Troutman Sanders released an informative advisory concerning a recent US Sixth Circuit Court of Appeals decision that overturned a district court's grant of a motion for summary judgment in a lawsuit filed by a consumer against USAA Federal Savings Bank that alleged that USAA had violated the Fair Credit Reporting Act. The plaintiff is a consumer who claimed that he was not a co-obligor on a delinquent automobile loan made by USAA and who provided USAA "with documents showing that his ex-wife forged his name on a check, purchased the car while they were separated, and later signed a separation agreement confirming she was solely responsible for the loan payments."
The FCRA requires a creditor to conduct a "reasonable investigation" into the disputed information. According to deposition testimony of a USAA employee, "USAA’s procedures prohibited consulting documents from a consumer’s file – including the allegedly forged check – before responding to a dispute notice from a CRA. Instead, the employee testified that the company’s procedures only require a cursory verification of his identify and confirmation of the loan’s status before responding to a CRA dispute notice." USAA demanded that the consumer furnish USAA with a police report or fraud affidavit, and when he refused to do so, USAA made no further information. Instead, when contacted by major credit reporting agencies about the dispute, USAA responded that the consumer was a co-obligor.
According to Troutman Sanders, the Court of Appeals found that "simply following standard company policy will not excuse furnishers [of credit information to credit reporting agencies] from their obligations under the Fair Credit Reporting Act to conduct investigations into the accuracy of reported information, nor insulate them from punitive damage claims for recklessly disregarding the statute’s requirements. Even if a consumer refuses to provide a police report or a fraud affidavit, this does not excuse a furnisher from its obligation to conduct a reasonable investigation because section 1681s-2(b) does not permit furnishers to demand further documentation from consumers."
Of particular note, the Court of Appeals ruled that “the mere existence of a company policy does not resolve the inquiry into the reasonableness of its investigation.” The Court noted that section 1681s-2(b) does not allow “furnishers to require independent confirmation of materials contained in a CRA notice of dispute before conducting the required investigation.” And, in this case, [the plaintiff] was not notified of USAA’s standard procedure to require consumers to provide a fraud affidavit or a police report before it will conduct further inquiry into a disputed claim until after USAA had responded to the CRAs that the information was accurate as reported. Therefore, the Court came to the conclusion that the consumer’s refusal to comply with this company policy could have not had any effect on the already completed investigation.
Lenders are advised to review their policies and procedures with respect to investigations of disputed information that has been reported to credit reporting agencies. I suspect that USAA is not the only financial institution that, when a similar allegation of fraud is made by a consumer, requires a fraud affidavit, a police report, or similar documentation to be furnished before it takes the allegation seriously. According at least one federal court of appeals, that is not a proper fulfillment of the lender's duty to conduct a reasonable investigation. While a jury may ultimately decide whether or not in this case USAA made a "reasonable" investigation, based on the facts set out in the advisory, and the alleged failure of USAA to even look at the information submitted by the plaintiff (including evidence of the forged check), I wouldn't count on a favorable outcome.