Federal bureau now oversees major credit reporting agencies
New power comes in response to ongoing credit report errors, complaints
By Vanessa Richardson
Carol Long of Grand Blanc, Mich., routinely checks her credit reports to make sure everything is up to date, but when she checked it last January, her report didn't have a credit score -- because it listed her as dead.
Long's lengthy dispute over credit bureau reporting accuracy is one example of why the Consumer Financial Protection Bureau (CFPB) has decided to step in. As of Sept. 30, 2012, the bureau began supervising large credit reporting agencies, the first time they'll be supervised at the federal level -- and with detailed oversight.
Long, a housing counselor for a Detroit nonprofit agency, contacted the "Big Three" credit bureaus -- Equifax, Experian and TransUnion -- to let them know she was alive and to get her report corrected. Experian and TransUnion did so immediately, but Experian required her to write a letter stating she was indeed alive and take it to the bank to have it notarized. "I told the person on the phone, 'How could I be talking to you and still be deceased?'" says Long. "And my bank teller looked at me like I was crazy."
Thinking everything had been squared away, she wanted to get her car refinanced a few months later -- but the bank rejected her because Experian still listed her as deceased. She faxed them her notarized "I'm alive!" letter again, but it wasn't until she called them and threatened legal action that the credit bureau finally brought her back to life in its database.
"The credit bureaus keep saying how accurate they are and that very few people have errors on their credit reports, but look at the hoops I had to jump through," says Long. "At my job, clients come in every day saying something is wrong on their credit reports."
Not only do errors in consumer credit reports abound, but efforts to fix these errors often go nowhere. In May 2012, the Columbus Dispatch conducted an exhaustive investigation into nearly 30,000 complaints about the "Big Three" credit bureaus filed between 2009 and 2011 with the Federal Trade Commission and 24 states' attorneys. It found that more than half of those who complained to the FTC said they could not get the bureaus to fix their problems, which ranged from mistakes in names and addresses to paid-off credit card debt being reported as delinquent.
Historically, the only group that could take action against the credit bureaus has, in fact, been the FTC, but it hasn't had the power of oversight. It could only build a legal case based on consumer complaints, then go to court and hope for a favorable ruling. That will change once the CFPB assumes its new responsibility. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, gave it the authorization to supervise nonbank "larger participants" in the markets of residential mortgages, payday loans and private education loans. That means the CFPB can go in any time it wants to inspect the books and act immediately to make the offending agency change its ways.
This is a long-awaited and much-needed move, says Ed Mierzwinski, consumer program director of the advocacy group U.S. PIRG. "There are thousands of banks, but only three major credit reporting agencies. Those three are the gatekeepers to your ability to get a job and qualify for credit at a fair price, which are contingent on having a good credit report. We've found credit bureaus make mistakes that are nearly impossible to fix because the process is run by machines. Now the CFPB has the authority to look under the hood."
Those three (major credit bureaus) are the gatekeepers to your ability to get a job and qualify for credit at a fair price, which are contingent on having a good credit report. We've found credit bureaus make mistakes that are nearly impossible to fix because the process is run by machines. Now the CFPB has the authority to look under the hood.
|-- Ed Mierzwinski
Consumer Program Director, U.S. PIRG
The CFPB's task is to supervise consumer reporting agencies with more than $7 million in annual receipts, meaning an estimated 30 companies that account for 94 percent of the credit reporting market. That covers Equifax, Experian and TransUnion, which altogether keep files on 200 million Americans. Additionally, the CFPB now oversees a couple dozen of the smaller, specialty consumer reporting agencies that fall under the $7 million mark. These companies do things such as collect and provide information on payday loans, insurance claims and checking accounts, and buy consumer information from the big three credit bureaus to resell as customer data to marketers.
One big fish in this smaller group is ChexSystems, which keeps consumer records used by most U.S. banks to screen checking account applicants. Mierzwinski says it's the pioneer of the negative-only credit reporting system. "You're in there only if you have negative information on your report. So if you've bounced a check, you're in ChexSystems' files. But what if you've never bounced a check in your life and your name is in there anyway? If you're applying at a bank or a credit union, forget it."
A company that won't be supervised is FICO, creator of the famous FICO score algorithm most credit bureaus use to calculate credit scores. Because it's neither a credit bureau nor a lender, it doesn't come under the CFPB's jurisdiction.
The CFPB's supervisory procedures
CFPB spokeswoman Moira Vahey states that the bureau's approach to supervising credit reporting agencies will be similar to what it does with financial organizations it already supervises, including payday lenders and mortgage services. First, it will review the companies' compliance systems and procedures, do on-site examinations and talk with relevant staffers and ask for relevant reports at any time. Then it will have designated investigators do in-depth exams to check that companies are following the law.
The CFPB released its exam procedures in a 121-part checklist, with various subgroups for each variety of agency. Some of the main points of inspection are:
- How the reporting agencies screen information for accuracy and ensure it's linked to the right person.
- How the agencies investigate consumers' complaints about errors on their files, and whether the agencies' procedures are thorough enough.
- Whether the agencies give people their file information and credit scores as required, and whether they have enough customer service staffers manning the phones to explain that information.
- Whether the agencies are fulfilling requirements to address and prevent identity theft.
"If a company is not complying with the law, the CFPB may seek corrective actions to strengthen the company's programs and processes to ensure that such violations do not recur," says Vahey. She adds that while the CFPB has a year-round supervision process for big banks and credit unions, it will probably conduct only periodic exams for credit reporting agencies, as it currently does with nonbanks.
Mierzynski likes that the CFPB will scrutinize how the "Big Three" accounts for consumer data it sells to other companies. "There are many types of information that is either illegal to sell, such as medical records, or can't be sold if it's more than seven years old. Does the company have procedures to handle that? If it sells to smaller credit bureaus, does it have procedures to ensure that those companies comply with the law? The CFPB now has the authority to say, 'Show us how you handle that.' Everything I wanted to see covered in these exam guidelines is there."
As for the credit reporting agencies covered under this new law, they're staying quiet, stating only that they can't make any forward-looking statements about the supervision and exam procedures.
Stuart K. Pratt, president of the Consumer Data Industry Association, which represents credit reporting companies, said that the industry has always worked with the federal agencies in their regulatory oversight. "We look forward to discussions we'll have about new rules."
Updated: October 3, 2012
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