FTC Clarifies Credit Reporting Compliance Requirements

In a statement issued on Monday, May 9, 2016, Jessica Rich, Director of the Federal Trade Commission's (FTC) 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 (FCRA) "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 has clarified its expectations for what credit reporting policies and procedures debt collection agencies should have in order to avoid or withstand regulatory scrutiny.

The FTC’s complaint alleged that the collection agency failed to follow the requirements of the FCRA’s Furnisher Rule, which regulates entities that report information to consumer reporting agencies, commonly referred to as credit bureaus. Specifically, the FTC found that the collection agency did not have adequate policies and procedures in place to handle consumer disputes regarding information the agency provided to credit reporting agencies. The FTC also found that the collection agency 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. Additionally, the FTC found that while the collection agency had written policies regarding how disputes were to be handled, employees were not adequately trained on those policies.

Under the terms of the settlement agreement, the collection 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 FTC's action is part of its "Operation Collection Protection," an ongoing federal, state and local enforcement action initiated in 2015 against debt collectors allegedly violating the Fair Debt Collection Practices Act, the FCRA, and other consumer protection laws.

Through its proposed order, the FTC clarified what types of policies and procedures a debt collection agency must have if the agency reports consumer information to consumer reporting agencies, also referred to as CRAs. Those policies and procedures include:

• policies to ensure information provided to CRAs is accurate
• policies regarding how consumer disputes are handled, in order to ensure consistent treatment of consumer disputes
• policies that ensure a reasonable investigation of all documents relevant to the dispute, and that any required investigations are 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
• a policy concerning periodic audits of how the agency has handled consumer disputes that, in turn, enables the agency to update and adjust policies in place to be effective and current
• appropriate document retention policies

In its announcement, the FTC stressed that employees must be adequately trained on all policies and procedures. The FTC also noted that all policies and procedures must be appropriate for the size and nature of the collection operations, and be able to address any compliance risks associated with technology used by the collection agency.

Debt collection agencies are not required to report consumer information to consumer reporting agencies. Those that do, however, should take great care in ensuring they have rigorous compliance mechanisms in place to govern that furnishers' reporting and other obligations under the FCRA are met. Both the FTC and the CFPB have conducted numerous enforcement actions in this area recently in response to high numbers of consumer complaints about debt collectors submitted to each agency.