The Consumer Financial Protection Bureau (CFPB) recently released a report detailing the problems in the credit reporting industry that the bureau said it has uncovered and corrected through its oversight work. Since launching its supervision of the credit reporting market, the CFPB has identified significant issues with the quality of the credit information being provided by furnishers and maintained by credit reporting companies.
The report outlines the actions that the CFPB has taken to address these ongoing problems, such as fixing data accuracy at credit reporting companies, repairing the broken dispute process and cleaning up information being reported.
“Since we began our oversight work, the CFPB has been uncovering and correcting problems in the consumer reporting industry,” CFPB director Richard Cordray said. “Because of our work, important improvements are being made. Much more work needs to be done but our corrective actions are leading to positive changes that are benefiting consumers all over the country.”
The CFPB maintained that consumer reporting companies are businesses that track information about a consumer, including credit history, deposit account history and other consumer transactions. The agency insisted such companies, which include what are popularly called credit bureaus or credit reporting companies or agencies, play a key role in the consumer financial services marketplace and in the financial lives of consumers.
For example, officials pointed out the reports sold by the three largest consumer reporting companies — Equifax, Experian and TransUnion — are used in determining everything from consumer eligibility for credit to the rates consumers pay for credit. The consumer reporting companies receive their information from furnishers, including both banks and nonbanks.
“Inaccurate information can lead to inaccurate reports, and consumer and market harm,” the CFPB said.
Consumers continue to complain about the credit reporting industry in high numbers. The bureau has handled approximately 185,700 credit reporting complaints as of Feb. 1.
“Consumers have said that when they dispute an item on their report, nothing changes even though federal law requires the consumer reporting company to conduct a reasonable reinvestigation and update the file to reflect any necessary changes or delete the item,” the bureau said.
“Consumers also frequently complain of debts already paid showing up on their report as unpaid and information that is not theirs being included in their report negatively affecting their credit scores,” the regulator added.
In 2012, the CFPB became the first federal agency to supervise all sides of the credit reporting market, which includes the consumer reporting companies and providers of consumer financial products or services, many of whom furnish or use consumer reports. In 2013, the CFPB published a bulletin warning that the agency would hold furnishers accountable for their legal obligation to investigate consumer disputes forwarded by the consumer reporting companies. The bulletin also reminded companies that they must review all relevant information provided with the disputes, including documents submitted by consumers.
The CFPB added that it has also made efforts to educate the public about the importance of checking their credit reports, what to look for in their reports, and how to dispute mistakes. As outlined in its special edition of Supervisory Highlights, because of these widespread issues, CFPB supervision has aimed its work at:
—Fixing data accuracy at consumer reporting companies: Early on, examiners found that one or more of the consumer reporting companies lacked good quality control to check the accuracy of their consumer records. The CFPB directed them to make necessary changes, and they did.
In recent exams, examiners have found that quality control programs have been instituted that include tests to identify whether reports are produced for the wrong consumer and whether reports contain mixed-up files. The companies are also taking better corrective actions when mistakes are identified, and making system improvements to prevent the same mistakes from happening again.
—Repairing broken dispute processes at consumer reporting companies: CFPB examiners discovered that one or more consumer reporting companies were not following federal requirements that said they must send a notice with the results of disputes to consumers. They also found one or more consumer reporting companies failing to consider documentation provided by the consumer on a disputed item.
The CFPB directed these companies to improve their dispute investigation systems. Now, continued monitoring has shown that the consumer reporting companies have improved processes for investigating disputes and are improving response letters to consumers.
—Cleaning up information from furnishers: Through earlier reviews at banks and nonbanks, CFPB examiners found widespread problems with furnishers supplying incorrect information to the consumer reporting companies. The CFPB directed them to take steps to address these problems, such as maintaining evidence that they are accurately handling disputes and conducting reasonable investigations.
Since then, the bureau indicated several furnishers have dedicated more resources to ensuring the integrity of the information. This effort includes better investigations and handling of disputes, notifying consumers of results, and taking corrective action when inaccurate information has been supplied. Importantly, though, examiners continue to find numerous violations at one or more furnishers, particularly around deposit account information.
The CFPB went on to mention its approach when examining the credit reporting activities of supervised entities is just like its approach to examining other activities of supervised entities. Supervision includes a review of compliance systems and procedures, on-site examinations, discussions with relevant personnel and requirements to produce relevant reports. The Fair Credit Reporting Act governs how companies handle consumers’ information.
When examiners find violations of law, they direct the companies to change their conduct and remediate consumers. When appropriate, the CFPB’s supervisory activity also results in enforcement actions, such as the action against the furnisher Wells Fargo Bank for failing to update or correct inaccurate, negative information reported to credit reporting companies about student loans.
The latest edition of the CFPB's Supervisory Highlights that focus on credit reporting is available here.