Creditors and lenders don’t have to report data to the credit bureaus, but consumers have a strong incentive to remedy past-due or charged off accounts that affect their credit scores, so credit reporting is an important tool in a robust collections & recovery strategy.
If collections & recovery executives who furnish data need to pay particular attention to the CFPB's data furnishing standard. The Bureau demands that the data must be “useful, accurate, and complete” throughout the lifecycle of the account. But that standard - and in particular, the insistence that data should be "useful" - is anything but clear.
The CFPB is focused not only on inaccurate data, but missing data, too
The CFPB alleges that Hyundai reported inaccurate data for a long time. But the CFPB is not just interested in furnishers who report inaccurate data. They’re also interested in the lack of reporting of certain types of data, specifically payments. We saw this in their announcement earlier this year about BNPL lenders furnishing payment data.
The CFPB wants “useful, accurate, and complete” data reported to the credit bureaus. They highlighted their research finding that “about half of the largest credit card companies contribute data to the credit reporting companies about the exact monthly payment amounts made by borrowers.”
The CFPB's new standard will not be easy to meet
What does “accurate, useful, and complete” mean to the CFPB?
“Furnishers like objective standards,” says Dave Gettings, Partner at Troutman Pepper, “and useful is not really an objective standard.”
“Useful” is also a moving target. What is considered useful data now might look very different in a year or more. The CFPB “may seek to impose obligations that are very specific…that when combined would make the data useful,” Ethan Ostroff, Partner at Troutman Pepper, says.
This doesn't give us a clear picture right now of what the CFPB considers useful, but Ostroff explains during a recent Troutman Pepper "FCRA Focus" podcast, that it’s important to consider “whether or not the omission of certain data results in materially misleading information.”
There is already litigation
Furnishers are already facing some of these challenges, says Gettings, adding “pay status cases are making their way through the Third Circuit right now.”
This poses a particular challenge for collections & recovery executives, since once an account is past-due or charged-off, the process of furnishing data can change. Whether it’s due to outsourcing the account to a third party or moving it from the active account management tool to a secondary repository, lenders must ensure that payments made on the account are accurately reported to the credit bureaus.
Collections & recovery executives should review their data furnishing process, as well as that of any third party vendors, to ensure they have the ability to report “useful, accurate, and complete” data.
For more on tactical ways to prepare for a potential review by the CFPB, read CFPB Issues Record $19M FCRA Penalty to Hyundai: Three Steps You Must Take Right Now to Comply and 3 Lessons from The CFPB’s $19M Enforcement Action against Hyundai.
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