Furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information furnished about a consumer to a consumer reporting agency Game changer 9/ Furnishers must review all relevant information provided by CRA. Direct disputes by consumer to furnisher triggers furnisher investigation duties. Merely deleting a trade-line does not comply with FCRA's reinvestigation requirements. The CFPB warned: A furnisher should not assume that it ceases to be a furnisher with respect to an item that a consumer disputes simply because it directs the CRA to delete that item (2/2014). 30

31 CFPB ExpectaKons The CFPB expects financial institutions to conduct a reasonable investigation with respect to disputed information after receiving a dispute notice from a consumer or a CRA and to report its findings to the consumer or CRA (whichever is appropriate) in a timely fashion; Simply deleting trade lines after receipt of a direct or indirect dispute will not suffice and does not fulfill the requirements of Regulation V; and The CFPB expects entities to track, investigate and resolve all direct or indirect consumer dispute

32 Other FCRA Issues Liability - Administrative enforcement Federal Trade Commission has enforcement authority. Any violation of FCRA can be or deceptive practice under FTC Act. (UDAAP) FTC can commence civil action against alleged violator. Penalties of up to $2,500 per violation. CFPB Enforcement powers 32

33 About NARCA The mission of NARCA is to shib the public conversa8on about the NARCA industry in order to help creditors and collec8on professionals reduce risk, lawsuits, and bad press; we d like to change consumer percep8on that speaking with collectors should be avoided. NARCA provides the most credible playorm for service providers to reach poten8al clients, and is also uniquely qualified to help NARCA businesses with their own websites, social media programs, and overall marke8ng strategies. 33

34 Contact Info: David Kaminski, Esq. CARLSON & MESSER LLP 5959 W. Century Blvd., Suite 1214 Los Angeles, CA Keith Wier, Esq. BUSH & RAMIREZ PLLC 5615 Kirby Drive, Suite 900 Houston, TX (713)

35 Be conserva8ve in your determina8on of DOD. Assigned to colleckon can trigger the DOD - this means either internally (actual dunning le[ers instead of billing statements) externally to a third party agency. 55 FR The DOD does not change upon assignment to an third party collec8on agency or reassignment to another agency. the repor8ng period is not extended by subsequent payment. 55 FR Once account is paid in full, data furnisher should not remove informa8on - Removal may be counter to your Metro-2 agreement.

36 DuKes of Data Furnishers Other Important Elements of Accurate ReporKng On any forbearance plan where payments are deferred (even if only for 1 month) the Terms Frequency value MUST be reported as D for that month and the K4 segment MUST be reported with the date the next payment is due. Once deferral period is completed, the Terms Frequency should be changed back to the original value and K4 would no longer be reported. Bankruptcy repor8ng must occur separately and individually, only on the bankrupt borrower(s) Deceased repor8ng on the deceased individual and not at the account level Report the deceased party 1 8me as deceased and do not report the deceased party going forward If there is another non-deceased liable consumer on the loan, they should be moved up to the Primary Borrower posi8on (replacing the deceased borrower) and the deceased borrower should no longer be reported. If no non-deceased liable consumers associated with the account, completely stop 36 repor8ng. Probate and Estate of accounts should not be reported (they will be rejected

37 DuKes of Data Furnishers Other Important Elements of Accurate ReporKng (Debt Buyers) Providing the consumer and bureaus with the ability to trace back to the origin of the account, as well as match to the correct consumer s bureau. K2 segment must be reported the 1 st 8me aber purchase correctly lis8ng the legal en8ty name of the seller. K2 segment must be reported with the asset sale informa8on to provide the legal en8ty name of the buyer Pass all of the account informa8on received from the original owner to the buyer (i.e., Date Open, Date of First Delinquency, Original Loan Amount, Credit Limits, Original Charge-off Amount, etc.) Misuse of the DA delete code Should NEVER be used to nego8ate payments. Should NEVER be used for courtesy dele8ons 37

38 DuKes of Data Furnishers Info obtained from lender/original owner what is needed and why Consumer s rela8onship to and/or liability for account Using the correct ECOA code for each individual on the loan (1 = individual, 2 = joint, 5 = guarantor or co-maker) Accurate repor8ng of customer ID info and key account fields to match correct borrower Full borrower name, including correctly repor8ng genera8onal informa8on (suffix) in the Genera8on Code field Account dates, especially Date Open and Date of First Delinquency Account Status, Current Balance, Original Charge-off Amount, Amount Past Due Original loan amounts, credit limits, current and past due balances, deferrals and scheduled payments Any outstanding Compliance Condi8on Codes (dispute codes) such as codes that denote open disputes or resolved disputes where customer disagrees 38

39 DuKes of Data Furnishers Common Errors Not obtaining the correct Date of First Delinquency from the original owner Not obtaining the Date Open from the original owner Not repor8ng the K2 segment at purchase and sale Not repor8ng D deferrals where required, along with the required K4 segment Not clearly defining repor8ng responsibili8es between Agency/Servicer and account owner Using DA delete codes Not repor8ng bankruptcy at the individual level Con8nuing to report deceased aber ini8al no8fica8on to the bureau Repor8ng estate/probate accounts 39

40 DuKes of Data Furnishers Implement Credit ReporKng and Disputes Compliance Program including a mulk-level review process Do a reality check audit on the Metro 2 file prior to sending out (where possible) Set up a process with the bureaus to confirm and document file receipt and volumes Audit your file for compliance with the Metro 2 criteria Obtain monthly sta8s8c ( Reject and Error Reports ) from each CRA receiving your data - evaluate results for error trends and/or data errors that can be corrected Correc8ons should be made to the core system in order to eliminate the risk of repollu8ng the consumer s bureau Audit the integrity of the core system conversion of data into the Metro 2 format and values Annual audit of all compliance processes 40

41 Overview: The FCRA The FCRA applies to debts reported to the consumer credit bureaus. Person applies to business en88es and individuals Consumer applies to an individual 41

42 CFPB ExpectaKons The CFPB has stated that they expect that all debt collectors will establish and implement wri[en policies and procedures regarding the accuracy and integrity of the informa8on they furnish to consumer repor8ng agencies. The CFPB examina8ons of debt collectors focused on their efforts to reasonably inves8gate disputes received from consumers and consumer repor8ng agencies.