On a beautiful October morning, you open your finance company’s mailbox. Suddenly, hundreds, thousands, millions of identical form complaint letters pour out, flooding your office and burying you under piles of mail. The only way to dig out is to open and respond to each letter individually. Does this horror story sound familiar?
Over the last several years, finance companies have seen a significant increase in the number of customer “dispute” letters. Some letters raise legitimate issues. For example, a customer might claim identity theft or incorrect payment history. But most of the time, these letters include vague demands for debt validation and threats of lawsuits. Dealing with these can be a nightmare.
The Fair Credit Reporting Act (FCRA) gives consumers the right to dispute information directly to the furnisher (i.e., the company that reported the information to the consumer reporting agency). The Direct Dispute Rule (as part of the larger Furnisher Rule—which we have previously discussed here) became effective in July 2010; and since then, consumers now have two avenues to dispute credit information—through the consumer reporting agencies (e.g., e-OSCAR) and directly to the furnisher of the information.
To highlight key provisions of the Rule:
- When a finance company receives a proper direct dispute, it must investigate and report to the consumer within 30 days (or 45 days, if the consumer provides additional information). If the investigation reveals that the company incorrectly furnished information to any consumer reporting agencies, the company must notify those consumer reporting agencies and provide updated, correct information.
- A finance company only has an obligation to investigate a direct dispute that addresses information that the company provided to the consumer reporting agency about an account, such as the consumer’s liability on an account, the terms of an account, and the payment history on an account. A company does not have to investigate a direct dispute dealing with other information listed in the consumer report, such as identifying information, employers, inquiries, information derived from public records, fraud and active duty alerts, and information provided by other companies. Interestingly, the Rule also states that a company does not have to investigate a direct dispute that appears to be prepared by a credit repair organization.
- Additionally, a proper direct dispute needs to be submitted to the correct address of the finance company and include (i) sufficient information to identify the account, (ii) the specific information being disputed and an explanation of the basis for the dispute, and (iii) supporting documentation and information substantiating the dispute.
- Not all disputes have to be investigated. In certain circumstances, a finance company can determine that a dispute is frivolous or irrelevant. A dispute is frivolous or irrelevant if the consumer does not provide sufficient information to investigate, the company has already investigated, or the direct dispute is not a proper direct dispute as described above. The company must send a form letter to the consumer within five business days of making this determination.
- Many form complaint letters that finance companies receive do not dispute specific information, and some include debt validation demands. Debt validation is an important concept under the Fair Debt Collections Practices Act (FDCPA), but it generally applies to debt collectors, not original creditors. For these reasons, many form complaint letters are not proper direct disputes that trigger investigations under the Rule. The key is to have a good understanding of the law and a consistent policy for dealing with these letters.
Ignoring consumer dispute letters can have haunting consequences—especially if the CFPB knocks on the door. So, be careful when checking the mailbox.