Federal watchdog slaps auto lender for credit report errors
$2.75 million fine sends message to other data furnishers
A Texas-based auto finance company will have to correct credit reports for thousands of customers and pay a $2.75 million fine under a regulatory crackdown announced Wednesday by the U.S. Consumer Financial Protection Bureau.
First Investors Financial Services Group Inc., which makes car loans to subprime borrowers, knew that it was sending error-filled data about its customers to credit reporting agencies for the past three years, but failed to correct the problems, the consumer bureau said.
The company notified the vendor of its computer system about the credit report errors, but did not follow up when nothing was done, according to the agency.
Companies "cannot pass the buck on this responsibility," CFPB Director Richard Cordray said in a conference call with reporters.
The agency's order should put other lenders on notice to take care with the data being reported about consumers to credit bureaus, he added. Under the Fair Credit Reporting Act, lenders and other data furnishers who provide information about consumers' payment history are supposed to take reasonable steps to ensure that the information is correct.
Errors on a credit report "can make a big difference in whether someone gets a loan, qualifies for a lower interest rate or even gets a job," Cordray said. First Investors makes loans through dealerships and directly to consumers.
The CFPB said more than 10,000 borrowers were affected by errors on credit reports, which included:
- Wrong payment amounts. For example, when borrowers made more than one payment in a month, only the first payment was reflected.
- Inaccurate dates. The date that a loan became delinquent was often reported to be more recent than it actually was. This lengthens the amount of time the creditor has to file a lawsuit under the statute of limitations.
- Inflated delinquencies. Borrowers' 24-month payment histories showed they were late with payments more often than they actually were. One consumer was reported delinquent 11 times when he was only delinquent twice.
- Erroneous repos. Credit reports sometimes showed that vehicles had been repossessed when in fact the borrower had brought back the vehicle voluntarily.
In addition to paying the fine, First Investors must correct the errors on borrowers' credit reports and help them obtain free credit reports to check that corrections have been made, the consumer bureau said. The company is paying the fine instead of restitution to borrowers because it was impossible to quantify the harm caused to individuals by the errors.See related: How to dispute credit report errors
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