Changes at the Credit Reporting Agencies and What It May Mean for Credit Unions

Written by: André B. Cotten, Regulatory Compliance Counsel

Hello, compliance compadres! As you are well aware, the Fair Credit Reporting Act (FCRA) and its requirements govern the furnishing of information to the credit reporting agencies ("CRAs"). The FCRA subjects data furnishers to various duties, such as, but not limited to the following: the duty to provide accurate information; the duty to provide notice of dispute; the duty to provide notice of delinquency of accounts and the duty to provide notice of negative information to members. See, 15 U.S.C. § 1681s-2(a).

Recently, I have spoken to a few members about pending changes at the big three credit reporting agencies (Transunion, Equifax, and Experian) that are aimed at improving the accuracy of consumer credit reports and better enabling consumers to dispute and correct incorrect credit information. The changes are a result of increased regulatory supervision and a 2015 consumer protection settlement with state attorneys general. Today, I will provide you with some insight into the regulatory and litigation background that and what that may mean for credit unions.

Background

The CFPB has reported that consumers continue to complain about the credit reporting industry in high numbers. The Bureau reports handling approximately 185,700 credit reporting complaints as of February 1, 2017.

Due to the widespread concerns from consumers, the CFPB recently noted in its supervisory highlights that it will be continuing to closely monitor the reporting of consumer information. The CFPB is focusing its supervision at the following issues:

• Fixing data accuracy at consumer reporting companies: Previously, examiners found more than one of the CRAs lacked good quality control to check the accuracy of their consumer records. Consequently, the CRAs have instituted quality control programs to identify whether reports are produced for the wrong consumer and whether reports contain mixed-up files. The CRAs are also taking better corrective actions when mistakes are identified.
• Repairing broken dispute processes at consumer reporting companies: CFPB examiners discovered more than one CRA was not following the federal regulatory requirement that consumers receive notice of dispute results. Examiners also found that the companies were failing to consider documentation provided by consumers on disputed items. As a result, the CRAs have improved processes for investigating disputes and are improving response letters to consumers.
• Cleaning up information from furnishers: Through reviewing information from banks and nonbanks, CFPB examiners also noticed widespread problems with furnishers supplying incorrect information, mishandling disputes, and not completing investigations. As a result, data furnishers are now better handling investigations of disputes, notifying consumers of results, and taking corrective action when inaccurate information has been supplied.

From a litigation perspective, in 2015, the CRAs reached a consumer protection settlement with the New York Attorney General's Office concerning, among other things, the accuracy of consumer credit information maintained by the CRAs; the CRAs’ practices regarding investigation of consumer disputes of alleged inaccuracies in credit reports; and the reporting of medical debt. Thirty-one other states followed suit. As a result of the 2015 settlement, CRAs are required to remove several types of data sets that report to personal credit. These are the pending changes that we are now seeing coming into effect. For example, non-loan related items such as gym memberships in default, library fines, and unpaid traffic tickets will no longer be reported. According to the terms of the settlement made in 2015, Equifax, Transunion and Experian are required to complete these additional changes 3 years and 90 days from the date of the settlement.

Moreover, as a result of the settlement with the state attorneys general, Equifax, Experian and Transunion launched the National Consumer Assistance Plan initiative to make credit reports more accurate and make it easier for consumers to correct any errors on their credit reports. The CRAs have been implementing the plan over a three year period with full implementation set for March 2018. In regards to data accuracy and quality, some of the changes include, but are not limited to the following:

• Medical debts willnot be reported until after 180-day "waiting period" to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.
• Consistent standards will be reinforced by the CRAs to lenders and others that submit data for inclusion in a credit report (data furnishers).
• Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.
• Data furnishers will be required to report a delete for accounts that are being paid or were paid in full through medical insurance.
• The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.
• A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure constancy and uniformity in the data submitted by data furnishers for inclusion in a consumer's credit report.

Moving forward in application

A few members have expressed concern about the potential rise in FICO scores as a result of the forthcoming changes. Credit unions may want to temper their actions until the impact of the changes become more tangible. Since these changes are uniform, credit unions may notice a wide-spread rise in FICO scores, which may lead to natural adjustments in their risk based pricing.

Credit unions may also want to remember that the FICO score is only one of the factors used when determined whether a member qualifies for a product. There are other vital factors that will not be impacted by the CRA changes including, but not limited to the following: annual income; employment history; and debt to income ratio.

Generally, credit unions may want to continue to monitor their credit portfolios as usual for safety and soundness. If the credit union notices negative trends developing, then it should begin to make adjustments.

In the meantime, credit unions may want to revisit their lending policies, consult with their compliance officers, and contact their CRA representative to discuss the pending changes and their potential impact.