A hypothetical bank receives a complaint from a customer about a car loan.  According to the bank’s records, the complaining customer is a co-obligor on a car loan payable to the bank, along with his wife.  According to the customer, he is not a co-obligor, because he and his wife were separated when she bought the car, she forged his signature on the note, and she agreed to assume responsibility for the payments under their separation agreement.  When her failure to make the loan payments begins harming his credit, the customer disputes his status as a co-obligor, and the bank receives requests from several credit reporting agencies asking the bank to verify the loan.  The bank reports back that the customer is indeed a co-obligor and notifies the customer that, in order for the bank to investigate further, the customer must provide either a police report or fraud affidavit.  When the customer fails to do so, the bank declares the dispute a civil matter and ends its investigation.  

While the bank complied with its own internal policies, did it comply with the Fair Credit Reporting Act (FCRA)’s “reasonable investigation” requirement?  The Sixth Circuit was recently faced with precisely this question in Boggio v. USAA Federal Savings Bank[1] and held that the FCRA requires more from financial institutions in these types of situations.  In Boggio, the plaintiff filed suit against USAA Federal Savings Bank (“Bank”), alleging that it violated the FCRA by failing to reasonably investigate the dispute regarding his status as co-obligor on a car loan.  The district court granted the Bank’s motion for summary judgment, concluding that the investigation was reasonable, and the plaintiff appealed.  

Furnishers of information to Credit Reporting Agencies (“CRAs”) can be civilly liable to consumers for actual and punitive damages, as well as for attorney’s fees, for failing to reasonably investigate a properly raised dispute respecting information supplied to a CRA.  The FCRA requires that furnishers “provide the CRAs with accurate information about their consumers.” § 1681s-2(a).  Upon notification by the CRA that a dispute has been raised “about the consumer information” provided, the business must investigate the dispute. § 1681s-2(b).  In Boggio, the Sixth Circuit confirmed its stance that a private right of action exists if, once notified about a dispute, a furnisher fails to follow the duties laid out in § 1681s-2(b).[2]  The Court also, for the first time, outlines the scope of these duties and issues guidance to furnishers as to how to avoid civil liability under this regulation.        

§ 1681s-2(b) reads:  “After receiving notice pursuant to 1681i(a)(2) of this title of a           dispute with regard to the completeness or accuracy of any information provided by a  person to a consumer reporting agency, the person shall –

(A) conduct an investigation with respect to the disputed information;

(B)  review all relevant information provided by the [CRA] pursuant to 1681i(a)(2) of this title;

(C)  report the results of the investigation to the [CRA];

(D) if the investigation finds that the information is incomplete or inaccurate, report those results to all other [CRAs] to which the person furnished the information and that compile and maintain files on consumers on a nationwide basis; and

(E)  if an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after any investigation under paragraph (1), for purposes of reporting to a [CRA] only, as appropriate, based on the results of the investigation promptly –

           i.      modify that item of information;

          ii.      delete that item of information; or

        iii.      permanently block the reporting of that item of information.”

According to Boggio, the duties under (A) and (B) are inextricably linked.  For an investigation to be sufficient under (A), it must be “reasonable,” which the court describes as a “‘fairly searching inquiry,’ or at least something more than a merely cursory review.”[3]  However, what constitutes “reasonableness” in investigation is determined by the “information provided by the [CRA] pursuant to 1681i(a)(2).”[4]  Therefore, a furnisher must review the information provided by the CRA under (B) in order to determine the level of scrutiny that a “reasonable” investigation will require. 

The Court reviewed cases from other Circuits to provide context as to what a reasonable investigation entails.  A cursory investigation, consisting of only confirming a name and address, will be insufficient when the furnisher “received information from the CRA explaining that its consumer was disputing her status as a co-obligor on her husband’s debt,”[5] but a similarly cursory review may be reasonable when the “CRA provided only ‘scant information’ … regarding the nature of [the] consumer’s dispute.”[6]  Therefore, when a furnisher is notified of a dispute by the CRA, its first task is to review the information provided by the CRA to insure that the scope of the investigation is commiserate with the “nature and specificity of the information provided by the CRA.”[7]  An unreasonable investigation will leave a furnisher open to a cause of action from the consumer.[8]

The duty to report under (C) is significant under Boggio because the duty exists regardless of the outcome of the investigation.[9]  Therefore, even if a furnisher discovers that the initial information provided to the CRA was correct, they can still be liable under this regulation if they fail to report that information back to the inquiring CRA.

If the investigation does uncover inaccuracies in the initial reporting, (D) and (E) outline the steps that the furnisher must then take in notifying all CRAs, not just the inquiring CRA.  Obviously, failing to report the discovery that the information was false is a violation of requirement (D).[10]  However, Boggio extends the scope of the obligation under both (D) and (E) to reporting and modifying, deleting, or blocking correct information that “nevertheless ‘provides information in such a manner as to create a materially misleading impression.’”[11]  This duty also includes the obligation to “identify that a consumer disputes his information, at least where the consumer’s dispute is ‘a bona fide dispute, a dispute that could materially alter how the reported debt it understood.’”[12]  Lastly, the court states that the duty to “modify, delete, or block” under (E) applies, not just in the cases of inaccuracy and misleading impression, but also when a furnisher “discovers, upon investigation, that it can no longer verify the consumer information it originally supplied to a CRA.”[13]  Given this broad scope, furnishers must report any negative results of the investigation to all CRAs to avoid running afoul of the requirements under (D) and (E).  

Applying these principles to the facts of the case, the 6th Circuit concluded that the district court’s grant of summary judgment in favor of the Bank was improper.  While the Bank complied with its internal policy, requiring a fraud affidavit or police report before conducting a further investigation into a disputed claim, that internal compliance did not shield it from the requirements of the FCRA.  The plaintiff asserted that the Bank had access to documents showing that his wife was the sole obligor and correspondence from the plaintiff’s attorney disputing that he was a co-obligor.  Further, the plaintiff presented deposition testimony from a Bank employee stating that Bank employees were prohibited from reviewing documents in the plaintiff’s file and likely only verified his identity prior to responding to the CRA.  This evidence was enough to create a genuine dispute as to the reasonableness of the Bank’s investigation.      

Financial institutions can take valuable lessons from Boggio.  A negligent breach of the above duties can result in actual damages under § 1681o.[14]  A willful violation, on the other hand, can give rise to claims for punitive damages and attorney’s fees as well as actual damages under § 1681n.[15]  Furnishers should develop protocol for dealing with consumer information disputes.  However, furnishers cannot assume that compliance with such protocol is sufficient to avoid liability under the FCRA.  Furnishers must regularly reevaluate their policies in light of Boggio and the explicit requirements of section 1681s-2(b).  A little more time investigating notices from CRAs on the front end can avoid major headaches and expense in the future.