When should an auto lender report a customer’s account as disputed?


Under the Fair Credit Reporting Act (FCRA), an auto lender should mark a customer’s account as “disputed” when it receives a dispute from a credit reporting agency. If the lender’s investigation determines the reporting was accurate, it may remove the “dispute” notation.

As furnishers of credit, auto lenders have two broad obligations under the FCRA. First, they must provide accurate information to the credit bureaus. This duty prohibits lenders from reporting information that it knows or has reasonable cause to believe is inaccurate. It also prohibits auto financers from reporting information that is inaccurate if the lender has been notified of the specific inaccuracy.

Second, after an auto lender receives notice of a dispute from a credit bureau, the lender has several obligations: Review all information provided by the credit bureau and perform an investigation into the dispute; report the results of the investigation to the credit bureau; and correct inaccurate, incomplete or unverifiable information, and report the investigation results to other credit bureaus to which the lender reported.

When should a customer account be marked as ‘disputed’?

The FCRA provides that if the completeness or accuracy of any information reported by an auto lender is disputed by the customer to the lender, the lender may not report the information to any credit bureau without notice that the contested information is disputed by the customer. As a general rule, the lender should mark the customer’s trade line as “disputed” upon receipt of a dispute from the customer or a credit reporting agency.

An auto lender is required to conduct a reasonable investigation of a customer dispute and, upon receiving notice of one, report the results of the investigation. If the investigation finds that the information is incomplete or inaccurate, the lender is required to report those results to the credit bureaus. However, after the completion of the investigation, the lender may remove the “dispute” code from the customer’s trade line. At that point, the lender has either corrected the trade line so it is accurate, or has determined the dispute was without merit and has completed the investigation.

A dispute is also not considered meritorious under the FCRA if the underlying credit reporting is accurate. An auto financer is not liable unless it provides consumer information that is inaccurate, incomplete or misleading. A lender cannot be held liable for failing to report a customer’s account as disputed when it is determined the account reporting was accurate. If the customer follows up with an identical dispute after the resolution of the initial dispute, there is no duty to report the account as “disputed” because it would not be considered meritorious.

Auto lenders cannot be held liable for a failure to report a debt is disputed on that basis alone. The consumer must still convince the court that the omission of the dispute was misleading in such a way, and to such an extent, that it can be expected to have an adverse effect. In summary, simply failing to report a meritless dispute does not put a lender at risk for reporting incomplete or inaccurate information.

Best practice for lenders

Thus, an auto lender’s best practice is clear: If a lender receives notice of a dispute from a credit reporting agency or the consumer, the lender should mark the consumer’s account as disputed while performing the required investigation.

If the investigation determines the dispute lacks merit, and the reporting was accurate, the lender can remove the “dispute” notation and continue to accurately report the account. If the dispute is found to be meritorious, and the reported information is incomplete, inaccurate or misleading, the auto lender should correct the credit reporting at all credit bureaus to which the lender reported, and then remove the dispute notation from the trade line. Following these simple steps can help protect auto financers against a broad range of consumer claims under the FCRA.

Frank Catalano is Of Counsel in McGlinchey’s Dallas office, where he defends consumer financial services and title insurance clients in state and federal courts. Former McGlinchey associate Daniel Troiano contributed to this article.

Source : AutoFinanceNews