Oscar Marquis & Associates
Experts in Privacy & Consumer Reporting
From: Oscar Marquis
Date: April 6, 2018
Subject: Home Owners Associations Reporting Information to Consumer Reporting Agencies
Sperlonga is in the business of gathering information from Home Owners Associations (HOAs) about the dues paying history of their members. Sperlonga reports the information to consumer reporting agencies (CRAs). CRAs will add the information to consumer credit reports and furnish the reports to creditors and others that have a permissible purpose to obtain consumer reports under the Fair Credit Reporting Act (FCRA).1
This memorandum addresses whether or not HOAs can report that information to CRAs, and the risks to HOAs if they do so.
Based on the analysis below, HOAs and their management companies are legally permitted to furnish payment information to CRAs and there is little legal risk should they elect to do so under FCRA or the Fair Debt Collection Practices Act.
Consumer reporting and CRAs are regulated by FCRA and similar state laws. The use of consumer reports by lenders is regulated by the Equal Credit Opportunity Act (ECOA).2
FCRA defines “Consumer Report” as the communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness and several other factors. A consumer’s payment history with an HOA bears on credit worthiness since it reflects how reliable a person is in paying obligations. Therefore, the information can be included in a consumer report.
The Federal Trade Commission (FTC) confirmed this when it discussed the use of rental information, which is analogous to HOA payments. The FTC said rental payment information can be included in consumer reports:
Reports about rental experiences such as consumers’ evictions, rental payment histories, or treatment of premises are consumer reports, if provided by a CRA, because they relate to the consumer’s “character, general reputation, personal characteristics, or mode of living.” 3
Finally, Congress encourages the reporting of more information to CRAs. In the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), Congress required the FTC to study:
whether there are any common financial transactions that are not generally reported to the
CRAs, but that would provide useful information in determining creditworthiness, and what
actions might be taken to encourage greater reporting of these transactions. 4
Congress was concerned that some consumers with little credit history are missing out on the credit economy because they do not have robust credit reports. Congress wanted the FTC to study whether including “non-traditional” information would help consumers. The FTC concluded the following in its study:
The report concludes that there are common underreported transactions that could be useful in evaluating creditworthiness – in particular, rental payments and utility payments…For rental payments, the main barrier (to reporting) appears to be the diffuse rental market and the lack of centralized data collection. As (these barriers are overcome), the FTC will continue to monitor these efforts to determine whether they succeed in providing greater access to information about common unreported transactions. 5
Sperlonga is helping to remove some of these barriers to reporting HOA information similar to those that exist in the rental information market. The FTC study encourages the reporting of alternative data such as HOA payment history.
Finally, ECOA permits creditors to consider any information in making credit decisions, except information that discriminates on the basis of a prohibited factor. HOA information does not have information about race, religion, marital status or sexual orientation. There is no likelihood of discrimination since the HOA or management company won’t decide whether to report on some owners and not others. They will report on everyone. HOA payment history, like rental payments, may be used in making credit decisions.
b. Liability Issues
There is no significant increase in potential liability to HOAs that report to CRAs under the Sperlonga program.
FCRA requires that furnishers of information to credit bureaus not report information if they know it is inaccurate or have a good reason to believe it is inaccurate. But, if there are mistakes in the information they report, there is no private cause of action under FCRA. There is an exemption in FCRA from consumer lawsuits if the information furnished to the CRA is inaccurate. 6
The reason for this exemption from liability is that Congress wanted to encourage the reporting of information to CRAs because of the vital role that CRAs play in the U.S. credit economy. 7 FCRA is intended to encourage accurate and fair credit reporting, but not to discourage furnishers from proving information to CRAs, which would be the case if they faced undue risk.
If there are systemic problems that cause errors, the regulator, which is now the Consumer Financial Protection Bureau (CFPB), can investigate the furnisher. Although individual errors may occur, systemic mistakes are unlikely given that HOAs are in the business of billing their owners using a time-tested process, and that same billing information is used to report to Sperlonga. In addition, as part of its service, Sperlonga assists HOAs and their management companies in avoiding systemic problems.
Under FCRA, furnisher liability to consumers can only arise if consumer disputes are not properly investigated after the consumer disputes information to the CRA. Sperlonga also manages the consumer dispute process thereby minimizing the risk to the furnishing HOA or management company. Sperlonga’s experience is that the number of consumer disputes is comparatively small. And, in any event, Sperlonga indemnifies the HOAs and management company from any risk in the event they are sued.
In addition, the Fair Debt Collection Practices Act (FDCPA)8 does not apply to HOAs and reporting information to a consumer reporting agency (CRA) won’t make it apply. For example, Chase, Citibank, Capital One, landlords, cell phone companies and utilities report information to the CRAs but the reporting does not make them collection agencies. They are creditors or landlords and furnishers to CRAs. Similarly, HOAs will continue to be home owner associations that furnish information to CRAs. They won’t suddenly be in the collection business if they report information.
There should be no fear that an HOA is operating in the capacity of a collection agency when that HOA is reporting account information to a credit bureau any more than Chase or a landlord or a cell phone company become collection agencies when they report.
1 - 15 USC 1681 et seq.
2 - 15 USC § 1691 et seq.
3 - https://www.ftc.gov/sites/default/files/documents/reports/40-years-experience-fair-credit-reporting-act-ftc-staff-report-summary-interpretations/110720fcrareport.pdf (P. 22)
4 - https://www.ftc.gov/sites/default/files/documents/reports/under-section-318-and-319-fair-and-accurate-credit-transaction-act-2003/041209factarpt.pdf [P. (ii)]
5 - Id. P. (vii)
6 - 15 U.S.C. 1681s-2(c)
7 - 15 U.S.C. 1681(a)
8 - 15 U.S.C.A. 1692 et seq.
Legal Memo - Home Owners Associations Reporting Information to Consumer Reporting Agencies
Oscar Marquis holds the distinction of being the longest serving General Counsel for Trans Union. Since leaving Trans Union, he has provided legal advice to companies dealing with consumer and commercial information. His firm specializes in issues related to privacy and consumer credit reporting.