Investigating Frivolous Disputes

More than 200 million American consumers have files with at least one of the credit bureaus. Although there are only three main credit bureaus, there are more than 15,000 furnishers of information to the credit bureaus. The Federal Trade Commission (FTC) estimates that 20% of Americans have a verifiable error on their credit report, and consumer-reported data indicates that errors could be even more common than FTC estimates. Errors or inaccuracies on a credit report are problematic because they can lead to a consumer being refused employment, unable to open bank accounts or denied loans.

Because of the importance of having accurately reported credit information, it is vital to consumers that they have an opportunity to correct these errors or inaccuracies. To achieve this, the Fair Credit Reporting Act (FCRA) provides consumers different ways to dispute the accuracy of information on their credit report, directly or indirectly.

In a direct dispute a consumer may dispute the accuracy of the information directly with the furnisher of the information. In an indirect dispute: a consumer may dispute the information with the credit bureau and have the bureau refer the dispute to furnisher. Furnishers have the authority to consider direct disputes frivolous, not investigate, and send a notice to the consumer of this determination. Credit reporting agencies (e.g., credit bureaus) have the authority to consider indirect disputes frivolous, and not refer them to furnishers.

Some furnishers have argued that they also have the authority to consider indirect disputes frivolous and may ignore the referrals and neither investigate nor provide notice to either the credit bureau or the consumer. However, in a recent posting on their website, the CFPB indicates this is not the case, and that the furnisher has an obligation to investigate based on the text of the FCRA, as detailed below.

First, according to the CFPB, the text of the FCRA is clear and unambiguous. The Fair Credit Reporting Act does not contain any language that exempts a furnisher from investigating frivolous disputes simply because they are forwarded by credit bureaus. If the drafters of the FCRA wanted to allow for this exemption, they would have included it in the text of the law, in the view of the CFPB.

Second, consumers are entitled under the FCRA to be informed about the result of their dispute and to be informed of the options available. When the FCRA discusses the idea that not all disputes need to be investigated, the FCRA still requires that the consumer be notified and informed of additional information that would be necessary for the dispute to be investigated. If furnishers were allowed to ignore disputes referred to them by credit bureaus, then the consumers who submitted those disputes would fail to be informed about the result of their dispute and would not be told what is necessary for the dispute to be investigated. If a consumer files a dispute, there must be communication to the consumer regarding that dispute.

Third, in the view of the CFPB, the FCRA provides protection to furnishers from needing to investigate frivolous disputes since the statute allows credit bureaus to filter out frivolous disputes which prevents them from being forwarded to furnishers. Since the credit bureaus are able to screen out frivolous disputes, in the opinion of the CFPB, there is not a reason to allow furnishers to also reject disputes they consider to be frivolous.