United States: Credit reports in the crosshairs?
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Recent developments indicate that credit reporting concerns will likely be high on the CFPB’s agenda in the coming months. Last month, CFPB Director Rohit Chopra spoke to the House Committee on Financial Services and discussed several key topics, including credit issues. Earlier this month, the CFPB released a report titled âDisputes on Consumer Credit Reportsâ which examines trends in consumer credit litigation and how those disputes are resolved. Shortly after the CFPB released its report, a group of Democratic senators sent a letter to Director Chopra, urging the CFPB to address credit issues within the industry. This blog post highlights some of the key points from Director Chopra’s testimony, CFPB report, and Senate Democrats’ letter to Director Chopra.
Testimonial from director Chopra: On October 27, 2021, Director Chopra testified before the House Committee on Financial Services and shared some of his thoughts on credit issues.
- Government-run credit bureau. When asked about setting up a government-run credit bureau, Director Chopra replied that he had not given much thought to the suggestion, as the implementation of this kind of organization would be a huge business.
- Concerns of the FCRA. Director Chopra has indicated that he is much more concerned about violations of the Fair Credit Reporting Act, the way credit reporting agencies investigate disputes and ensure that new types of reporting agencies of credit comply with the law.
- Medical debt on credit reports. In response to a question about the pandemic’s negative impact on medical debt, Director Chopra said a fair recovery will require careful consideration of debt collection and credit reports. He referred to some evidence showing that paying medical debts is not predictive of other credit performance, and he is concerned that the credit reporting system is becoming a means of extorting payments from people. patients.
CFPB report: On November 2, 2021, the CFPB released research results that highlight certain trends in credit report litigation.
- Majority black and Hispanic neighborhoods. According to the report, disputes over credit reports are much more common in predominantly Black and Hispanic neighborhoods. (This echoes a research report released by the Bureau in September, finding that low-income, predominantly minority census tracts had higher complaint rates related to credit reports and servicing delinquent loans. In fact, in almost all of the credit categories examined (auto loans, student loans, credit cards and retail cards), consumers residing in predominantly black areas were more than twice as likely to see litigation appear on their credit reports as consumers residing in majority white areas. The report notes that these differences may be related (at least in part) to geographic patterns in credit scores.
- Young borrowers with low credit scores. Litigation flags were also more common for younger borrowers with low credit scores.
- Need more research. The report says that an important topic for future research would be whether these models are driven by differences between groups and types of credit or whether they are driven by vendor practices for reporting and responding to disputes.
Letter from Senators: On November 10, 2021, Democratic Senators Brian Schatz (HI), Sherrod Brown (OH), Ron Wyden (OR), Elizabeth Warren (MA), Jack Reed (RI), Chris Van Hollen (MD) and Ben Ray Lujan (NM) ) sent a letter to Director Chopra requesting that the CFPB take action to reform the credit reporting industry. The letter expresses concerns that errors in credit reports lead to economically damaging consequences for consumers and exacerbate the racial wealth gap. Senators called on the CFPB to take the following steps to remedy the situation:
- Resolve credit report errors. Evaluate persistent errors in credit reports and how credit rating agencies consistently fail to resolve these errors, especially by not devoting enough staff and resources to resolving disputes.
- Create an ombudsman position at CFPB to facilitate the dispute resolution process and help ensure its accuracy.
- Matching files with nine-digit social security numbers. Require nationwide credit rating agencies to match the nine digits of a consumer’s social security number instead of using partial social security numbers to match an information provider’s data in a consumer’s file.
- Precision audits. Require national rating agencies to carry out periodic verifications of the accuracy of information providers.
- Codification of the provisions of a regulation at the national level. Explore the possibility of codifying ARC settlement provisions nationwide with state attorneys general that delayed reporting medical debt for six months and waived insurance paid debts.
- Fight against the risks that amplify racial disparities. Require credit rating agencies to examine how (1) algorithmic biases can amplify racial disparities in credit reports and (2) the lack of credit reports in Spanish and other languages ââcan have an impact on consumers with limited English proficiency.
These developments provide an overview of CFPB’s priorities in short-term credit reporting. In response to the CFPB report, the CFPB has already stated that it is committed to further researching the causes of credit disputes and investigating the reasons for demographic disparities in credit dispute rates. While it remains to be seen how the CFPB will proceed, recent trends suggest that the credit reporting industry will likely be in the crosshairs of the CFPB.
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