CFPB Report Suggests Remittance Transfer History Offers Little Value For Credit Scores

On July 3, the CFPB published a report on its study of the use of remittance histories in credit scoring, which found that (i) remittance histories have little predictive value for credit scoring purposes, and (ii) remittance histories are unlikely to improve the credit scores of consumers who send remittance transfers. The report follows a 2011 CFPB report on remittance transfers, which  was required by the Dodd-Frank Act and assessed, among other things, the feasibility of and impediments to using remittance data in credit scoring. At that time, the CFPB identified a number of potential impediments to incorporating remittance history into credit scoring, and noted the need for further research to better address the potential impact of remittance information on consumer credit scoring. Read more…

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CFPB Report Highlights Nonbank Supervisory Findings

On May 22, the CFPB published its Spring 2014 Supervisory Highlights report, its fourth such report to date. In addition to reviewing recent guidance, rulemakings, and public enforcement actions, the report states that the CFPB’s nonpublic supervisory actions related to deposit products, consumer reporting, credit cards, and mortgage origination and servicing have yielded more than $70 million in remediation to over 775,000 consumers. The report also reiterates CFPB supervisory guidance with regard to oversight of third-party service providers and implementation of compliance management systems (CMS) to mitigate risk.

The report specifically highlights fair lending aspects of CMS, based on CFPB examiners’ observations that “financial institutions lack adequate policies and procedures for managing the fair lending risk that may arise when a lender makes exceptions to its established credit standards.” The CFPB acknowledges that credit exceptions are appropriate when based on a legitimate justification. In addition to reviewing fair lending aspects of CMS, the CFPB states lenders should also maintain adequate documentation and oversight to avoid increasing fair lending risk.

Nonbank Supervisory Findings

The majority of the report summarizes supervisory findings at nonbanks, particularly with regard to consumer reporting, debt collection, and short-term, small-dollar lending: Read more…

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CFPB Supplements Consumer Reporting Guidance, Holds Consumer Advisory Board Meeting, Issues Consumer Reporting Complaints Report

On February 27, the CFPB issued supplemental guidance related to consumer reporting and held a public meeting focused on consumer reporting issues. The CFPB also released a report on consumer reporting complaints it has received.

Supervisory Guidance

The CFPB issued a supervision bulletin (2014-01) that restates the general obligations under the Fair Credit Reporting Act for furnishers of information to credit reporting agencies and “warn[s] companies that provide information to credit reporting agencies not to avoid investigating consumer disputes.” It follows and supplements guidance issued last year detailing the CFPB’s expectations for furnishers.

The latest guidance is predicated on the CFPB’s concern that when a furnisher responds to a consumer’s dispute, it may, without conducting an investigation, simply direct the consumer reporting agency (CRA) to delete the item it has furnished. The guidance states that a furnisher should not assume that it ceases to be a furnisher with respect to an item that a consumer disputes simply because it directs the CRA to delete that item. In addition, the guidance explains that whether an investigation is reasonable depends on the circumstances, but states that furnishers should not assume that simply deleting an item will generally constitute a reasonable investigation.

The CFPB promises to continue to monitor furnishers’ compliance with FCRA regarding consumer disputes of information they have furnished to CRAs. Furnishers should take immediate steps to ensure they are fulfilling their obligations under the law. Read more…

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CFPB Consumer Advisory Board Meeting To Focus On Consumer Reporting

The CFPB announced this week that its next Consumer Advisory Board meeting will be held on February 27, in Washington, DC, and that the sole public session will focus on the “consumer experience in the credit reporting market.” Non-public sessions of the two-day event will cover, among other things, the HMDA rulemaking, the debt collection rulemaking, and the CFPB’s general approach to regulation.

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CFPB Director Defends Mortgage Rules, Discusses Plans In Other Markets

On January 28, the House Financial Services Committee held a lengthy hearing with CFPB Director Richard Cordray in connection with the CFPB’s November 2013 Semi-Annual Report to Congress, which covers the period April 1, 2013 through September 30, 2013. The hearing came a day after the Committee launched a CFPB-like “Tell Your Story” feature through which it is seeking information from consumers and business owners about how the CFPB has impacted them or their customers. The Committee has provided an online submission form and also will take stories by telephone. Mr. Cordray’s prepared statement provided a general recap of the CFPB’s recent activities and focused on the mortgage rules and their implementation. It also specifically highlighted the CFPB’s concerns with the student loan servicing market.

The question and answer session centered on the implementation and impact of the CFPB’s mortgage rules, as well as the CFPB’s activities with regard to auto finance, HMDA, credit reporting, student lending, and other topics. Committee members also questioned Mr. Cordray on the CFPB’s collection and use of consumer data, particularly credit card account data, and the costs of the CFPB’s building construction/rehabilitation.

Mortgage Rule Implementation / Impact

Generally, Director Cordray pushed back against charges that the mortgage rules, in particular the ATR/QM rule, are inflexible and will limit credit availability. He urged members to wait for data before judging the impacts, and he suggested that much of the concerns being raised are “unreasoned and irrational,” resulting from smaller institutions that are unaware of the CFPB’s adjustments to the QM rule. He stated that he has personally called many small banks and has learned they are just not aware of the rule’s flexibility. He repeatedly stated that the rules can be amended, and that the CFPB will be closely monitoring market data.

The impact of the mortgage rules on the availability of credit for manufactured homes was a major topic throughout the hearing, On the substance of the issue, which was raised by Reps. Pearce (R-NM), Fincher (R-TN), Clay (D-MO), Sewell (D-AL), and others, Director Cordray explained that in his understanding, the concerns from the manufactured housing industry began with earlier changes in the HOEPA rule that resulted in a retreat from manufacture home lending. He stated that industry overreacted and now lenders are coming back into the market. Mr. Cordray has met personally with many lenders on this issue and will continue to do so while monitoring the market for actual impacts, as opposed to the “doomsday scenarios that are easy to speculate on in a room like this.” Still, he committed to work on this issue with manufacturers and lenders, as well as committee members. Read more…

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House Democrats Encourage FTC Scrutiny Of Consumer Reporting Agencies’ Add-On Products Marketing

On December 18, a group of House Democrats sent a letter urging the FTC to focus on the online marketing of products and services by consumer reporting agencies (CRAs). The lawmakers assert that CRAs “often require consumers to jump through hurdles, presumably in an effort to generate additional revenue.” The lawmakers suggest that certain CRAs’ websites mislead and confuse consumers, particularly with regard to the marketing of “free” consumer products and services that are conditioned upon consumers signing up for “costly add-on services such as ongoing credit monitoring.” The letter identifies the following specific practices for FTC scrutiny: (i) marketing “free” products or services that automatically convert to a monthly subscription if the consumer does not cancel within a trial period; (ii) “prominent” advertising of discount packages without disclosing that the initial small dollar enrollment fee converts into a subscription service; and (iii) requiring consumers to set up accounts before being granted access to their credit score or reports, while “barrag[ing]” consumers with add-on product offerings during the account registration process.

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Senate Commerce Committee Continues Data Broker Inquiries

Recently, Senate Commerce Committee Chairman Jay Rockefeller (D-WV) continued his committee’s examination of the way data brokers collect and share personal information. The Senator sent a letter to one data broker seeking additional information about the broker’s customer vetting practices and how it shares consumer information with those customers. As the basis for the letter, Senator Rockefeller cited news reports alleging that a company acquired in March 2012 by the data broker receiving the letter had sold data to an identity theft scheme. At least one report suggested that the alleged activity continued after the broker conducted its due diligence and completed the acquisition. The Senator’s letter also poses follow up questions based on the broker’s response to the Senator’s original October 2012 request to numerous data brokers, which the Senator expanded to include other industry participants in September 2013.

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California Amends Consumer Reporting Law

On September 30, California enacted AB 1220, which extends protections under the state’s consumer reporting law. Under the federal Fair Credit Reporting Act, a consumer reporting agency may not prohibit a user of a consumer credit report furnished by the agency from providing a copy of the report to a consumer, upon the consumer’s request, if the user has taken adverse action against the consumer based upon the report. AB 1220 adopts the same prohibition, and also makes it unlawful for a consumer reporting agency to dissuade, or attempt to dissuade a user from providing the report. Further, the bill allows state and local law enforcement authorities to bring a civil action for a civil penalty up to $5,000 against a violating consumer reporting agency.

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Maine Simplifies Credit Reporting Law

This week, Maine enacted a bill to simplify the state’s credit reporting law. The bill, SP 504, was drafted by the Bureau of Consumer Protection to ease compliance burden primarily by eliminating provisions mirroring the federal Fair Credit Reporting Act (FCRA), and instead incorporating the federal FCRA and its implementing regulations. The bill retains and reorganizes existing additional state credit reporting consumer protections.

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CFPB Releases Consumer Reporting and Money Transfer Complaints, Expands Complaint Database Functionality

On May 31, the CFPB published for the first time consumer complaints about credit reporting, which the CFPB began accepting in October 2012, and money transfer complaints, which it began accepting in April 2013. The CFPB also announced that all complaints in its consumer complaint database now include a field for the state from which the complaint was filed. That field allows the CFPB to report, for example, that the top states for per capita mortgage complaints are (i) New Hampshire, (ii) Maryland, (iii) the District of Columbia, (iv) Georgia, and (v) Florida.

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New York Demands Credit Score Changes for Hurricane Sandy-Impacted Consumers

On April 25, New York Governor Andrew Cuomo announced that the New York Department of Financial Services (DFS) sent a letter to several consumer credit bureaus, demanding that the firms (i) ensure that credit scores are not lowered for consumers adversely impacted by Hurricane Sandy, (ii) reset any scores that have been lowered, (iii) work with banks and other lenders to red flag any negative information relating to storm-impacted consumers, and (iv) meet with the DFS to permanently change procedures to prevent credit scores from going down for consumers impacted by a disaster. The letter asserts such actions are required because financial challenges created by the storm could negatively impact individual credit scores for reasons that are unrelated to their creditworthiness. The state’s press release provides a phone number for consumers to call if they believe that their credit has been “unfairly impacted” by the storm.

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Federal Court Holds Credit Furnisher Must Show Proof of Investigation of Consumer Dispute under FCRA

On February 22, the U.S. District Court for the District of Arizona held that a furnisher of credit information must present evidence regarding its investigation of a consumer’s credit reporting dispute in order to satisfy the FCRA dispute resolution requirements. Modica v. Am. Suzuki Fin. Servs., No. CV11-02183-PHX, 2013 WL 656495 (D. Ariz. Feb. 22, 2013). The plaintiff leased a vehicle from the defendant and did not return it at the end of the lease term. The defendant reported the account as “current/paying as agreed” after the plaintiff returned the vehicle. The plaintiff disputed this charge to the credit bureaus which contacted the defendant to notify them of the dispute and confirm the charge. The defendant eventually changed the report to show an unpaid balance with a charge-off, prompting the plaintiff to bring suit alleging breach of contract, violation of a state law regarding credit reporting, and violation of FCRA. In denying the defendant’s motion for summary judgment as to the FCRA claim, the court noted that FCRA requires a furnisher of credit information to conduct a “reasonable investigation” upon receipt of a consumer dispute. The court found that the creditor did not engage in a reasonable investigation—the defendant was unable to explain discrepancies between what it submitted to the credit reporting agencies and a letter it submitted to the plaintiff which showed she had no past due payments. In fact, the defendant was unable to say what the credit investigation entailed, a fact that precluded its claim for summary judgment.

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CFPB Director Cordray Outlines CFPB Agenda

On February 20, in remarks during the public portion of the CFPB’s Consumer Advisory Board meeting, CFPB Director Richard Cordray identified four “classes of problems” the CFPB will seek to address in the future. Mr. Cordray stated that the CFPB will focus on (i) deceptive and misleading marketing of consumer financial products and services; (ii) financial products that trigger a cycle of debt; (iii) certain markets – such as debt collection, loan servicing, and credit reporting – where consumers are unable to choose their provider; and (iv) discrimination. While the CFPB has already taken a number of enforcement actions to address the first set of problems, Mr. Cordray noted that with respect to the second class of problems the CFPB is still assessing how to deploy its various tools to best protect consumers while preserving access to responsible credit. Mr. Cordray also noted that loan servicing practices remain a concern, and again drew parallels between the mortgage servicing market and the student loan servicing market, noting that the CFPB is looking to take steps that may address the same kinds of problems faced by student loan borrowers. With respect to discrimination, Mr. Cordray argued that African-Americans and Hispanics have unequal access to responsible credit and pay more for mortgages and auto loans, and reiterated the CFPB’s commitment to utilizing the disparate impact theory of discrimination when pursuing enforcement actions.

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Democratic Senators Urge Further Action on Credit Reporting

On February 15, Senate Banking Committee members Mark Warner (D-VA) and Elizabeth Warren (D-MA) sent a letter to the CFPB and the FTC following up on the agencies’ recent reports regarding the consumer reporting market. The Senators ask for the agencies’ help in “tak[ing] further action to improve consumer credit reporting,” and request that they prepare a separate report on whether the current legal framework for the regulation of credit reporting is sufficient or whether additional legislation may be needed.

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FTC Releases Results of Credit Reporting Study

On February 11, the FTC released the results of its study of the U.S. credit reporting industry, including its finding that five percent of consumers had errors on one of their three major credit reports that could lead to them paying more for products. The study also found that (i) one in four consumers identified errors on their credit reports that might affect their credit scores; (ii) one in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed; (iii) four out of five consumers who filed disputes experienced some modification to their credit report, with slightly more than one in 10 noticing a change in their credit score after the agencies modified errors on their credit report; (iv) approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points. The main types of disputed and confirmed material errors identified by the study were errors in the trade line (consumer accounts) or collections information. The FTC report is the first major study that looks at the full range of participants in the credit reporting and scoring process, including consumers; data furnishers, which include creditors, lenders, debt collection agencies, and the court system; the Fair Isaac Corporation, which develops FICO credit scores; and the national CRAs. The FTC is required to conduct a study of credit report accuracy and provide interim reports every two years, through 2012, with a final report due in 2014. Late last year, the CFPB, which shares jurisdiction over CRAs, published a white paper on its review of how the three largest CRAs manage consumer data and complaints.

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