by Jeff Sovern
We blogged here about phony consumer protection statutes, statutes that are designed to create the illusion of consumer protection, perhaps so legislators can claim to consumer-constituents that they are attending to a problem, but without the reality, maybe so legislators can satisfy business interests and obtain political contributions. At least one section of the Fair Credit Reporting Act seems like a plausible example of such phony consumer protection for several reasons: § 1681s-2(a), dealing with the obligation of furnishers of information to credit bureaus (typically, lenders) to furnish accurate information.
First, it's a difficult statute to decipher. If consumers can easily understand a statute. it's a poor candidate for phony consumer protection, because it won't deceive anyone. But complex statutes can more readily conceal defects. Just how hard is the FCRA in general, and § 1681s-2(a) in particular? On Wednesday we covered § 1681s-2(a) in class, Our casebook walks students through it in text. It also poses a problem on the provision, both to highlight the section and in the hope that students will come into class having worked it out for themselves. Nevertheless, my students. many of whom appear to be quite smart and who have been able to understand other consumer protection statutes without much difficulty, really struggled with this one. We had to go over it several times. If second and third year law students find it hard to understand with the statute in front of them, the issue flagged for them by a problem, an explanation in a text, and my oral explanations, how likely is it that consumers will figure it out? (I prefer not to think that I was the cause of my students' confusion).
Second, many FCRA provisions, including § 1681s-2(a), cannot be enforced by private claims. In fact, just in case someone didn't figure that out the first time Congress said it, they said twice that there's no private claim to enforce § 1681s-2(a), in both § 1681s-2(c) and (d). So if a lender violates § 1681s-2(a), the lender need fear only enforcement by governmental agencies. Given funding for governmental consumer protection agencies, that doesn't seem likely to happen as often as violations of the provision.
The third reason has to do with the content of § 1681s-2(a). Subsection (a)(1)(a) provides "A person shall not furnish any information relating to a consumer to any consumer reporting agency [i.e., a credit bureau] if the person knows or has reasonable cause to believe that the information is inaccurate." That seems clear enough. Subsection (a)(1)(D) even offers a definition: "The term 'reasonable cause to believe that the information is inaccurate' means having specific knowledge, other than solely allegations by the consumer, that would cause a reasonable person to have substantial doubts about the accuracy of the information." So if an identity thief fills out an application for credit and puts down the wrong address, say, the creditor should not report that as the consumer's transaction unless the creditor does some checking. I happen to think the standard for accuracy imposed on creditors should be higher than that, but if you disagree with me, well, at least we have a standard that imposes some obligations on creditors.
But now we get to the part that threw my students. Subsection (a)(1)(C) says the standard I just described doesn't apply to furnishers of information who clearly and conspicuously specify to consumers an address for inaccurate information. Then the standard becomes that once the creditor is told of an inaccuracy, it can't supply inaccurate information. In other words,as long as lenders give consumers an address to report inaccurate information, they don't violate the statute even if they give a credit bureau information that a reasonable person would have substantial doubts about, unless someone has told them outright that the information is inaccurate. And of course, even if they violate this provision by supplying inaccurate information once they've been notified of the inaccuracy, there's still no private claim.
Now there may be creditors that don't supply consumers with an address for inaccuracies. I don't know of any, but I certainly haven't canvassed the lenders of America. Somehow, though, I suspect all credit card statements, for example, include customer service contact information for problems.
So notice what happened with this provision. It gives legislators who voted for it the ability to tell their constituents that they got through a statute that bars lenders from reporting information that a reasonable person would have substantial doubts about, but it gives lenders an out against having that provision applied against them. And if something goes wrong, there's no private claim anyway.
Is this an example of phony consumer protection? I don't honestly know, because I don't know what Congress's goals were in enacting it, or what was in their minds. But I sure wonder. If Congress just wanted lenders to supply an address for problems, all they had to do was require that. They didn't have to impose an accuracy requirement that lenders could ignore. So why impose it? § 1681s-2(e) does provide for regulators to fill in the accuracy standard a bit in regulations, but again, Congress could have enacted that subsection without also enacting a subsection that could easily be gotten around. Does anybody know a reason for passing 1681s-2(a) other than to give legislators the ability to say they've struck a blow against inaccuracies by creditors? But here's one thing we do know: as we blogged about here, identity theft is up. One cost of phony consumer protection is that the problem doesn't get solved.