FTC Warns Industry to Have Robust Credit Reporting Policies and Procedures

In a statement issued on Monday, May 9, 2016, Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection, warned the industry that debt collection agencies that fail to live up to their obligations under the Fair Credit Reporting Act “can expect to hear from the FTC.”

Director Rich’s comments came as part of an announcement by the FTC that it had filed a complaint and proposed order against a Texas-based debt collection agency for having deficient policies and procedures related to borrower credit reporting.  Through its proposed order, the FTC clarified its expectations for what credit reporting policies and procedures debt collection agencies need to have in order to avert or withstand regulatory scrutiny.

The FTC’s complaint alleged that the collection agency failed to follow the requirements of the FCRA’s Furnisher Rule.  Specifically, the FTC found that the agency:

• did not have adequate policies and procedures in place to handle consumer disputes regarding information the agency provided to credit reporting agencies (“CRAs”);
• did not have adequate policies and procedures requiring that notice be provided to consumers of the outcomes of investigations about disputed information, and that in numerous instances consumers were not informed whether information they disputed had been corrected;
• had written policies regarding how disputes were handled, but employees were not adequately trained on those policies; and
• in many cases failed to keep copies of documentation from consumers that disputed the information the agency had provided to CRAs.

Under the terms of the settlement, the agency is required to pay a civil penalty of $72,000, and will be required to put in place policies and procedures that comply with the requirements of the FCRA.  The case is part of the FTC’s “Operation Collection Protection,” an ongoing federal, state and local enforcement action initiated in 2015 against debt collectors allegedly violating the FDCPA, Dodd-Frank, and the FCRA, among other consumer protection laws.

Through its proposed order, the FTC made clear that at a minimum it expects debt collection agencies to:

• have written policies addressing the FCRA’s requirements, including:
  • policies that ensure the accuracy and integrity of information provided to CRAs;
  • policies regarding how consumer disputes are handled, to ensure consistent treatment of consumer disputes;
  • policies that ensure a reasonable investigation of all documents relevant to the dispute, and that the investigation is conducted within the time limit imposed by the FCRA;
  • policies regarding what information is communicated to consumers after disputes are investigated or, in the alternative, if the dispute is deemed to be “frivolous”;
  • policies regarding what information is communicated to CRAs if an investigation determines the information reported was inaccurate; and
  • appropriate document retention policies.
• adequately train employees on all policies and procedures;
• ensure that the policies are appropriate for the size and nature of the collection operations, including being suited to technology used; and
• have a procedure in place to audit or analyze how the agency has handled consumer disputes, enabling the agency to update and adjust policies in place to be effective and current.

Debt collection agencies are not required to report consumer information to CRAs.  Those that do, however, should take great care in ensuring they have rigorous compliance mechanisms in place to govern that reporting and furnishers’ other obligations under the FCRA are met.  Both the FTC and the CFPB have conducted numerous enforcement actions in this area within recent years.