Over the past year, our firm has defended – with increasing frequency – claims asserted against collection agencies which allege violations of either the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681, et seq., or for violations of the Consumer Credit Reporting Agencies Act (CCRAA), Civil Code §§ 1785.1, et seq., the California equivalent to the FCRA, or both.
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We have been close to 100 percent successful in having these claims dismissed. However, because these claims are appearing with increasing frequency, many CAC members have asked me to write on the topic. I am pleased to do so here.
A BRIEF HISTORY OF THE FCRA & CCRAA
The FCRA was originally enacted by Congress in the 1968–1969 session, and it went into effect in 1970. The express purpose of the federal statutory scheme was to require that so-called “consumer reporting agencies” to adopt and implement “reasonable procedures” for ensuring that credit information about a consumer was collected, maintained, and dispensed “in a manner which is fair and equitable to the consumer with regard to the confidentiality, accuracy, relevancy and proper utilization of such information …” FCRA, 15 U.S.C. §1681(b). The Congressional findings noted that “[t]here is a need to insure that consumer reporting agencies exercise their grave responsibilities with of fairness, impartiality, and respect for the consumer’s right to privacy. FCRA, 15 U.S.C. §1681(a)(4).
For its first 30 years, the FCRA’s prohibitions and restrictions were aimed solely at “consumer reporting agencies,” 1 such as Experian, Equifax or TRW. However, collection agencies, though routinely furnishing, utilizing or disseminating credit information--often in close connection with credit reporting agencies--were not directly, or even indirectly, regulated by the original version of the FCRA. See, e.g., Rush v. Macy’s New York, Inc. (11th Cir. 1985) 775 F.2d 1554, 1557; Pulver v. Avco Financial Services (1986) 182 Cal.App.3d 622, 633. Persons and entities who merely furnished the credit information or history as to a particular consumer to a credit reporting agency were not deemed to be covered by the FCRA; consequently, collection agencies, often the primary suppliers of credit information to credit reporting agencies, were not regulated by the FCRA. Pulver v. Avco, supra, 182 Cal.3d at 633.
The original FCRA legislation was aimed at three primary issues: (1) inaccurate or misleading information; (2) irrelevant information; and (3) the maintenance of confidentiality, and prevention of misuse of information. See 115 Congressional Record, at p. 2410 (January 31, 1969). Consequently, when the FCRA went into effect in 1970, it was intended to comprehensively regulate credit reporting agencies, and it was designed to provide remedies to consumers for violations of its provisions. For example, the FCRA gave consumers the right to bring private actions for damages in either the state or federal courts. 15 U.S.C. §1681p. Different remedies were (and are) available to consumers who sue credit reporting agencies, depending on whether the violations are willful (15 U.S.C. 1681n) or negligent (15 U.S.C. §1681o).
THE CONSUMER CREDIT REFORM ACT OF 1996
REVISES FCRA TO COVER FURNISHERS OF INFORMATION
In the Fall of 1996, Congress passed the Consumer Credit Reporting Reform Act of 1996, which revised the FCRA top to bottom. See generally Consumer Credit Reporting Reform Act of 1996, Public Law No. 104-208, 110 Stat. 3009 (September 30, 1996). For the first time, restrictions and obligations were directly imposed on third parties and/or entities who furnished information to credit reporting agencies. This, of course, included collection agencies. The obligations as to “furnishers” are found in 15 U.S.C. §1681s-2.
The requirements and obligations for those who furnish information to consumer reporting agencies are found in two separate sections--§ 1681s-2(a) and § 1681s-2(b).
Section 1681s-2(a) begins with the prohibition, found in (1)(A), which prohibits the furnishing of information “relating to a consumer” to a credit reporting agency “if the person knows or consciously avoids knowing that the information was inaccurate.” FCRA, 15 U.S.C. § 1681S-2(a)(1)(A). This prohibition is reinforced in subsection (1) by the prohibition against furnishing inaccurate information after notice of actual inaccuracy from the affected consumer. FCRA, 15 U.S.C. § 1681s-2(a)(1)(B).
Subsection (2) imposes a duty on regular furnishers of credit information to correct and update the information they provide so that the information remain “complete and accurate.” FCRA, 15 U.S.C. § 1681s-2(a)(2).
Subsection (3) imposes a duty on such furnishers to notify credit reporting agencies if a consumer disputes the information furnished. FCRA, 15 U.S.C. § 1681s-2(a)(3). Subsection (4) obliges furnishers to notify the credit reporting agency of the closure of a consumer’s account.. FCRA, 15 U.S.C. § 1681s-2(a)(4). Finally, subsection (5) imposes a similar obligation to notify the credit reporting agency. FCRA, 15 U.S.C. § 1681s-2(a)(5).
Turning to subsection 1681s-2(b), that section specifies what happens after a credit reporting agency receives notice of a dispute from the consumer pursuant to section 1681i(a)(2), of his or her dispute with regard to the completeness or accuracy of information provided by a person “to the credit reporting agency.”
The furnisher of the disputed information, has four duties once contacted by the credit reporting agency: (1) to conduct an investigation with respect to the disputed information; (2) to review all relevant information provided by the credit reporting agency; (3) to report the results of its investigation to the credit reporting agency; and (4) if the investigation back finds the information is incomplete or inaccurate, to report those results to each of the nationwide consumer reporting agencies to which the furnisher communicated the faulty information.
Between them, § 1681s-2(a) and § 1681s-2(b) set forth all of the current obligations of collection agencies under the FCRA, as so-called “furnishers” of information.
THE HISTORY OF THE CCRAA
Originally enacted in 1975, the CCRAA, like the FCRA, was initially aimed solely at the consumer credit reporting industry. Civil Code § 1785.1(a)-(d). In language virtually identical to that found in the FCRA, the California Legislature stated the CCRAA’s purpose was “to require that consumer credit reporting agencies adopt reasonable procedures” for handling credit information to ensure it was handled in a manner which was “fair and equitable to the consumer with regard to confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title. Civil Code § 1785.1(d). The original definition of “consumer credit reporting agency” was virtually identical to the definition of “consumer reporting agency” under the FCRA. Compare 15 U.S.C. § 1681a(f) with Civil Code §1785.3(d)
As originally enacted, the CCRAA provides a private right of action for damages to any person who suffered injury “as a result of a violation of this title”. Civil Code § 1785.31(a). Court interpretations of the original scheme provided that violation of the provisions of the CCRAA gave “the consumer an action for damages against a credit reporting agency or a user of information for violation of its provisions. . .[but] it does not extend liability to one who furnishes information to a credit reporting agency.” Pulver v. Avco Financial Services, supra, 182 Cal.App.3d at 633. Moreover, like the FCRA, the CCRAA imposed liability based upon either negligence liability (Civil Code § 1785.31(a)(1))or a willful violation (Civil Code § 1785.31(a)(2)).
Effective in 1993, the California Legislature amended the CCRAA. As relevant to this article Civil Code § 1785.25 was added to the CCRAA That section follows the duties imposed under the FCRA and provides, in pertinent part, as follows: First, the furnisher “shall not” furnish information which it “knows or should know” is inaccurate or incomplete (Civil Code § 1785.25(a)). Second, the furnisher was obligated to shall notify any consumer credit reporting agency to whom it had provided credit information, if it later determines the previously reported information was inaccurate (Civil Code § 1785.25(b)). Third, if the consumer has disputed the credit history or information, and the dispute is not resolved, the furnisher must note or flag the existence this dispute anytime it furnishes credit information about that consumer (Civil Code § 1785.25(a)).
Fourth, any entity that has provided open-ended credit to a person must report when the open-ended account is closed by the consumer. Finally; if a delinquent account is placed for collection, and the account has also been charged “to profit or loss”, any report to a credit reporting agency about that account must contain the “approximate date of the delinquency which gave rise to that action”, unless the date has been previously reported (Civil Code § 1785.25(e)).
Also, like the FCRA, the CCRAA requires that if a furnisher of information receives a notice of dispute made pursuant to Civil Code § 1785.16(a) 2 , it then owes a duty to “complete an investigation with respect to the disputed information” it may have provided “and report to the consumer credit reporting agency the result of that investigation before the end of the 30–business day period, which commences when the credit reporting agency first receives the dispute from the consumer. Civil Code § 1785.25(f).
THE CONSUMER’S REMEDIES FOR VIOLATIONS
OF THE FCRA AGAINST FURNISHERS ARE QUITE LIMITED
Private enforcement against credit reporting agencies has always been a hallmark of the FCRA. However, Congress’ intent as to furnishers was quite different, even after adoption of the 1997 amendments to the FCRA. Although the 1997 version of the FCRA imposed specific duties of accuracy and completeness on those who furnish credit information about consumers to credit reporting agencies, any injured consumer generally possesses no standing to bring a private lawsuit for damages against the furnisher. See, e.g., FCRA, 15 U.S.C. § 1682s-2(c), (d); Nelson v. Chase Manhattan Mortgage Corp. (9th Cir. 2002) 282 F.3d 1057, 1059; Carney v. Experian Information Solutions, Inc. (W.D. Tenn. 1999) 57 F.Supp.2d 496, 502.
Some cases, like Carney, hold that consumers possess no direct right to sue a furnisher for any violation of its 15 U.S.C. § 1681s-2 duties. (Id. at 502.) However, most of the courts that have interpreted sections 1681s-2(a) and 1681s-2(b) have found a limited private right of action against a furnisher, but only under section 1681s-2(b). This is clearly the view of the United States Ninth Circuit Court of Appeals, which covers California. Nelson v. Chase Manhattan, supra, 282 F.3d at 1059-1061. There, the court wrote:
Most of the provisions of § 1681s-2(a) are for the protection of consumers. There would be no doubt that a consumer could sue for their violation under sections 1681n & o were it not for §§ 1681s-2(c) and (d). Subsection (c) expressly provides that sections 1681n & o “do not apply to any failure to comply with section (a) of this section, except as provided in section 1681s(c)(1)(B) of this title.” The referenced section permits certain suits by States for damages. This limitation on liability and enforcement is reinforced by subsection (d) of 1681s-2, which provides that subsection (a) “shall be enforced exclusively under section 1681s of this title by the Federal agencies and officials and the State officials identified in that section.” Consequently, private enforcement under §§ 1681n & o is excluded.|
Nelson, supra, 282 F.3d at 1059.
In short, a consumer may not sue a furnisher, even if the furnisher flagrantly violates the duties owed under 15 U.S.C. 1681 s-2(a) by providing erroneous or inaccurate information about a consumer.
However, the 9th Circuit has concluded that consumers may sue furnishers who fail to abide by their obligations under 15 U.S.C. 1681s-2(b). You may recall that that section requires a furnisher to “investigate” a consumer’s credit information or history if requested to do so by a credit reporting agency, pursuant to 15 U.S.C. § 1681i. The Nelson court analyzed the statutory scheme this way:
It can be inferred from the structure of the statute that Congress did not want furnishers of credit information exposed to suit by any and every consumer dissatisfied with the credit information furnished. Hence, Congress limited the enforcement of the duties imposed by § 1681s-2(a) to governmental bodies. But Congress did provide a filtering mechanism in § 1681s-2(b) by making the disputatious consumer notify a CRA and setting up the CRA to receive notice of the investigation by the furnisher. See 15 U.S.C. § 1681I(a)(3) (allowing CRA to terminate reinvestigation of disputed item if CRA “reasonably determines that the dispute by the consumer is frivolous or irrelevant”). With this filter in place and opportunity for the furnisher to save itself from liability by taking the steps required by § 1681s-2(b), Congress put no limit on private enforcement under §§ 1681n & o.
Nelson, supra, 282 F.3d at 1060 (emphasis added).
Curiously, however, there is no remedy available to a consumer against a collection agency acting as a furnisher of information, under section 1681s-2(b) where the debtor disputes the information directly to the furnisher/collection agency. Rather, a right to sue exists where the furnisher has received a notice of dispute from the credit reporting agency, which, in turn, triggers a duty to investigate the information previously reported (pursuant to § 1681i of the FCRA). A notice of dispute from the debtor directly does not trigger the objection under § 1681s-2(b) or create potential liability in the furnisher to the consumer; rather the notification of dispute which triggers the collection agency potential liability can only come from the credit reporting agency. See, e.g.; Nelson, supra; Hasvold v. First USA Bank (D. Wyo. 2002) 194 F.Supp.2d 1228, 1236; Dornhecker v. Ameritech Corp. (N.D. Ill. 2000) 99 F.Supp.2d 918, 928-929 (Court dismissed claim brought under § 1681s-2(b) because the complaint alleged that the consumer, not the credit reporting agency notified the furnisher of the dispute.).
A CONSUMER’S REMEDIES FOR VIOLATION
OF THE CCRAA AGAINST FURNISHERS ARISING FROM
CREDIT REPORTING DISPUTES ARE NON-EXISTENT
As noted above, the California Legislature, like Congress with the FCRA, amended the statutory scheme under the CCRAA to impose duties and obligations upon furnishers of information. However, the near unanimous view of the courts is that the FCRA completely preempts all claims, statutory or commercial law, brought under state law, including California’s CCRAA that relate to credit reporting disputes. FCRA, 15 U.S.C. § 1681t(b)(1)(F); Hasvold, supra, 194 F.Supp.2d at 1234-1235 (all state law causes of action, statutory and common law dismissed because preempted); Aklagi v. Nations Credit Finance Service Corp. (D. Kan. 2002) 196 F.Supp.2d 1186, 1195 (state law defamation claim predicated on furnishing inaccurate information is preempted); Jaramillo v. Experian Info. Solutions, Inc. (E.D. Pa. 2001) 155 F.Supp.2d 356, 361-362 (state statutory unfair business claim is preempted).
In Hasvold, supra, the court wrote as follows:
Thus, based on a plain reading of the FCRA, any private right of action under the California Civil Code based on the wrongful acts of a “furnisher of information” is preempted by the FCRA. [footnote omitted]. This conclusion is consistent with the expressed intent of Congress to have the conduct of furnishers of information regulated exclusively by governmental entities.
Hasvold, supra, 194 F.Supp.2d at 1235 (quoting Quigley v. Penn. Higher Education Assist. Agency, 2000 WL 1721069, *3).
Consequently, it is now clear that the FCRA preemption provisions found at 15 U.S.C. 1681f(b)(1)(F) entirely preempt private consumer actions against furnishers of information, such as collection agencies relating to credit reporting disputes. This is true of all state claims, whether arising out of statute or the common law.
The remedies available to consumers against collection agencies arising from credit reporting disputes are quite limited under the FCRA, and are entirely non-existent under state law. However, the preemption provisions of Congress’ carefully crafted statutory scheme will be weakened in January 1, 2004. As of that date, by the terms of the FCRA itself, states will be free to enact laws that provide consumers with “greater” protections than under the FCRA. And, these laws may effectively do away with the preemptive effect of the FCRA (which we have used so effectively). See FCRA, 15 U.S.C. § 1681t(d)(2). This little-known provision, and its impending effect on collection agencies across the country, should be carefully considered by the CAC and the ACA.
This article is not to be considered legal advice by the author or Ellis Law Group LLP. Any person or agency with specific legal questions must consult with the legal counsel of their choice.
1. “Consumer Reporting Agency” was defined under the FCRA as “any person which, for monetary fees, dues or on a cooperative nonprofit basis regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing the consumer reports to third parties …” FCRA, 15 U.S.C. §1681a(f).
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2. Section 1785.16(a) requires a consumer credit reporting agency to investigate any dispute as to the completeness or accuracy of any credit information within 30 business days after receipt of the dispute from the consumer. As part of this process, the consumer reporting agency is to , within 5 days, notify the furnisher of information of the dispute, so it can begin its own investigation.
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