New York Attorney General Eric Schneiderman recently announced that his office reached a landmark settlement with the nation’s three leading credit reporting agencies (CRAs) that will require them to significantly reform, among other things, credit reporting dispute resolution procedures, reporting of medical and payday loan debt, and monitoring of furnishers. The proposed settlement would resolve an investigation of Experian Information Solutions Inc., Equifax Information Services LLC, and TransUnion LLC.

The investigation grew out of a 2012 Federal Trade Commission study, which reported that 26 percent of consumers identified at least one potentially material error in their credit reports. The Attorney General cited the study as evidence that “millions of consumers have potentially material errors on their credit reports.” While no monetary penalties were assessed against the CRAs, the settlement requires them to implement numerous changes to their practices, including:

  • Consumer Dispute Resolution

    The three CRAs must specifically train employees to review all supporting documents furnished by a consumer who disputes his or her credit report information. Further, the CRAs can no longer automatically reject a consumer dispute simply because the furnisher verified the disputed information.
  • Medical Debt Reporting

    The CRAs cannot report medical debt for at least 180 days from the date of delinquency. The Attorney General claimed this delay is necessary because many medical debts initially arise out of insurance disputes. The CRAs also agreed to remove all reporting regarding a medical debt from a consumer’s report once the debt is paid.
  • Second Free Credit Report
    New York consumers who successfully dispute credit report information are entitled to a second free annual credit report from the three CRAs. The Attorney General reasoned that these consumers need the additional credit report to verify that corrections have been made.
  • Payday Loan Debt Reporting

    The CRAs cannot report payday loan debt for New York consumers if the creditor has been identified by the Attorney General as having violated New York lending laws.
  • Monitoring of Furnishers
    The CRAs must create a National Credit Reporting Working Group to develop and institute practices and policies to bolster oversight of furnishers. Among other things, the policies should take into account furnisher metrics including the number of disputes involving that furnisher; the furnisher’s rate of responding to disputes; and the outcome of the disputes.
  • Media Campaign

    The CRAs must participate in a three-year media outreach to educate consumers about their rights under the settlement and credit reporting laws. Specifically, the CRAs must notify consumers about their right to obtain annual free credit reports and their right to dispute reporting errors and submit supporting documents.

This settlement clearly is a game-changer for all CRAs in New York. CRAs that report information on New York consumers should make sure they are prepared to adopt similar policies, since it seems unlikely that the Attorney General will hold other CRAs to a lesser standard. CRAs should also consult with counsel, as there are additional twists and implications stemming from all of these requirements.

Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on compliance with the Fair Credit Reporting Act and Regulation V, and defend clients in enforcement matters. They also prepare clients for Consumer Financial Protection Bureau examinations. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. Further, the Group regularly defends furnishers and consumer reporting agencies in individual and class action litigation brought in New York and federal courts, as well as enforcement actions brought by the CFPB, New York Department of Financial Services, and New York Attorney General.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com or Heather S. Klein at 215.864.8732 or kleinh@ballardspahr.com.

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