CFPB: Consumers' side of credit disputes must be considered
Documentation, once cast aside, now has to be passed along, looked at
Fixing errors on your credit report should get easier now, following stern new federal guidance issued to the companies that provide information about you to credit bureaus.
The U.S. Consumer Financial Protection Bureau on Wednesday issued a bulletin that requires companies to review "all relevant information" when investigating a dispute, including documents you have sent in to prove your side of the story. Until recently, documentation provided by consumers on their side of a dispute was reduced to a code and cast aside.
"Credit reports play a critical role in the lives of consumers," CFPB Director Richard Cordray said in a statement announcing the bulletin. "Given the importance of these reports, consumers need to know that their documents are being reviewed when they dispute what they believe is a mistake on a report."
Credit report errors can have harsh consequences for consumers, and the Fair Credit Reporting Act requires that disputes be investigated. But consumer advocates have said that the credit dispute system is broken, leaving bad data weighing on some consumers for years.
"The overall credit report disputing process is something we consumer advocates have been complaining about for years," said Chi Chi Wu, staff attorney with the National Consumer Law Center. "It's entirely automated and perfunctory -- no one is conducting a real investigation like the law requires."
Credit furnishers include banks and credit card companies as well as debt collectors and other companies that report on your payment history to credit bureaus.
The big three credit bureaus -- Experian, Equifax and TransUnion -- maintain an electronic system to share information with furnishers. When they receive a complaint from a consumer about an error, they relay the dispute to the furnisher of the disputed information.
Until lately, the system ditched any documents that consumers submitted to back up their case. Now, however, the "e-Oscar" portal for credit disputes has been upgraded so credit bureaus can send furnishers documents that have been sent in by consumers, according to the CFPB. For example, if you send letters documenting that a debt has been paid, that evidence can be relayed to the furnisher of information showing an unpaid debt.
Nessa Feddis, vice president and senior counsel for the American Bankers Association, said the ability to share documents will help ensure accurate information on reports, while she downplayed the CFPB's guidance.
"The requirement was already there," she said, "What's significant is not the bureau's bulletin, it's the credit bureaus' new system -- they've been working on this system for years."
In addition, a consumer can always go directly to the information furnisher to dispute a record, Feddis said, reducing the impact of the developments. While that's true, it means extra steps for the consumer.
Given the importance of these reports, consumers need to know that their documents are being reviewed when they dispute what they believe is a mistake on a report.
Consumer Financial Protection Bureau
The bulletin did turn the voluntary improvement made by the credit bureaus into a regulatory requirement. The consumer protection bureau told information furnishers they must have a system capable of receiving dispute information, including documentation, from credit reporting agencies, and they must review all the relevant information. Furnishers must also provide the results of the investigation to the credit reporting agency, and provide corrected information to all reporting agencies that received erroneous information. Finally, information furnishers must fix or delete disputed information, or permanently block information that is incomplete, inaccurate or cannot be verified.
"Any furnisher not currently maintaining a process that meets these requirements should take immediate steps to comply with the requirements of the law," the CFPB bulletin says.
A study by the Federal Trade Commission in February found that one in five people's credit reports contained an error. Disputes handled by credit reporting agencies is summarized in a brief code with a 20-word description and relayed to the source of the information, even if the consumer sent in letters and documents to state their case.
CFPB bulletin and document system will not address all credit dispute problems,
Wu said. For example, so called "mixed files," where another
consumer's credit history becomes confused with yours, happens at the credit
bureau level, not at the level of the information furnisher. This is the type of error that caused an
Oregon woman to sue Equifax after years of trying to correct her report,
resulting in an $18 million court award.
But the CFPB bulletin is an important step that will help many people plagued by bad credit they don't deserve, Wu said. "The CFPB is telling them, 'You need to comply with the law, and we'll be watching you.'"See related: FTC: 1 in 5 Americans has a mistake in credit report, Removing credit report errors: 10 surefire steps
- Poll: 2 out of 5 Americans think age, marital status affect credit score – More people are checking their credit scores than four years ago, but about 40 percent of consumers have misconceptions about what affects your credit ...
- Credit scores: Is 1 percent utilization better than 10 percent or zero? – Carrying over a tiny card balance can give you a credit score boost, but paying in full is better for your financial health ...
- Goodwill letters: A note can get a credit blemish wiped away – A goodwill letter can help you get an uncharacteristic slip-up removed from your credit report, but it's not a sure thing ...