Editor's note: this article originally appeared at insideARM. John Rossman is the Shareholder and Chair, Creditors' Remedies and Bankruptcy Practice Group with Moss & Barnett. This article takes a deep dive into the credit reporting / FCRA implications of the CFPB's recent action and what collections & recovery executives should take away from it.
On July 26, 2022, the CFPB issued a record Fair Credit Reporting Act (FCRA) penalty of more than $19 million against Hyundai Capital America, a creditor/furnisher of consumer information to the credit bureaus, alleging that they failed to remedy harmful inaccuracy issues that persisted for several years. The CFPB had previously issued a penalty of nearly $2 million against a debt collector that also allegedly failed to report accurate consumer information to the credit reporting agencies.
These two actions by the CFPB that resulted in millions of dollars in penalties provide specific guidance on steps that every company reporting consumer information to the credit reporting agencies must take to avoid violations of the law.
1. Examine Individual Consumer Disputes for Evidence of Systemic Issues
In one of the recent cases where the CFPB issued a fine in excess of $1 million for FCRAFC violations, the furnisher/creditor was aware of the credit reporting issues due to individual consumer disputes, but the creditor failed to assess the system-wide scope of the issues. Often consumer disputes are the first warning sign of a systemic issue and thus furnishers should audit individual consumer disputes and take systemic corrective action. In this CFPB recent action, the Consent Order provides the following:
"For certain consumer disputes, where the consumer had identified the credit report inaccuracy and disputed it with Respondent, Respondent’s credit reporting disputes team initially made a manual tradeline correction, but then Respondent’s deficient systems overrode those corrections and reinserted the error. As a result, Respondent again furnished the same inaccurate consumer information to CRAs, leaving affected consumers no choice but to start the dispute process all over again."
A periodic furnisher’s review of individual consumer FCRA disputes will examine the instances of same or similar disputes, the resolution of those disputes and whether there were any other issues on the account after resolution to identify systemic credit reporting issues.
2. Conduct Periodic Audits of the Accuracy of the Credit Reporting Process
Regulation V requires furnishers to implement reasonable written policies and procedures regarding the accuracy and integrity of the consumer information furnished to credit reporting agencies. The policies and procedures must be appropriate to the nature, size, complexity, and scope of the furnisher’s activities. Further, the Rule requires that the furnisher must periodically review and update the policies and procedures to ensure their continued effectiveness. The recent CFPB consent order provides as follows:
"Respondent identified a number of the systemic issues causing the inaccuracies in a March 2013 audit, which found that the “[r]equired [Metro 2] fields are not always fully complete, accurate, or consistently reported,” and that the company lacked subject matter experts or a “process to ensure accuracy and integrity of data reported.” The audit also identified issues relating to the “[p]rocessing, monitoring, and tracking” of direct disputes between processing units, and that Respondent’s furnishing policies and procedures did not accurately reflect its practices."
As set forth above, identifying issues that cause credit reporting inaccuracies through a periodic audit is only the first step to complying with the law. A company must further retain “subject matter experts” to ensure the accuracy and integrity of the consumer data that it is furnishing to the credit reporting agencies.
3. Invest Adequate Resources to Ensure Consumer Data is Accurate
In the recent CFPB consent order, the creditor did attempt to remedy the issues causing the reporting of inaccurate information, but the results of those attempts were insufficient:
"Respondent failed to appropriately assign ownership of furnishing-related processes within the company and to prioritize identified consumer reporting-related risks.
It also underinvested in technology and monitoring, leading to the use of ineffective manual processes and systems with previously identified logic errors to furnish consumer information to CRAs for years.
Compounding the problem, Respondent delayed fixes for errors affecting Respondent’s DOFD reporting for nearly a year due to prioritization of allotted resources for the new credit furnishing system planned for release over the then-existing systems that were being replaced.
For example, many of Respondent’s procedures required manual inputs, such as manually calculating a consumer’s amount past due, late fees, and charge-off amounts, despite the size and complexity of the company’s furnishing activities reflected in part by the fact that Respondent furnished information across more than 2 million accounts per month across various lease and retail installment accounts."
These sections of the CFPB consent order cited above provide specific guidance for how companies can avoid similar FCRA issues with the following steps:
- Assign ownership of the credit reporting process to one person or team.
- Prioritize credit reporting related risks.
- Invest adequately in technology and upgrades for your credit reporting systems.
- Do not rely on manual processes when servicing a large volume of consumer credit reporting accounts.
- Immediately prioritize any issues involving the accuracy or integrity of consumer data and do not delay.
This article is provided only as a general discussion of legal principles and ideas. Every situation is unique and must be reviewed by a licensed attorney to determine the appropriate application of the law to any particular fact scenario. If you have a legal question, consult with an attorney. The reader of this publication will not rely upon anything herein as legal advice and will not substitute anything contained herein for obtaining legal advice from an attorney. No attorney-client relationship is formed by the publication or reading of this document. Moss & Barnett assumes no liability for typographical or other errors contained herein or for changes in the law affecting anything discussed herein.
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