CFPB Argues the FCRA Requires Furnishers to Investigate Legal Issues Raised in Consumer Disputes

On April 7, the Consumer Finance Protection Bureau (CFPB or Bureau) filed an amicus brief in an appeal, pending before the Court of Appeals for the Eleventh Circuit in which the Bureau argued that the Fair Credit Reporting Act (FCRA) does not exempt furnishers from investigating disputes based on legal questions as opposed to factual inaccuracies. Section 1681s-2(b)(1) of the FCRA states that a furnisher of consumer information must conduct an investigation of disputed information upon receiving notice from a consumer reporting agency (CRA) that the consumer has disputed the accuracy of the information. Many courts have interpreted this to require furnishers to reasonably investigate factual questions, but not disputed legal issues (e.g., whether a consumer is liable for a reported debt). By contrast, the CFPB’s brief asks the Eleventh Circuit to “clarify that furnishers are required to conduct reasonable investigations of both legal and factual questions posed in consumer disputes.”

The subject plaintiff allegedly suffered identity theft that she discovered in 2016. The identity thief — an employee of the plaintiff — opened a credit card in the plaintiff’s name, and over the course of several years, accumulated over $30,000 in debt, while also making some payments from business bank accounts controlled by the plaintiff. When the plaintiff became aware, she notified the issuing bank, and the account was closed. The employee was ultimately convicted of identity theft. The bank, however, continued to furnish information about the outstanding debt to the credit bureaus. The plaintiff filed multiple disputes with the credit bureaus regarding the debt, which were then transmitted to the bank. Although the bank acknowledged that the plaintiff’s employee had opened the credit card account without the plaintiff’s consent, it concluded that the plaintiff was nevertheless responsible for the debt due to her negligent supervision of her employee and failure to object to continuous payments from bank accounts controlled by the plaintiff. Thus, the bank “verified” the debt and continued to furnish the information.

After the plaintiff filed suit, the bank moved for summary judgment, asserting multiple arguments, including that the plaintiff’s dispute turned on the disputed legal question of the plaintiff’s liability for the account rather than on a factual inaccuracy, as well as that the FCRA does not impose a duty on furnishers to investigate the accuracy of legal questions raised in consumer disputes. The district court granted summary judgment to the bank, concluding that it had “conducted a reasonable investigation as required under the procedural requirements of the FCRA.” In reaching this conclusion, the district court described the investigation duties imposed on furnishers under the FCRA as “procedural” and “far afield” from legal “questions of liability under state-law principles of negligence, apparent authority, and related inquiries.” Citing the First Circuit’s decision in Chiang v. Verizon New England, Inc., 595 F.3d 26 (1st Cir. 2010), the district court concluded that “a consumer cannot prevail on an FCRA claim by raising disputed legal questions as part of the dispute process instead of pointing to factual inaccuracies contained within the credit report.”

On appeal, the CFPB filed an amicus brief, arguing that furnishers are statutorily obligated to investigate both legal and factual questions raised in consumer disputes. The CFPB’s brief acknowledges that several federal courts have distinguished between “factual” and “legal” questions in determining the obligation of CRAs to investigate disputes under 15 U.S.C. § 1681i and that other decisions, including Chiang and unpublished decisions of the Eleventh Circuit, likewise recognize such a distinction in the context of furnisher investigations under Section 1681s-2(b)(1). Nevertheless, the CFPB argues that these cases in the furnisher investigation context were “incorrectly decided” because the FCRA does not make any such distinction. The CFPB argues that unlike CRAs, furnishers are qualified and obligated to assess issues, such as whether a debt is actually due or collectible, and routinely do assess such issues. The CFPB also goes further and suggests that even in the context of CRA investigations under Section 1681i, a formal distinction between legal and factual investigations is inappropriate and argues that a CRA has a duty to conduct a “reasonable investigation” of a legal dispute even if it does not have a duty to provide a legal opinion on the merits of the dispute. Finally, the CFPB urges the court to reject a “formal distinction” between factual and legal investigations because of the practical difficulty in distinguishing between them.

The CFPB’s arguments urge a decision contrary to the decisions of several federal courts that have distinguished between legal and factual questions in the context of both CRA and furnisher investigations under the FCRA.[1] If the Eleventh Circuit accepts these arguments, it would create a circuit split with the First Circuit, and it would create significant uncertainty for furnishers attempting to comply with the FCRA by placing upon them a more onerous obligation than other courts have adopted. Further, a decision accepting the CFPB’s arguments could draw into question the distinction between legal and factual issues in the context of CRA investigations under Section 1681i as well, creating an even deeper split from existing precedent. The amicus brief is another example of the CFPB’s recent efforts to shape the state of the law governing the consumer reporting industry through both rulemaking and litigation.

[1]E.g., Leones v. Rushmore Loan Management Servs., LLC, 749 F. App’x 897, 901-02 (11th Cir. 2018) (distinguishing between factual inaccuracy and disputed legal questions in context of furnisher investigations); Chiang v. Verizon New England, Inc., 595 F.3d 26, 38 (1st Cir. 2010) (Like CRAs, furnishers are ‘neither qualified nor obligated to resolve’ matters that ‘turn[ ] on questions that can only be resolved by a court of law.’); Mohnkern v. Equifax Info. Servs., LLC, No. 19-CV-6446L, 2021 U.S. Dist. LEXIS 218532, at *15 (W.D.N.Y. Nov. 10, 2021) (adopting Chiang‘s approach after surveying the case law and finding it “represent[s] the prevailing view when courts deal with the type of claim asserted against furnishers like plaintiffs’ here).