Insights

Are you furnishing information about your customers to credit reporting agencies? If yes, you are considered to be a furnisher under the Fair Credit Reporting Act. As a furnisher, you are responsible for making accurate reports to consumer reporting agencies. Consumers have a right to dispute the reports made on their credit file. If they do, the Fair Credit Reporting Act requires a furnisher to take certain actions after receiving notice of a dispute to correct any misreported information. Under certain circumstances, such as when the consumer is disputing his or her liability for the debt, a furnisher is responsible for investigating the dispute. A furnisher who fails to conduct an appropriate investigation could be held liable for violations of the Act. As set forth below, what constitutes an appropriate investigation can be fact specific.

During their separation, Frank Boggio’s ex-wife, Sarah, bought a car with financing she secured from USAA Federal Savings Bank. Sarah allegedly signed Boggio’s name, unbeknownst to him, alongside her own on the check issued by the bank to the car dealership. During his divorce proceedings, Boggio learned of the USAA loan. He signed a separation agreement, which confirmed that the car was acquired during the marriage, identified the associated secured loan as a marital debt, and stated that Sarah alone would be responsible for paying the loan.

Boggio, through his divorce attorney, wrote to the consumer reporting agencies and to USAA directly to dispute his status as a co-obligor on the car loan. USAA received requests from all three major CRAs to verify the disputed loan. USAA reported back to each CRA that Boggio was a co-obligor. USAA also attempted to mail Boggio (but not his counsel) a copy of the allegedly forged check, but the letter was sent to an incorrect address. USAA informed Boggio that it would further investigate the dispute if he provided a police report or a fraud affidavit. Upon receiving confirmation from Boggio’s attorney that Boggio would not go to Texas to file a police report, USAA declared the dispute a civil matter between the Boggios.

Boggio sued USAA, alleging that the bank violated the Fair Credit Reporting Act because it failed to investigate adequately and to respond accurately to notices sent to it by various consumer reporting agencies about the disputed car loan. Boggio appealed a trial court award of summary judgment in favor of USAA.

The trial court granted summary judgment to USAA on two bases. First, it held that USAA reasonably investigated dispute notices received from various CRAs. Second, the trial court concluded that Boggio could not maintain a claim against USAA because he ratified his wife’s debt in the separation agreement and thus was not harmed when USAA accurately confirmed his status. The U.S. Court of Appeals for the Sixth Circuit disagreed.

USAA conceded that the CRAs told the bank that Sarah bought the car after she and Boggio separated. The appeals court held that, in light of this concession, USAA received notice regarding the specific nature of Boggio’s underlying dispute, and a reasonable investigation under the circumstances would require that USAA review the relevant, underlying documentation. The trial court could not rule as a matter of law that USAA’s investigation was reasonable. The appeals court considered that USAA had at its disposal documents suggesting Sarah’s sole ownership of the car, correspondence from USAA implying that only she was the obligor, and as many as four letters from Boggio’s attorney denying Boggio’s liability. Further, a USAA employee testified that USAA reviewers were prohibited from consulting documents in his file – including the allegedly forged check in question – and instead would have verified only his identity before responding to a CRA notice. That evidence was sufficient to show a genuine dispute as to whether USAA conducted a reasonable investigation.

The appeals court also rejected the trial court’s emphasis on Boggio’s failure to comply with USAA’s policy for fraud investigations, which required a consumer to file a fraud affidavit or a police report before USAA would conduct further inquiry into a disputed claim. The court observed that the mere existence of such a company policy does not resolve the inquiry into the reasonableness of its investigation. The Fair Credit Reporting Act does not permit furnishers to require independent confirmation of materials contained in a CRA notice of a dispute before conducting the required investigation. At issue was whether USAA’s actual investigation was reasonable, the court held, and not whether it was reasonable for USAA to have an optional, more thorough review available to consumers. Boggio’s failure to comply with USAA’s fraud policy did not disturb the court’s conclusion that a genuine dispute of material fact existed regarding the reasonableness of USAA’s investigation.

The appellate court also reversed the trial court’s grant of summary judgment on the issue of willfulness. Boggio conceded in deposition testimony that he did not think the bank “intentionally” put him in this situation. This admission did not preclude USAA from having a reckless disregard towards its duty to investigate and report back the results of its investigation to the CRAs, the court held.

Summary judgment is appropriate when there is no dispute as to the material facts of the case. Here, the U.S. Court of Appeals for the Sixth Circuit found that a dispute existed as to whether USAA reasonably investigated the disputed information concerning Boggio’s status as a co-obligor of Sarah’s loan and whether the bank’s conduct demonstrated a reckless disregard for the requirements under the Fair Credit Reporting Act. When a consumer reporting agency provides a furnisher with the specific nature of a consumer’s dispute, a reasonable investigation would include review of relevant underlying documents. The furnisher cannot require a fraud affidavit or police report as a condition of undertaking an investigation, and testimony that the violation was not intentional does not preclude a claim for willfulness and punitive damages where there is a reckless disregard for the furnisher’s duty.

The FCRA requires a furnisher to establish and implement reasonable policies and procedures regarding the accuracy and integrity of information the furnisher provides to a consumer reporting agency. In addition, the FCRA requires a furnisher to take action to correct misreported information. When a consumer disputes information in his or her consumer report, the furnisher must conduct a reasonable investigation. A wise furnisher should have a fluid policy that involves considering the documents necessary and at the furnisher’s disposal in order to investigate the dispute.

Boggio v. USAA Federal Savings Bank, 2012 U.S. App. LEXIS 20239 (6th Cir. (S.D. Ohio) September 27, 2012).

Nicole F. Munro is a partner in the Hanover, Maryland office of Hudson Cook, LLP. Nikki can be reached at 410-865-5430 or by email at nmunro@hudco.com.

L. Jean Noonan is a partner in the Washington, D.C., office of Hudson Cook, LLP. Jean can be reached at 202-327-9700 or by email at jnoonan@hudco.com.