Third Circuit Finds FCRA Requires Furnishers Investigate All Indirect Disputes
October 26, 2023
The U.S. Court of Appeals for the Third Circuit has recently overruled a decision by a District Court. The decision concerned the responsibility of data furnishers to investigate indirect disputes under the Fair Credit Reporting Act (FCRA). According to the Third Circuit, furnishers cannot reject disputes indirectly filed, including cases they determine as frivolous.
The issue in this case began when the plaintiff allegedly discovered a fraudulent account opened in his name. As a result, the plaintiff directed counsel to file a direct dispute with the cable company. The counsel requested the company to investigate and report the request to consumer reporting agencies (CRAs). The cable contacted the plaintiff and requested supporting documentation, which they did not provide.
What Happened
After the reportedly delinquent account went to a collection agency, the plaintiff disputed it with the CRAs. They forwarded the dispute to the cable company, and the collection agency received it. The agency updated the plaintiff’s address on their files and confirmed that the name and Social Security Number matched. However, it did not investigate further.
As a result, the plaintiff filed a lawsuit against the collection agency, alleging the investigation was inadequate under the FCRA. However, the District Court granted summary judgment to the defendant. The court found that the collection agency had no obligation to investigate the indirect dispute. This decision is because the plaintiff failed to provide further information.
The plaintiff appealed the District Court’s decision and received support by an amicus brief. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) jointly filed this brief, arguing against how the court interpreted the FCRA. The agencies claimed that Congress would have included an exception for frivolously filed indirect disputes if it intended to exclude such cases.
Furthermore, they explained how the FCRA protects furnishers by allowing CRAs to determine a dispute’s frivolity before forwarding it to the furnisher. The Third Circuit agreed, finding that the law’s plain text provides no exception from investigating an indirect dispute. Specifically, “FCRA provides no explicit exception for furnishers to decline to investigate an indirect dispute that they receive from a consumer reporting agency, and we will read the statute accordingly.”
The Results
As a result, the Third Circuit overturned the District Court’s ruling. Thus, the furnishers have an obligation to investigate all indirect disputes. In addition, the overall conclusion concerning the duties of the creditor that initially received the complaint remained unchanged. However, the court did express the importance of imposing an absolute obligation for the original creditor to investigate a dispute.
It stated that this action made more sense than having a collection agency investigate when it based its knowledge on what the furnisher provided. As such, the Third Circuit explained what Congress intended based on the ordinary meaning of the FCRA. Based on the plain text, it may be more a function of its failure to recognize that the knowledge a furnisher has could prove limited. This limit is what it learned from another furnisher, not a conscious decision to impose an absolute duty to investigate.
This case demonstrates the importance of accurate consumer reports and the challenges created by inaccurate ones. Other crucial steps in accurate reporting include efficient background checks and credit reports. The best way to ensure complete and compliant background checks is by working with a trusted background screening company.
Discover the benefits of JDP’s seamless background checks for your business. Speak with a sales representative today.
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October 26, 2023\n
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The U.S. Court of Appeals for the Third Circuit has recently overruled a decision by a District Court. The decision concerned the responsibility of data furnishers to investigate indirect disputes under the Fair Credit Reporting Act (FCRA). According to the Third Circuit, furnishers cannot reject disputes indirectly filed, including cases they determine as frivolous.\n\n
The issue in this case began when the plaintiff allegedly discovered a fraudulent account opened in his name. As a result, the plaintiff directed counsel to file a direct dispute with the cable company. The counsel requested the company to investigate and report the request to consumer reporting agencies (CRAs). The cable contacted the plaintiff and requested supporting documentation, which they did not provide.\n
After the reportedly delinquent account went to a collection agency, the plaintiff disputed it with the CRAs. They forwarded the dispute to the cable company, and the collection agency received it. The agency updated the plaintiff’s address on their files and confirmed that the name and Social Security Number matched. However, it did not investigate further.\n
As a result, the plaintiff filed a lawsuit against the collection agency, alleging the investigation was inadequate under the FCRA. However, the District Court granted summary judgment to the defendant. The court found that the collection agency had no obligation to investigate the indirect dispute. This decision is because the plaintiff failed to provide further information.\n
The plaintiff appealed the District Court’s decision and received support by an amicus brief. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) jointly filed this brief, arguing against how the court interpreted the FCRA. The agencies claimed that Congress would have included an exception for frivolously filed indirect disputes if it intended to exclude such cases.\u00a0\n
Furthermore, they explained how the FCRA protects furnishers by allowing CRAs to determine a dispute’s frivolity before forwarding it to the furnisher. The Third Circuit agreed, finding that the law’s plain text provides no exception from investigating an indirect dispute. Specifically, \”FCRA provides no explicit exception for furnishers to decline to investigate an indirect dispute that they receive from a consumer reporting agency, and we will read the statute accordingly.\”\n
As a result, the Third Circuit overturned the District Court’s ruling. Thus, the furnishers have an obligation to investigate all indirect disputes. In addition, the overall conclusion concerning the duties of the creditor that initially received the complaint remained unchanged. However, the court did express the importance of imposing an absolute obligation for the original creditor to investigate a dispute.\u00a0\n
It stated that this action made more sense than having a collection agency investigate when it based its knowledge on what the furnisher provided. As such, the Third Circuit explained what Congress intended based on the ordinary meaning of the FCRA. Based on the plain text, it may be more a function of its failure to recognize that the knowledge a furnisher has could prove limited. This limit is what it learned from another furnisher, not a conscious decision to impose an absolute duty to investigate.\n
This case demonstrates the importance of accurate consumer reports and the challenges created by inaccurate ones. Other crucial steps in accurate reporting include efficient background checks and credit reports. The best way to ensure complete and compliant background checks is by working with a trusted background screening company.\n
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Discover the benefits of Pre-employ\u2019s seamless background checks for your business. Contact a Sales representative today.\n\n