Ballard Spahr LLP

The 11th Circuit has clarified that the Fair Credit Reporting Act (FCRA) requires furnishers of credit information—like their credit reporting agency (CRA) counterparts—to conduct "reasonable" investigations of consumer disputes. The decision also identifies various factors that determine whether a furnisher’s investigation is "reasonable."

The plaintiff in Hinkle v. Midland Credit Management, Inc., sued Midland for allegedly failing to investigate disputed information on her credit report. Her report included two accounts that she claimed were not hers. The two accounts had been charged off by the original creditor and, after their purchase by and sale to other debt buyers, were purchased by Midland with what appears to have been the then-standard limited warranties as to the accuracy of the account information. Midland did not receive any account-level documentation for either account. Consistent with a common practice at the time, it received only electronic information about the debt, such as the debt amount, the name of the original creditor, the charge-off date, and the personal information associated with the debt. The purchase agreements for the accounts, however, contained provisions that arguably obligated the debt seller to assist Midland in acquiring documentation from the original creditor to respond to consumer disputes.

The plaintiff disputed the accounts to the CRAs as well as to Midland, claiming that the accounts did not belong to her. Since Midland had already marked one account as paid and ceased reporting it to the CRAs, it took no action in response to her dispute. For the other account, Midland sent a response letter to the plaintiff in which it stated that "it would be helpful to have a copy of any documentation you may have that supports your dispute." In response to a dispute notice sent by one of the CRAs, Midland verified the debt by comparing the information reported to the CRA with the electronic account information in its internal records. It did not, however, request any account-level documentation from the debt sellers or the original creditors.

In reversing the district court's grant of summary judgment for Midland on plaintiff's FCRA claim, the 11th Circuit made the following observations about a furnisher's obligation, under § 1681s-2(b), to investigate a consumer dispute:

  • The FCRA's structure suggests that a furnisher's duty under § 1681s-2(b) is part of the larger reinvestigation duty imposed on CRAs by § 1681i(a). Since § 1681i(a) requires CRAs "to make reasonable efforts to investigate and correct inaccurate or incomplete information," the 11th Circuit concluded that "reasonableness" also should be the "touchstone for evaluating investigations under § 1681s-2(b)."

  • The reasonableness of a furnisher's investigation varies based on the circumstances, including the furnisher's status (e.g., an original creditor, collection agency collecting for original creditor, debt buyer, or down-the-line debt buyer) and the "quality of documentation available to the furnisher."

  • If a furnisher decides to report disputed information as verified, "the question of whether the furnisher behaved reasonably will turn on whether the furnisher acquired sufficient evidence to support the conclusion that the information was true."

  • Furnishers can report disputed information as unverifiable "if they determine that the evidence necessary to verify disputed information either does not exist or is too burdensome to acquire." In such a case, "the question of whether the furnisher complied with § 1681s-2(b) will likely turn on whether the furnisher reasonably determined that further investigation would be fruitless or unduly burdensome."

  • The reasonableness of an investigation also depends on "what the furnisher knows about the dispute." The 11th Circuit explicitly rejected the argument that a furnisher may reduce its investigation simply because the CRA failed to exhaustively describe the dispute in its Automated Consumer Dispute Verification (ACDV) form. "When a furnisher has access to dispute-related information beyond the information provided by the CRA, it will often be reasonable for the furnisher to review that additional information and conduct its investigation accordingly.

Applying the above principles, the 11th Circuit concluded that a jury could find Midland did not conduct "reasonable" investigations for the two accounts because it made no attempt to obtain account-level information and because the electronic information that it did review was insufficient to "verify" the disputed information.

The 11th Circuit also rejected two defenses. In response to Midland's argument that it had no obligation to investigate an account because it stopped reporting the account to CRAs, the 11th Circuit suggested that a furnisher’s obligation to investigate under § 1681s-2(b) may continue even after the furnisher stops reporting the account to CRAs. Midland also argued that, by sending the plaintiff a letter requesting documentation to support her dispute, the burden shifted to the plaintiff to show the disputed information was false. The 11th Circuit found nothing in the FCRA that "permits a furnisher to shift its burden of 'reasonable investigation' to the consumer in the case of a § 1681s-2(b) dispute."

Hinkle instructs a furnisher to conduct a "reasonable" investigation of consumer disputes that accounts for the furnisher's status, the account information available to the furnisher, and the furnisher's knowledge of the dispute. Additionally, in cases where the furnisher elects to report information as "verified," the furnisher must have evidence that establishes a disputed fact is true.