How Much Investigating Should A Credit Bureau Do When Someone Disputes A Debt?

The nation’s three credit bureaus — Equifax, Experian, and TransUnion — are also three of the four most-complained-about companies to the Consumer Financial Protection Bureau, with 77% of those complaints involving incorrect information on consumers’ credit reports. But when a consumer attempts to dispute a debt on their report, what legal obligation do these agencies have to actually investigate?

A Colorado man is currently trying to sue TransUnion for allegedly failing to look into a forged automobile lease extension that resulted in thousands of dollars being incorrectly listed on his credit report for more than a year.

The man and his then-girlfriend had purchased the vehicle in 2009, with financing via Toyota’s auto-loan division, TMCC. The couple subsequently split, with the ex-girlfriend keeping the car. When it came time for the lease to expire, the ex signed an extension under her name and forging his signature:

He says he had no idea any of this was going on until after the lease payments went unmade and his TransUnion credit report was stained with upwards of $9,000 in lease debt.

After some investigation on his own, he was able to obtain a copy of the lease extension, bearing a signature that looks little like the one he’d affixed to the original lease.

The man provided this information, along with other documentation intended to clearly show a problem with the signatures, to TransUnion, but rather than fully investigate the dispute, he says the agency only sent an automated consumer dispute verification (ACDV) form to Toyota to simply confirm that the debt in question was legitimate.

Federal law does not specify the depths to which a bureau must look into a disputed debt, other than to say it must “conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate.”

However, in 1994 the Seventh Circuit Court of Appeals outlined a two-factor test for determining the extent to which a credit reporting agency must reinvestigate disputed debts: First, the consumer must have alerted the agency to the possibility that the source of that debt may be unreliable, and second whether the cost to the agency of verifying the disputed information outweighs the “possible harm inaccurately reported information may cause the consumer.”

In its response to the forged lease extension lawsuit, TransUnion argued that the agency could not have resolved this particular dispute by means of a reasonable investigation, and that its only duty was to ask Toyota to verify the validity of the debt.

And in Dec. 2015, a U.S. District Court in Wisconsin dismissed the lawsuit against TransUnion, ruling [PDF] that expecting the credit agency to investigate the handwriting samples provided by the plaintiff would be “quite costly and unnecessary,” and that the underlying issue of the consumer’s dispute — the forgery on the lease extension — was a matter to be resolved through the legal system, not by a credit bureau.

“In this case, even if Trans Union were to have performed its own handwriting analysis and decided that it believed [the plaintiff]’s explanation, Trans Union had no authority to cancel TMCC’s lease or otherwise to relieve [the plaintiff] of his obligation to TMCC.”

Thus, according to the court, without a “proper tribunal” having ruled on the forgery issue, TransUnion was “accurately” reporting the debt on the man’s credit report.

In filing the lawsuit, the plaintiff had cited a number of cases wherein courts ruled that simply having a creditor check off a box on an ACDV as not sufficient enough to verify the validity of the debt. There was the credit agency that failed to communicate that the consumer appeared to have been the victim of identity theft, or the case of a consumer whose report data had been mingled with someone of the same name.

“In each of these cases, the credit reporting agency had the means to correct the inaccuracies at issue by providing more complete information to the creditor or by acting more quickly,” wrote the court, noting that in this plaintiff’s case, TransUnion “did not have a duty to reinvestigate because it did not have the authority to determine whether the credit agreement was valid or the signature was a forgery.”

With the assistance of attorneys from Public Citizen, the plaintiff filed an appeal [PDF], arguing that TransUnion’s inability to modify the debt does not negate its obligation to provide accurate information.

The appeals brief filed today contends that the District Court judge took as a given the notion that the only way TransUnion could have investigated the disputed signatures would be to hire an expensive handwriting analysis. Instead, argues the brief, it could have been as simple as speaking to the employees involved in executing the lease extension.

The brief also questions the District Court’s decision to dismiss the case without letting a jury hear any of the facts or make a determination regarding what TransUnion should have done.

“Here, a jury could easily find that Trans Union did not conduct a reasonable reinvestigation in this case and therefore violated the [Fair Credit Reporting Act],” reads the brief, which adds that the plaintiff also “has a strong case to make to a jury that his real signature on the 2009 lease and the phony signature on the 2013 extension are so dissimilar on their face that Trans Union could have resolved the dispute without incurring any cost at all: All it needed to do was look at the documents.”

In dismissing the case, the District Court had framed the dispute as a legal matter, but the appeal contends that it is a simple dispute of an easily provable fact — Did he sign the document or was his signature forged?

“If correcting errors arising from obvious forgeries is beyond the reach of the dispute process, then the rights provided by the FCRA would mean very little and the consumer reporting agency’s role would be reduced to that of a scribe,” argues the brief.

Just to lighten things up, let’s all watch John Oliver’s recent takedown of TransUnion and its cohorts: