Recent developments indicate that credit reporting concerns are likely to be at the forefront of the CFPB's agenda in the coming months. Last month, CFPB Director Rohit Chopra spoke before the House Committee on Financial Services and discussed several key topics, including credit reporting issues. Earlier this month, the CFPB published a report called "Disputes on Consumer Credit Reports" that discusses trends in consumer credit disputes and how such disputes are resolved. Shortly after the CFPB published its report, a group of Democratic senators sent a letter to Director Chopra, urging the CFPB to address credit reporting issues within the industry. This blog post highlights some of the key points in Director Chopra's testimony, the CFPB report, and Senate Democrats' letter to Director Chopra.
Director Chopra's Testimony: On October 27, 2021, Director Chopra testified before the House Committee on Financial Services and shared some of his thoughts about credit-reporting issues.
- Government-run credit reporting bureau. When he was asked about the creation of a government-run credit reporting bureau, Director Chopra responded that he has not given this suggestion much thought, as the implementation of this kind of organization would be an enormous undertaking.
- FCRA concerns. Director Chopra indicated that he is much more concerned about violations of the Fair Credit Reporting Act, how credit reporting agencies are investigating disputes, and making sure that new types of credit reporting agencies are adhering to the law.
- Medical debt on credit reports. In response to a question about the pandemic's negative impact on medical debt, Director Chopra stated that an equitable recovery will require a close look at debt collection and credit reporting. He referenced certain evidence showing that payment of medical debts is not predictive of other credit performance, and he is worried about the credit reporting system becoming a way to extort payments out of patients.
CFPB Report: On November 2, 2021, the CFPB released research findings that highlights certain trends involving credit report disputes.
- Majority Black and Hispanic neighborhoods. According to the report, credit report disputes are far more common in majority Black and Hispanic neighborhoods. (This echoes a research brief published by the Bureau in September finding that lower income and predominantly minority census tracts had higher rates of complaint related to credit reporting and delinquent loan servicing.) In fact, in nearly every credit category reviewed (auto loans, student loans, credit cards, and retail cards), consumers residing in majority Black areas were more than twice as likely to have disputes appear on their credit reports compared to consumers residing in majority white areas. The report notes that these differences may be related (at least in part) to geographic patterns in credit scores.
- Young and low-credit-score borrowers. Dispute flags also were more common for younger and low-credit-score borrowers.
- Need for further research. The report states that an important subject for future research would be whether these patterns are driven by differences across groups and credit types or whether they are driven by furnishers' practices for reporting and responding to disputes.
Senators' Letter: On November 10, 2021, Democratic Senators Brian Schatz (HI), Sherrod Brown (OH), Ron Wyden (OR), Elizabeth Warren (MA), Jack Reed (RI), Chris Van Hollen (MD), and Ben Ray Lujan (NM) sent a letter to Director Chopra requesting that the CFPB take action to reform the credit-reporting industry. The letter expresses concerns that errors in credit reports result in economically damaging consequences for consumers and exacerbate the racial wealth gap. The senators asked that the CFPB take action to remediate the situation in the following ways:
- Resolving credit reporting errors. Evaluate persistent errors in credit reporting and how CRAs consistently fail to resolve these errors, especially by failing to devote sufficient personnel and resources for dispute resolution.
- Create an ombudsperson position at the CFPB to facilitate the dispute-resolution process and help ensure accuracy.
- Matching files with nine-digit Social Security numbers. Require nationwide CRAs to match all nine digits of a consumer's Social Security number instead of using partial Social Security numbers to match data from an information furnisher to a consumer's file.
- Accuracy audits. Require nationwide CRAs to perform periodic accuracy audits on information furnishers.
- Codifying provisions of a nationwide settlement. Review the potential to codify provisions of the nationwide CRAs' settlement with state attorneys general that delayed reporting of medical debt for six months and removed debts paid by insurance.
- Addressing risks that amplify racial disparities. Require CRAs to address how (1) algorithmic bias may amplify racial disparities in credit reporting and (2) the lack of credit reports in Spanish and other languages may impact consumers with limited English proficiency.
These developments provide a glimpse into the CFPB's priorities related to credit reporting in the near term. In response to the CFPB report, the CFPB already stated that it is committed to further researching the causes of credit reporting disputes and investigating the reasons for demographic disparities in rates of credit reporting disputes. Although it remains to be seen how the CFPB will proceed, recent trends suggest that the credit-reporting industry likely will be in the CFPB's crosshairs.
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