What has to happen before a debt reaches a credit file

The contact requirement

The debt collection rules put a step in front of furnishing, and it is a simple one.

A debt collector must not furnish information about a debt to a consumer reporting agency before it has done one of two things.

The first is to speak to the consumer about the debt in person or by telephone. The second is to place a letter in the mail, or send an electronic message, to the consumer about the debt and then wait a reasonable period of time to receive a notice of undeliverability.

That second route carries an active obligation. During the reasonable period the collector has to permit receipt of, and monitor for, notifications of undeliverability from communications providers. If such a notification arrives during the period, the collector must not furnish until it otherwise satisfies the requirement.

One exception exists. The step does not apply to furnishing information about a debt to a nationwide specialty consumer reporting agency that compiles and maintains information on a consumer's check writing history.

The design intent is legible from the text. A consumer should have had a chance to hear about the debt before it appears in a file, and a message that bounced does not count as a chance.

The accuracy duties that attach to anyone who furnishes

A separate statute governs furnishers generally, whether or not they are debt collectors, and its first duties are about accuracy.

A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows, or has reasonable cause to believe, that the information is inaccurate.

The statute defines what that phrase 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.

A second, stricter prohibition applies where a furnisher has designated an address for such notices. It shall not furnish information if the consumer has notified it at that address that specific information is inaccurate and the information is, in fact, inaccurate.

The relationship between the two is an election. A person that clearly and conspicuously specifies an address for those notices is not subject to the first prohibition, and nothing requires a person to specify one.

There is also a correction duty. A person that regularly furnishes in the ordinary course of business, and that determines information it furnished is not complete or accurate, has to promptly notify the agency of that determination, provide corrections or additional information needed to make it complete and accurate, and not thereafter furnish any of the information that remains incomplete or inaccurate.

The duty that attaches when a consumer disputes

One provision is short enough to quote whole and does more work than its length suggests.

If the completeness or accuracy of any information furnished by a person to a consumer reporting agency is disputed to that person by a consumer, the person may not furnish the information to any agency without notice that the information is disputed by the consumer.

That is a duty on the furnisher and it runs from a dispute made directly to the furnisher, not from a dispute made to the agency.

A companion provision on the agency side requires that where an agency is notified that furnished information is disputed, it has to indicate that fact in each consumer report that includes the disputed information.

A separate duty applies once a dispute arrives from the agency rather than from the consumer, and that is a different procedure with its own timetable. It is covered in its own article here and is not restated.

There is also a duty to notify the agency when a consumer voluntarily closes a credit account, in the information regularly furnished for the period in which the account is closed.

The date of delinquency, and why it is the important field

One item in the statute controls something no other item does, and it is easy to miss because it reads like a housekeeping rule.

A person who furnishes information about a delinquent account being placed for collection, charged to profit or loss, or subjected to any similar action, has to notify the agency of the date of delinquency on the account not later than ninety days after furnishing the information.

That date is defined: the month and year of the commencement of the delinquency on the account that immediately preceded the action.

The statute then gives a three-branch rule of construction, applicable provided the consumer does not dispute the information. A furnisher complies if it reports the same date the creditor previously reported; or, where the creditor never reported one, if it establishes and follows reasonable procedures to obtain the date from the creditor or another reliable source and reports that; or, where the date cannot reasonably be obtained that way, if it follows reasonable procedures to ensure the date it reports precedes the date the account was placed for collection, charged off or similarly acted on.

The reason this field matters is that the reporting period for a collection account runs from it rather than from when the account was sold, transferred or first reported. A separate article here covers how that period is calculated.

The practical consequence is that an account changing hands does not reset anything, because the date being reported is supposed to be inherited rather than re-created.

Identity theft, and the notice about negative information

Two further duties round out the furnisher's obligations, and both are about notice.

A furnisher has to have reasonable procedures in place to respond to a notification from a consumer reporting agency about information resulting from identity theft, so as to prevent it from refurnishing blocked information.

Where a consumer submits an identity theft report to a furnisher at the address that furnisher specified for receiving such reports, stating that information the furnisher holds purporting to relate to the consumer resulted from identity theft, the furnisher may not furnish that information to any agency unless it subsequently knows, or is informed by the consumer, that the information is correct.

Separately, a financial institution that extends credit and regularly furnishes to a nationwide agency, and that furnishes negative information about credit extended to a customer, has to give that customer written notice of the furnishing. Negative information is defined as information concerning a customer's delinquencies, late payments, insolvency, or any form of default.

The notice has to be provided prior to, or no later than thirty days after, furnishing the negative information, and after it is given, further negative information about the same transaction, extension of credit, account or customer may be submitted without additional notice. It may be included on or with a notice of default, a billing statement or other materials, and has to be clear and conspicuous. A brief model disclosure is provided for, and using it or a rearrangement of it satisfies the requirement, though nothing requires its use.

Nothing in that provision requires an institution that has given the notice to actually furnish negative information, and a safe harbour protects an institution that maintained reasonable policies and procedures or reasonably believed it was legally prohibited from contacting the consumer.

Sources

Each document below is named as it names itself, with the date printed on that document rather than the day it was read.

1. Title 12 Code of Federal Regulations Section 1006.30, Other prohibited practices, Regulation F, read at paragraph (a), Required actions prior to furnishing information — the two routes at (a)(1)(i) and (ii), the obligation to permit receipt of and monitor for notifications of undeliverability, and the specialty check-writing agency exception at (a)(2) — Electronic Code of Federal Regulations, Office of the Federal Register, January 2021
2. United States Code Title 15, Section 1681s-2, Responsibilities of furnishers of information to consumer reporting agencies — read at subsection (a), including the two prohibitions and the address election at (a)(1)(A) through (C), the definition of reasonable cause to believe at (a)(1)(D), the duty to correct and update at (a)(2), the duty to provide notice of dispute at (a)(3), the closed-account notice at (a)(4), the date of delinquency duty and its rule of construction at (a)(5), the identity theft procedures at (a)(6), and the negative information notice at (a)(7), 2024 Main Edition — Office of the Law Revision Counsel, U.S. House of Representatives, January 2025