One of the marketing hooks that subprime finance companies of all sizes often use contains the pitch about how consistent payments can lead to steady reporting to credit bureaus and eventually the possible healing of the borrower’s profile.

Hudson Cook partner Jean Noonan emphasized the recent enforcement action against First Investors Financial Services Group reinforces the responsibilities finance companies take when providing this service.

Last month, the Consumer Financial Protection Bureau said First Investors Financial Services Group failed to fix known flaws in a computer system that was providing inaccurate information to credit reporting agencies. The consent order signed by the finance company included a $2.75 million fine.

Noonan told SubPrime Auto Finance News last week that the regulatory moves bureau officials made shows how seriously the CFPB is taking strict compliance with the furnisher’s rule under the Fair Credit Reporting Act.

“As we can see by reading the consent decree, given the relatively small numbers of consumers effected given the overall size of the portfolio, there was no allegation of any consumer injury whatsoever. And yet, the CFPB still asked for a pretty steep civil penalty of $2.75 million,” Noonan said.

“Now $2.75 million against a company that’s not in the top 50 originators of auto finance contracts, that’s a pretty sizeable sum, especially without an allegation of consumer injury,” she continued. “Now they talk about potential consumer injury but there’s no evidence that they cite at least. I think that’s a very sobering fact for the industry.”

Part of that sobering fact is just because a finance company has a service provider whose job is to provide the technological backbone for accurate credit reporting doesn’t lift the institution from feeling the brunt of responsibility when problems arise. CFPB director Richard Cordray reiterated that point immediately after the bureau made the consent order public.

“Today’s action sends a signal to all companies that supply information to the credit reporting agencies that they must have sound practices in place that protect consumers,” Cordray said. “You cannot pass the buck on this responsibility. Using a flawed computer system purchased from an outside vendor does not get you off the hook for meeting your own obligations.”

Noonan acknowledged the bureau’s stance places finance companies into a difficult position if a problem is detected.

“What do you do if you discover a glitch in your system? You can continue reporting it while you work diligently to fix the glitch. Or you can cease reporting. One thing that we learn from this consent agreement is that you really must cease reporting the inaccurate information until you get the glitch fixed,” Noonan said.

“It can be a problem, especially in the subprime area because a lot of subprime creditors and subprime customers count on that regular reporting of credit information,” she continued. “Sometimes a subprime creditor will say one of the benefits is that we report to credit bureaus and if you make payments on time you’ll be able to rebuild your credit history or to build it in the first instance if you don’t have one.

“That’s important to consumers. Stopping reporting can be a problem for consumers but you really have two bad choices in that instance,” Noonan went on to say. “If you have promised consumers that you’re going to report, and you have to cease reporting because you have a glitch in your system, then the CFPB is going to be on your case either way.”

In order to avoid the wrath of the CFPB as much as possible, Noonan and Hudson Cook are stressing a point they often make to their clients — and one Cordray hammered, too.

Finance companies must keep close tabs not only on their service providers but also complaints that might be arriving. Noonan shared that a client recently detected a problem when several discrepancies arrived in a short time. The problem was corrected and the accurate consumer information was sent to credit bureaus within two weeks thanks to “around the clock work,” according to Noonan.

“Credit reporting is a complicated business,” she said. “It’s not rare for discrepancies to happen. That means you’ve got have a good audit system so that you know you’re reporting accurate information. You’ve got to do great complaint monitoring.”

Noonan finished her assessment by touching on two final points other finance companies can learn from the action taken against First Investors Financial Services Group.

“Keeping a close tab on service providers is always a very important lesson to take to heart. The consent agreement indicated that First Investors was using a service provider. Even if it is a service provider with a great reputation, you still have to be sure that the service is complying with a creditor’s legal obligations. In this case, that’s to furnish accurately,” Noonan said.

“What this consent agreement teaches us — and I think we’ll be seeing other consent agreements with similar issues — is that you’ve got to be very on top of things so that if through misfortune you have a discrepancy, that you detect it, fix it and you get that fix locked in and you get the information corrected for the consumer,” she added.