United States: Time for Some Spring (Credit Reporting) Cleaning

In March 2017, the CFPB issued a special edition of its Supervisory Highlights addressing consumer reporting from the perspective of consumer reporting companies ("CRCs") (commonly referred to as credit bureaus or consumer reporting agencies) and furnishers. This follows the CFPB's February 2017 Monthly Complaint Report, which focused on complaints related to credit reporting. These publications, along with recent statements by Director Robert Cordray, suggest that the CFPB will be placing additional supervisory focus on credit reporting for both CRCs and furnishers of consumer information.

Lessons Learned from Examinations of Furnishers

The Supervisory Highlights focuses on recent findings from examinations of furnishers, with a particular emphasis on inaccurate credit reporting and dispute resolution procedures. The CFPB continues to emphasize the importance of a robust compliance management system ("CMS") to help ensure accurate credit reporting and proper handling of both direct and indirect credit reporting disputes. This includes appropriate Board and management oversight, reasonable written policies and procedures, proper employee training, and robust monitoring and corrective action. In particular, this edition of Supervisory Highlights serves as a good reminder for furnishers to re-visit the requirements of Appendix E in Regulation V, which outlines the various compliance components furnishers should consider when developing and executing policies and procedures.

Furnishing accuracy

The Supervisory Highlights focuses on particular situations where furnishers failed to report accurate information to CRCs. Examiners found issues where furnishers did not have procedures to handle loan servicing data transfers that did not contain the borrower's date of first delinquency ("DOFD"). Examiners also found situations where furnishers reported an inaccurate DOFD in the context of consumers who had filed for bankruptcy. Supervision also found weak policies and procedures for and inaccurate reporting on deposit accounts.

Examiners had many concerns with inadequate quality control of information furnished. Furnishers should consider reviewing their policies and procedures to ascertain whether they include performing quality reviews of furnished data, testing for accuracy after data is furnished, and periodic ongoing reviews of furnished data and/or practices. For instance, the CFPB found that some furnishers' policies and procedures failed to include requirements that the furnisher promptly update inaccurate or incomplete information that had already been reported.

Dispute resolution

The Supervisory Highlights emphasize the importance of having appropriate written policies and procedures for dispute resolution, including policies and procedures for: appropriately creating and documenting substantiation of final dispute resolutions; conducting reasonable investigation into direct disputes; and performing a timely investigation of disputes.

Examiners took particular issue with document retention policies that did not require retention of documents used to substantiate the furnisher's handling of a dispute (e.g., the logic or documents used in connection with the employee's reasonable investigation) or the documents a consumer submitted to the CFC in connection with an indirect dispute. Furnishers should consider reviewing their policies in this regard, with an eye to how those policies address document retention practices. Furnishers should also consider whether their monitoring or compliance audits address this issue, and whether they conduct compliance reviews of proper investigations into and timely handling of disputes.

The CFPB continues to emphasize consumer communications in connection with disputes. Furnishers that rely on the "frivolous or irrelevant dispute" exception in the FCRA to not investigate a dispute should timely inform borrowers of the furnisher's determination. Furnishers should also adequately report the results of a direct dispute investigation back to the consumer, including to consumers in bankruptcy.

Lessons Learned from Examinations of Consumer Reporting Companies

For CRCs, the Supervisory Highlights focused on data accuracy and dispute handling and resolution. In both cases, the CFPB's discussion included information that would be valuable for furnishers as well as CRCs.

Data Accuracy

The CFPB expects CRCs to have effective data governance systems, establish quality control programs to assess the accuracy and integrity of data included in consumer reports, including data from third-party public records providers, establish programs to vet furnishers of credit reporting information, and use care when relying on resold merged reports.

Of particular interest to furnishers is the expectation that CRCs vet and monitor furnisher data. The CFPB stressed that CRCs should continue to vet furnishers, even after a furnisher has passed the initial vetting. This vetting process should include review of furnishers' data security standards and data quality. The CFPB also suggested that CRCs should monitor for inactive furnishers and for those that don't comply with the CRC's data submission thresholds, and should alert furnishers where anomalies are detected in furnished data in order to correct inaccuracy.

Dispute Resolution

The CFPB's discussion of dispute resolution for CRCs focused on the importance of reinvestigation of disputed items and notice to both the furnisher and the consumer regarding the dispute. The CFPB stressed the importance of considering all of the documentary information provided by a consumer when reinvestigating disputed items, and noted that the CFPB had directed CRCs to revise existing policies and procedures to ensure that consumer-submitted evidence is appropriately reviewed.

With respect to notice, the CFPB stressed the importance of providing notice to furnishers of both the existence of a dispute and of any modification or deletion of an item as a result of a dispute. The CFPB noted that it had directed CRCs to develop a process and procedure that would ensure that appropriate notice was provided to furnishers.

Finally, the CFPB noted that it had instructed CRCs that it was insufficient to simply notify customers that a dispute had been resolved. Instead, the consumer reporting company should clearly articulate the result of the reinvestigation and indicate whether a change was made to an item and, if so, what change was made.

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The CFPB's recent publication suggests continued focus on accuracy of consumer information and consistent, timely, and accurate dispute resolution for both furnishers and CRCs. Furnishers should consider reviewing their credit reporting policies and procedures in light of Appendix E to Regulation V and evaluating their credit reporting practices across business lines and at the company-level for consistency and accuracy in reporting and dispute resolution.

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