Investigating Direct Disputes

The first full-service mortgage risk management firm in the United States.

May 25, 2023

QUESTION

A recent audit of our servicing platform showed that we failed to investigate direct disputes in our reporting to the credit agencies. There seemed to be a gap in how we identified what dispute needed to be investigated and what dispute did not.

We reviewed thousands of files and found that some of the disputes were definitely miscategorized. Because of the miscategorizing of them, we did not conduct investigations. That led to consumer complaints. Our regulator also contacted us about the consumer complaints. It is coming here in a few weeks to examine our process.

We found out that our loan servicing software had incorrect rules for identifying the proper categorizing of the disputes. Now, we are putting in new rules and overriding the old rules. This was a preventable calamity. We want your guidance to know when we must conduct an investigation.

When must we investigate a direct dispute over the information in a credit report?

What are the exceptions to the requirements to conduct the investigation?

ANSWER

To begin, let's be clear about what is a "direct dispute." This is a statutorily defined term. In essence, it is a dispute by a consumer directly to a furnisher – including a furnisher that is a debt collector – concerning the accuracy of any information in a consumer report and pertaining to an account or other relationship that the furnisher has or had with the consumer.

So, when should you conduct an investigation in connection with a direct dispute involving a consumer report? What is required is a reasonable investigation. There are four primary direct disputes that require a reasonable investigation. Let's consider each of them.