[Federal Register Volume 82, Number 65 (Thursday, April 6, 2017)]
[Notices]
[Pages 16808-16817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06904]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights: Consumer Reporting Special Edition
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory Highlights; notice.
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SUMMARY: The Bureau of Consumer Financial Protection (CFPB) is issuing
its fourteenth edition of its Supervisory Highlights. In this issue of
Supervisory Highlights, we report examination findings in the area of
consumer reporting. These observations include findings from
examinations at consumer reporting companies and at companies that
furnish information to consumer reporting companies.
DATES: The Bureau released this edition of the Supervisory Highlights
on its Web site on March 2, 2017.
FOR FURTHER INFORMATION CONTACT: Alice Hrdy, Deputy Assistant Director,
Office of Supervision Policy, 1700 G Street NW., 20552, (202) 435-7129.
SUPPLEMENTARY INFORMATION:
1. Introduction
Credit reporting plays a critical role in consumers' financial
lives, a role that most consumers do not recognize because it is
usually not very visible to them. Credit reports on a consumer's
financial behavior can determine a consumer's eligibility for credit
cards, car loans, and home mortgage loans--and they often affect how
much a consumer is going to pay for that loan. Federal law provides an
important framework to ensure the players in the consumer reporting
system receive the benefits of our risk-based credit economy.
The Consumer Financial Protection Bureau (CFPB) is the first
Federal agency to have supervisory authority over many of the key
institutions in the consumer reporting system. First are the creditors
and others that supply the information about consumers' financial
behavior, referred to as furnishers, including banks, mortgage
servicers, student loan servicers, and debt collectors. Second are the
consumer reporting companies (CRCs), including the largest consumer
reporting companies, consumer report resellers, and specialty consumer
reporting companies. CRCs sell the information in the form of consumer
reports to creditors and other users and provide them to consumers.
Third are those that use the information for credit decisions as well
as employment, insurance, and other decisions. The CFPB's jurisdiction
over the major players in each of these categories is unique and has
allowed the Bureau to take an integrated approach to improving the
accuracy of information across the system.
We prioritized this market for oversight to promote our vision of a
consumer reporting system: A system where furnishers provide and CRCs
maintain and distribute data that are accurate, supplemented by an
effective and efficient dispute management and resolution process for
consumers.
The CFPB's vision is rooted in the obligations and rights set forth
in the Fair Credit Reporting Act (FCRA) and Regulation V.\1\ In the
last two years, we identified failings in compliance management systems
and violations of
[[Page 16809]]
law both at CRCs and at furnishers. As a result, we have directed
specific improvements in data accuracy and dispute resolution at one or
more CRCs, including:
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\1\ 15 U.S.C. 1681, et seq. and 12 CFR 1022.
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Stepped-up oversight of incoming data from furnishers;
institution of quality control programs of compiled
consumer reports;
monitoring of furnisher dispute metrics to identify and
correct root causes;
enhanced oversight of third-party public records service
providers;
enforced independent obligation to reinvestigate consumer
disputes, including review of relevant information provided by
consumers; and
improved communication to consumers of dispute results.
We directed both bank and nonbank furnishers to develop reasonable
written policies and procedures regarding accuracy of the information
they furnish and to take corrective action when they furnished
inaccurate information. In addition, we took significant steps to
ensure furnishers' dispute handling processes comply with the law in
response to failures either to conduct investigations or to send
results of dispute investigations to consumers.
This Special Edition of Supervisory Highlights details these most
recent supervisory observations in the consumer reporting market. In
sum, our work is producing an entirely different approach to ensuring
compliance at the major consumer reporting companies: One of proactive
attention to compliance, as opposed to a defensive, reactive approach
in response to consumer disputes and lawsuits. This proactive approach
to compliance management will reap benefits for consumers--and the
lenders that use consumer reports--for many years to come.
2. Supervisory Observations at Consumer Reporting Companies
The CFPB's supervisory authority over CRCs extends to those that
are larger participants in the consumer reporting market.\2\
Participants in this market include nationwide consumer reporting
companies, consumer report resellers, and specialty consumer reporting
companies.\3\ Recent supervisory reviews of CRCs have evaluated the
compliance management system (CMS) for assuring the accuracy throughout
the lifecycle of the data the CRC collects, maintains, and uses to
prepare consumer reports.\4\ Recent reviews also evaluated whether the
CRCs comply with the FCRA's requirements regarding consumer dispute
processes.\5\
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\2\ Larger participants in the consumer reporting market are
defined in 12 CFR 1090.104.
\3\ The term ``consumer reporting company'' means the same as
``consumer reporting agency,'' as defined in the Fair Credit
Reporting Act, 15 U.S.C. 1681a(f), including nationwide consumer
reporting agencies as defined in section 1681a(p) and nationwide
specialty consumer reporting agencies as defined in section
1681a(x).
\4\ These reviews have evaluated CMS to ensure compliance with
15 U.S.C. 1681e(b), which requires CRCs to ``follow reasonable
procedures to assure maximum possible accuracy of the information
[included in a consumer report] concerning the individual about whom
the report relates.''
\5\ The FCRA's dispute process requirements applicable to CRCs
are detailed at 15 U.S.C. 1681i.
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Overall, and as a result of these reviews, CRCs have made
significant advances to promote greater accuracy, the oversight of
furnishers, and enhancements to the dispute resolution function.
Continued improvements are necessary in these and other areas.
Supervision has directed many CRCs to take actions in these areas and
will monitor closely the progress by these CRCs.
Data Accuracy
The accuracy of the data maintained by the CRCs is the backbone on
which our credit-based economy relies. Consumers depend on the accuracy
of the credit reporting data to obtain credit and to realize their
financial goals. Similarly, financial institutions and other industries
(for example, mortgage and auto lending) that are heavily dependent on
credit markets also rely on the accuracy of data in these reports to
calibrate the appropriate risk-based credit to offer consumers.
Initial accuracy reviews indicated that CRC(s)' data governance
functions were decentralized and had undefined responsibilities. They
lacked quality control policies and procedures to test compiled
consumer reports for accuracy, had inconsistent practices for vetting
furnishers and providing data quality feedback to them, and had
insufficient monitoring and oversight of furnishers once approved to
provide data. The following sections detail improvements CRC(s) are
implementing to remedy these deficiencies.
To demonstrate some of the data accuracy enhancements that
Supervision has directed many CRCs to undertake, Supervision created
this diagram:
[[Page 16810]]
[GRAPHIC] [TIFF OMITTED] TN06AP17.000
2.1 Data Governance
Data governance systems are crucial to accuracy and data integrity
obligations of the CRCs. Effective data governance policies establish
and clearly document the company's system of decision rights and
accountabilities for handling consumer information and managing any
changes that may affect such information.
One or more CRCs have improved their data governance policies and
procedures and formalized a data governance program. As an example, one
or more CRCs established data governance structures with personnel
authorized and directed to:
Oversee policies, procedures, data quality metrics, and
trends;
approve policies and procedures, as well as escalate
decisions to higher authorities within the CRC(s);
oversee furnisher monitoring, law and policy, and
procedures;
take actions against furnishers that fail to comply with
the established requirements, including ceasing to accept data
furnished from noncompliant furnishers;
review and track metrics relating to data governance on a
regular basis; and
oversee a centralized repository of data definitions,
business rules, and data quality rules.
2.2 Quality Control Programs To Assess the Accuracy and Integrity of
Consumer Reports, Including Oversight of Third-Party Public Records
Providers
Creation of Quality Control Programs That Assess the Accuracy and
Integrity of Data Included in Consumer Reports
In a prior issue of Supervisory Highlights, we explained that,
following the initial reviews of accuracy programs, examiners found
that one or more CRCs lacked quality control policies and procedures to
test compiled consumer reports for accuracy.\6\
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\6\ CFPB, Supervisory Highlights, 2.1.2 (Summer 2015)
(explaining that ``[w]hile processes existed to analyze and improve
the quality of incoming data, there was no post-compilation report
review or sampling to test the accuracy of [compiled] consumer
reports.'').
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In follow-up reviews at one or more CRCs, examiners found the
following improvements:
Establishment of robust quality control programs that
regularly assess the accuracy of information included in consumer
reports;
as part of the quality control program, development of
tests to identify whether consumer reports are produced regarding the
wrong consumer and whether consumer reports contain mixed file data,
and development of systems designed to measure the accuracy of consumer
reports and identify patterns and trends in errors; and
utilization of the results of the quality control program
to take corrective action by identifying the source of identified
inaccuracies and making necessary system improvements to prevent the
recurrence of such errors.
Enhancements in Oversight of Third-Party Public Records Providers
Examiners have also noted improvements in the oversight of public
records providers at one or more CRCs. In the initial accuracy reviews,
examiners noted that one or more CRCs did not adequately oversee the
accuracy or integrity procedures at third-party
[[Page 16811]]
providers of public records data.\7\ In follow-up reviews, examiners
concluded that one or more CRCs improved oversight in this area by:
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\7\ CFPB, Supervisory Highlights, 2.1.1 (Summer 2015).
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Enhancing the CRC(s)' standards for the public records
data that will be accepted, including greater frequency of updates and
stricter identity-matching criteria; and
increasing the frequency and scope of audits of its third-
party public records provider, thereby strengthening the CRC(s)'
ability to identify potential sources of inaccuracy and identity-
matching errors.
We will continue to monitor the status of these system
improvements.
2.3 Furnisher Oversight and Data Monitoring by CRCs
Furnisher Vetting
In a previous issue of Supervisory Highlights, we noted that one or
more CRCs initially vetted new furnishers to ensure reliability of and
adherence to furnisher membership requirements.\8\ However, the reviews
also noted that there was insufficient ongoing monitoring, or re-
vetting, of furnishers once a furnisher passed the initial vetting.\9\
In recent follow-up reviews, we determined that these policies and
procedures have improved. One or more CRCs established and implemented
enhanced controls to re-vet furnishers on a risk basis to ensure
furnishers continue to meet initial and ongoing requirements. Such
controls include:
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\8\ Id.
\9\ Id.
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The review of an existing furnisher's ability to maintain
minimum data security standards;
the re-vetting of furnishers where the furnisher's
management changes could impact its capacity to meet membership
requirements; and
a process to temporarily cease accepting data from
identified furnishers that fail re-vetting until required improvements
are made by the furnisher, during which time trade line information
reported by the furnisher is suppressed, and the furnisher must then
demonstrate compliance with the reporting requirements before its
furnished data will again be included in consumer reports.
One or more CRCs established policies and procedures to monitor and
identify furnishers who do not meet data submission and quality
requirements and to take corrective action where appropriate. Examiners
found that the improved monitoring program(s) include:
Actively monitoring for inactive data furnishers,
notifying furnishers when monthly data submissions are missed, and
ceasing to accept data from furnishers who fail to furnish updated data
for a number of consecutive months;
monitoring for furnishers that do not comply with the
CRC(s)' data submission thresholds establishing the maximum number of
times a furnisher's data can be rejected by the CRC(s); and
alerting furnishers when anomalies are detected in
furnished data to identify and correct potential sources of inaccuracy.
Monitoring of Furnisher Dispute Data
We also reviewed one or more CRCs' policies and procedures to
monitor furnisher dispute data as a component of their data accuracy
programs. For example, data indicating that particular furnishers
receive a higher rate of disputes from consumers under the FCRA, or
respond to disputes in ways that indicate the furnisher is not
investigating disputes, can be useful to CRCs in identifying sources of
data inaccuracy. Examiners found that one or more CRCs:
Monitored furnisher responses to consumer disputes to
identify furnishers with response rates and other patterns potentially
indicating that they are not meeting their reinvestigation
requirements, for example because the furnisher does not respond to
consumer disputes;
identified furnishers with particular response rates that
are higher in one area than expected and notified the identified
furnishers of the CRC(s)' concerns;
requested the furnisher to investigate the cause of the
anomaly and correct its practices where needed; and
for any furnisher that does not respond and correct its
practices, the CRC(s) took further action, including ceasing to accept
data from the furnisher.
At one or more CRCs, examiners observed that these new procedures
improved furnishers' dispute response levels, for example by
eliminating data provided by furnishers that refuse to reasonably
investigate disputes and, for those furnishers that wish to continue
furnishing, increasing the rate at which the furnishers investigate and
respond to disputes within the time periods required under the FCRA.
However, examiners also noted that one or more CRCs had not yet
implemented policies or procedures to monitor furnisher dispute data.
Based on these findings, Supervision directed the CRC(s) to develop and
implement internal processes to monitor furnisher dispute responses and
to detect furnishers with dispute rates or dispute responses that may
indicate risk of inaccurate consumer data or other consumer harm.
Directives included:
Establishing the necessary employee training and
escalation guidelines for reporting furnisher monitoring issues to
senior management;
instituting procedures for monitoring furnisher dispute
data; and
establishing adequate corrective action measures designed
to minimize the risk of reporting inaccurate data.
Providing Data Quality Reports to Furnishers
In a prior issue of Supervisory Highlights, we noted one or more
CRCs lacked systematic or consistent policies and procedures for
providing feedback to furnishers regarding the quality of data
furnished.\10\ For example, these reviews identified that the CRC(s)
designed reports that would identify for each furnisher whether its
data had been rejected and what kind of formatting errors were
identified. This information could be helpful to the furnisher to
improve its data quality, but the examiners found that one or more CRCs
relied on furnishers to request the reports or, in some cases, imposed
a fee before the reports were provided to furnishers.\11\
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\10\ CFPB, Supervisory Highlights, 2.1.1 (Summer 2015).
\11\ Id.
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In follow-up reviews, examiners found that one or more CRCs
improved furnisher access to data quality reports. The CRC(s) made
receipt of certain data-quality reports mandatory for all data
furnishers at no cost, thereby resulting in increased visibility and
availability of such reports to furnishers on a regular basis.
2.4 Resold Merged Reports
Examiners also evaluated the accuracy and dispute handling
procedures at one or more reseller CRCs.\12\ In these reviews, we found
that the reseller(s) lacked reasonable procedures to assure maximum
possible accuracy because the reseller(s) used systems with known
programming errors that introduced inaccuracies in consumer report data
when the reseller(s) merged consumer report data they had purchased
from multiple CRCs. In light of these findings, the reseller(s)
conducted a comprehensive review to determine the full impact on
consumers. Additionally, examiners
[[Page 16812]]
directed the reseller(s) to enhance accuracy procedures to prevent
similar data-merge errors.
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\12\ The term ``reseller'' is defined in 15 U.S.C. 1681a(u).
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Dispute Handling and Resolution
Supervision also continued its focus on CRCs' compliance with the
FCRA's requirements to process and investigate consumer disputes. When
a consumer believes there is inaccurate information in his or her
consumer report, the FCRA enables consumers to dispute the information.
The consumer may provide relevant supporting information with the
dispute, such as a cancelled check to demonstrate payment or a document
to demonstrate that the consumer is not liable for the credit account
or debt.
Once a determination regarding the dispute is made, timely and
clear notification to the consumer of the results of the dispute helps
ensure the consumer understands whether a change was made and the
reason for the decision. A well-functioning dispute resolution process
is critical to promoting confidence in the consumer reporting system
and in empowering consumers to take charge of their financial lives. A
strong system that efficiently and clearly resolves consumer disputes
so that consumers do not needlessly re-dispute information benefits
CRCs and furnishers as well.
In previous issues of Supervisory Highlights, we discussed earlier
CFPB reviews of the dispute handling procedures in place at one or more
CRCs and the subsequent improvements in those processes: \13\
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\13\ CFPB, Supervisory Highlights, 2.1 (Fall 2014) (initial
dispute handling reviews); CFPB, Supervisory Highlights, 2.1 (Winter
2015) (dispute handling follow-up reviews).
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Consumers now are able to use online portals to submit
disputes and upload attachments of supporting documentation;
CRC(s) have implemented systems to forward to furnishers
relevant dispute documents submitted by consumers;
CRC(s) have made improvements to call center scripts and
training regarding solicitation of relevant information from consumers
with disputes; and
CRC(s) no longer require that consumers obtain or purchase
a recent consumer report before the CRC(s) accept disputes filed online
or by telephone.
Building on these improvements, subsequent reviews at one or more
CRCs have focused on the dispute resolution procedures in place to
conduct a reasonable investigation of consumer disputes and communicate
the results of the investigation adequately to the consumer.
To aid in our description of the dispute process, Supervision
created the following simplified diagram depicting a number of key
steps taken by CRC(s) when processing, investigating, and responding to
consumer disputes:
[GRAPHIC] [TIFF OMITTED] TN06AP17.001
[[Page 16813]]
2.5 Reasonable Reinvestigation of Disputes and Consideration of
Relevant Information
The FCRA requires that, when a consumer disputes the completeness
or accuracy of any item contained in his or her consumer file with the
CRC, the CRC must conduct a reasonable reinvestigation to determine
whether the disputed item is inaccurate and record the current status
of the disputed information or delete the item from the file.\14\ As
part of the CRC's reasonable reinvestigation, the CRC is required to
review and consider all relevant information submitted by the
consumer.\15\
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\14\ 15 U.S.C. 1681i(a).
\15\ 15 U.S.C. 1681i(a)(4).
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Examiners found that one or more CRCs did not comply with this
obligation in certain circumstances. For example, in cases where
consumers submitted certain categories of documentary evidence in
support of a dispute, one or more CRCs failed to review and consider
the attached documentation and relied entirely on the furnisher to
investigate the dispute. To correct this violation, examiners directed
the CRC(s) to revise policies and procedures regarding dispute
reinvestigations to ensure appropriate and reasonable review and
consideration of consumer proof documents.
2.6 Notice to Furnishers of Disputes
When a consumer files a dispute with a CRC, the FCRA requires the
CRC to provide notification of the dispute within five business days to
the furnisher who provided the information that is in dispute.\16\ At
one or more CRCs, examiners found instances where the required notice
was not provided because the furnishers' contact information was no
longer valid at the time of the consumers' disputes. As a result,
examiners required the CRC(s) to implement changes to comply with the
FCRA's dispute handling requirements, including ensuring that contact
information with furnishers remains current for the purpose of
providing required dispute notifications.
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\16\ 15 U.S.C. 1681i(a)(2)(A).
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The FCRA also requires that, following a dispute investigation, the
CRC must provide prompt notice of any modification or deletion to the
furnisher.\17\ Examiners found that one or more CRCs failed in certain
circumstances to provide this required notice. Supervision directed the
CRC(s) to develop processes to ensure that data furnisher notifications
of deletions or modifications are provided to the furnisher in all
instances required by the FCRA.
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\17\ 15 U.S.C. 1681i(a)(5)(A)(ii).
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2.7 Notice to Consumers of Dispute Results
The FCRA requires that, upon completion of the reasonable
reinvestigation, the CRC must provide written notice of the results to
the consumer not later than five business days after completion of the
reinvestigation.\18\
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\18\ 15 U.S.C. 1681i(a)(6)(A).
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Examiners found that one or more CRCs sent dispute notices to
consumers that did not report the results of the reinvestigation. In
particular, at one or more CRCs, examiners identified consumer dispute
notices that failed to articulate clearly the results of the dispute
investigation to the consumer as required by the FCRA. The notices,
instead, simply indicated that the dispute investigation was complete
but did not state the result of that investigation. To correct this
violation, examiners directed one or more CRCs to describe more
precisely the result of the investigation, such as whether changes were
made as a result of the dispute investigation.
3. Supervisory Observations at Furnishers
Furnishers of information play a crucial role in the accuracy and
integrity of consumer reports when they provide information to CRCs.
Inaccurate information from furnishers can lead to inaccurate reports
and consequent harm to consumers and the market. For example,
inaccurate information on a consumer report can affect a consumer's
ability to obtain credit, housing, or employment. Moreover, furnishers
have an important role in the dispute process when consumers dispute
the accuracy of information on their consumer reports. Consumers may
dispute information that appears on their consumer report directly to
furnishers (``direct disputes'') or indirectly through CRCs (``indirect
disputes''), and furnishers are required to investigate both types of
consumer disputes to verify the accuracy of the information
furnished.\19\
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\19\ 15 U.S.C. 1681s-2(a)(8) and 15 U.S.C. 1681s-2(b). 12 CFR
1022.43.
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A timely and responsive reply to a consumer dispute may reduce the
impact that inaccurate negative information on a consumer report may
have on the consumer. The FCRA and Regulation V set forth requirements
for furnishers concerning both accuracy and dispute handling. To ensure
compliance with these requirements, Supervision has conducted a number
of reviews at a variety of furnishers subject to its supervisory
authority.
Supervision found CMS weaknesses and numerous violations of the
FCRA and Regulation V that required corrective action by furnisher(s).
3.1 CMS/Data Governance
As the CFPB has emphasized, we expect institutions subject to our
supervisory authority to structure their CMS in a manner sufficient to
comply with Federal consumer financial laws and appropriately address
associated risks of harm to consumers.\20\ This expectation includes
ensuring the furnisher implements and maintains a CMS sufficient to
ensure compliance with furnisher obligations required under the FCRA,
as appropriate.
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\20\ CFPB, Supervisory Highlights, 2.1 (Summer 2013).
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In one or more reviews of furnisher(s), examiners found several
weaknesses in CMS, including the following:
Weak oversight by management and the Board of Directors
over furnishing practices;
no formal data governance program;
failure to update policies and procedures;
weak training of employees who conduct furnishing and
dispute handling operations; and
weak monitoring and corrective action, including failure
to conduct follow up testing on consumer account files submitted to and
rejected by one or more CRAs.
Supervision directed the furnisher(s) to take appropriate action to
address these weaknesses in their CMS programs as they relate to their
actions in furnishing information to CRCs.
3.2 Reasonable Written Policies and Procedures Requirement
Regulation V requires furnishers to establish and implement
reasonable written policies and procedures regarding the accuracy and
integrity of the information relating to consumers that they provide to
CRCs.\21\ Such policies and procedures must be appropriate to the
nature, size, complexity, and scope of each furnisher's activities.\22\
Supervision found that one or more furnisher(s) failed to meet this
requirement by failing to have policies and procedures:
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\21\ 12 CFR 1022.42(a).
\22\ Id.
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For handling and investigating direct disputes from
consumers;
for the creation and retention of documentation to
substantiate final dispute decisions;
[[Page 16814]]
to prevent duplicative or mixed file reporting;
to instruct how to conduct reasonable investigations of
consumer disputes, including directing dispute-handling agents to
compare the disputed information to all available information in all
systems of record that could contain information relevant to a
consumer's dispute;
to prevent dispute-handling agents from responding
``verified'' immediately upon receipt of a dispute, instead of ensuring
a reasonable reinvestigation was completed timely; and
for the third-party service providers conducting the
furnishing on behalf of the furnisher(s).
For furnishing consumer deposit account information, Supervision
found that furnisher(s):
Had enterprise-wide FCRA policies, but the policies were
inadequate to address furnishing activity for consumer deposit
accounts;
failed to establish, implement, and maintain reasonable
written policies and procedures consistent with Regulation V regarding
the accuracy and integrity of consumer deposit account information
furnished;
had policies for furnishing consumer deposit account
information that were overly broad and not supplemented with
sufficiently-detailed operating procedures and guidance for consumer
deposit-related furnishing;
had procedures that did not address the requirement to
notify a consumer of the results of a dispute investigation; and
had procedures that failed to address the requirement to
update and correct inaccurate consumer deposit information.
Supervision directed the furnisher(s) to correct the deficiencies.
3.3 Guidelines for Furnishers in Appendix E of Regulation V
Regulation V requires furnishers, as they create policies and
procedures, to consider and incorporate, as appropriate, the guidelines
of Appendix E to Regulation V.\23\ These guidelines address key
business functions, such as record retention, training, third-party
oversight, and receipt of feedback from CRCs and others that contribute
to a furnisher's ability to ensure the accuracy and integrity of the
data furnished to CRCs. In the past year, examiners evaluated
furnishers' consideration and incorporation of the Appendix E
guidelines as appropriate to each institution. As a result of the
reviews, examiners observed the following failures of furnisher(s) to
meet this requirement of Regulation V and required the corrective
actions described below.
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\23\ 12 CFR 1022.42(b).
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Accuracy With Respect to Transferred Accounts (Date of First
Delinquency)
Appendix E of Regulation V states that a furnisher's policies and
procedures should be reasonably designed to promote furnishing
information that is accurate, which includes furnishing information
that reflects the terms of and liability for accounts, as well as
consumers' performance on such accounts.\24\ Appendix E also states
that a furnisher's policies and procedures should address furnishing
information about consumers following transfers of accounts in a manner
that prevents re-aging of accounts and other problems that may affect
the accuracy or integrity of the information furnished.\25\
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\24\ 12 CFR 1022.42, Appendix E, I(b)(1).
\25\ 12 CFR 1022.42, Appendix E, III(g).
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Examiners found that one or more furnishers' written policies and
procedures for furnishing did not address situations where information
is absent on incoming loan servicing data transfers. Specifically, if a
transferor's servicer did not provide the date of first delinquency
(DOFD), the policies and procedures did not require follow-up to obtain
and accurately report the DOFD. The DOFD affects consumers because the
FCRA directs that certain negative information not be included on
consumer reports for longer than a specified period of time.\26\ If the
DOFD date is incorrect, the negative information associated with the
specific tradeline may persist in the consumer file longer than legally
permissible. The policies and procedures of the furnisher(s) directed
agents to furnish information about such accounts even though the DOFD
was not known. Supervision directed furnisher(s) to revise their
written policies and procedures to ensure the DOFD from the transferor
servicer was obtained and the furnishing of payments received on
charged-off loans was updated accordingly.
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\26\ 15 U.S.C. 1681c(a).
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Maintaining Records
In developing its policies and procedures, a furnisher should
address how to ``maintain[ ]records for a reasonable period of time,
not less than any applicable recordkeeping requirement, in order to
substantiate the accuracy of any information about consumers it
furnishes that is subject to a direct dispute.'' \27\
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\27\ 12 CFR 1022.42, Appendix E, III(c).
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Examiners found at one or more furnishers that the policies and
procedures for handling direct and indirect disputes required only the
retention of certain documents. Examiners found that the retained
documents did not substantiate the accuracy of the furnishers' decision
as to the dispute. Deficient documentation included the failure to
memorialize what the agent reviewed or the logic of the agent's
investigation. Examiners attributed these failures to the weak policies
and procedures and the failure to conduct monitoring or a compliance
audit to identify the inadequate record retention. Examiners also found
that when furnisher(s) processed an indirect dispute, they did not
retain a copy of the attachments submitted by consumers to the CRC in
connection with the dispute. By not retaining attachments, a furnisher
compromises its ability to conduct ongoing quality checks of its
dispute investigations. Supervision directed furnisher(s) to retain
attachments submitted with indirect disputes for a reasonable amount of
time.
Additionally, examiners found that furnisher(s) did not have
adequate written policies and procedures in place to properly identify
and track direct disputes. Accordingly, examiners were unable to verify
that the furnisher(s) undertook a reasonable reinvestigation within the
legally required timeframe. Supervision directed the furnisher(s) to
ensure records related to disputes are maintained for a reasonable
amount of time. Supervision made this direction to rectify the
furnisher(s)' failure to consider the guidelines as required by
Regulation V in developing their policies and procedures.
Feedback From Consumer Reporting Companies
In establishing and implementing its policies and procedures, a
furnisher should consider any feedback received from CRCs, consumers,
or other appropriate parties.\28\ The feedback may indicate compliance
gaps or persistent violations that the furnisher should address.\29\
Examiners found instances where furnisher(s) failed to:
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\28\ 12 CFR 1022.42, Appendix E, II(a)(3).
\29\ Id.
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Have policies or procedures for the handling of feedback
received from CRCs related to data quality;
review exception reports or identify, correct, and
resubmit invalid
[[Page 16815]]
data identified by the exception reports; and
have policies and procedures that provide sufficient
guidance to dispute-handling agents on how to proceed when the
information provided by the consumer is inconsistent with the
information contained in the furnisher's system.
Oversight of Service Providers
Furnishers' policies and procedures should address appropriate and
effective oversight of relevant service providers whose activities may
affect the accuracy and integrity of information furnished to CRCs.\30\
Examiners found that furnisher(s)' policies and procedures failed to
ensure appropriate oversight of their service provider(s). The lack of
policies and procedures resulted in the improper sale to one or more
debt buyers of consumer deposit accounts that were erroneously charged
off. Supervision directed the furnisher(s) to ensure that the written
policies and procedures consider and address, as appropriate, the
oversight of service providers and other guidance provided in Appendix
E of Regulation V.
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\30\ 12 CFR 1022.42, Appendix E, III(f).
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Quality Control
Appendix E of Regulation V states that a furnisher, in developing
its policies and procedures, should specify how it will establish and
implement appropriate internal controls for the accuracy of information
furnished. These controls can include implementing standard procedures
and verifying random samples of information provided to CRCs.\31\
Internal controls can identify data accuracy issues early on and lead
to appropriate corrective action to address such issues.
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\31\ 12 CFR 1022.42, Appendix E, III(d).
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In one or more reviews, examiners found the following deficiencies
in quality control:
Failure to perform quality checks on the data furnished to
CRCs;
failure to test for the accuracy of the information after
it is furnished, such as whether the amount furnished as charged off is
correct or whether the name or other identifying information of the
account holder is correct;
failure to conduct ongoing periodic evaluations or audits
of furnishing practices, or data furnished to CRCs; and
failure to conduct audits of dispute information to
identify and correct root causes of any inaccurate furnishing.
Reasonable Investigations of Disputes
Appendix E of Regulation V provides that furnishers' policies and
procedures should be reasonably designed to promote reasonable
investigations of consumer disputes and take appropriate action based
on the outcome of such investigations.\32\ Examiners found that one or
more furnishers' policies and procedures failed to promote reasonable
investigations of disputes.
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\32\ 12 CFR 1022.42, Appendix E, I(b)(3).
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Training of Staff
In developing their policies and procedures, furnishers should
address how they will train the staff that participates in activities
related to the furnishing of information on how to implement the
policies and procedures.\33\ A well-trained staff is a key component of
a strong compliance management system. Examiners found that one or more
furnishers established policies and procedures that failed to address
training related to furnishing. At one or more furnishers of consumer
deposit account data, examiners also found no evidence that
furnisher(s) provided training to employees related specifically to
furnishing of consumer deposit-related data or dispute handling and
resolution. Supervision directed one or more furnishers to update and
conduct training to ensure adequate handling of direct and indirect
disputes of consumer deposit account information.
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\33\ 12 CFR 1022.42(b), Appendix E, II(e).
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Periodically Review and Update Furnishing Policies and Procedures
Regulation V requires furnishers to review their policies and
procedures ``periodically and update them as necessary to ensure their
continued effectiveness.'' \34\ CFPB examiners found that furnisher(s)
did not review and update their furnishing policies and procedures as
necessary for compliance with this requirement. Supervision directed
furnisher(s) to update and implement revisions to their policies in
accordance with Regulation V.
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\34\ 12 CFR 1022.42(c).
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3.4 Data Accuracy Requirements of Furnishers
Reporting Information With Actual Knowledge of Errors
Inaccurate reporting undermines the central purpose of consumer
reports, which is to predict, among other factors, the potential
creditworthiness of consumers. Section 623(a)(1)(A) of the FCRA
requires that a furnisher shall not furnish any information relating to
a consumer to any CRC if the furnisher knows or has reasonable cause to
believe that the information is inaccurate.\35\
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\35\ 15 U.S.C. 1681s-2(a)(1)(A).
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Examiners found one or more furnishers provided consumer
information to CRCs while knowing or having reasonable cause to believe
that the information was inaccurate because the information furnished
did not accurately reflect the information in the furnisher(s)'
systems. The types of information inaccurately furnished included that:
Consumers were delinquent;
consumers had no payment history;
consumers had a ``$0'' actual payment amount;
consumers had an unpaid charged-off balance when consumers
had, in fact, settled the account in full; and
amounts past due and bankruptcy status.
A furnisher is not subject to Section 623(a)(1)(A) if the furnisher
clearly and conspicuously specifies an address for consumers to provide
notice that they dispute specific information as inaccurate.\36\
However, the FCRA does not require a furnisher to specify such an
address.\37\ Supervision determined that one or more furnishers did not
clearly and conspicuously specify such an address to consumers.
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\36\ 15 U.S.C. 1681s-2(a)(1)(C).
\37\ Id.
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Date of First Delinquency
The date of first delinquency is important for CRCs, creditors, and
consumers because it determines when information on a consumer report
becomes obsolete and may no longer be reported.\38\ The FCRA requires
furnishers of information regarding delinquent accounts to report the
date of delinquency to the CRC within 90 days.\39\ In one or more
reviews, furnisher(s) failed to report accurate dates of first
delinquency on accounts when consumers who had been delinquent filed
for bankruptcy. Specifically, one or more furnishers updated the date
of delinquency when consumers filed for bankruptcy to reflect the date
of bankruptcy filing as the date of first delinquency. Supervision
directed furnisher(s) to re-evaluate the accounts with bankruptcy,
[[Page 16816]]
charge-off, and other applicable post-delinquency statuses to confirm
the date of first delinquency was reported accurately and to promptly
correct and update the dates of first delinquency with the CRCs, as
necessary.
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\38\ 15 U.S.C. 1681c(a)-(b). Information may be reported if
certain exceptions specified in the statute apply.
\39\ 15 U.S.C. 1681s-2(a)(5)(A). This provision applies to
accounts placed for collection, charged to profit or loss, or
subjected to similar action. The date of delinquency is the month
and year of the commencement of the delinquency on the account that
that immediately preceded the action (e.g., placement of the account
for collection).
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Failure To Update and Correct Inaccurate Information
When furnishers become aware of inaccurate information previously
furnished to a CRC, the furnisher must inform the CRC that the
previously furnished information is incorrect and promptly update the
information.\40\ Examiners found that one or more furnishers violated
this requirement in the following ways:
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\40\ 15 U.S.C. 1681s-2(a)(2). The FCRA requires a person who (A)
regularly and in the ordinary course of business furnishes
information to one or more CRCs about the person's transactions or
experiences with any consumer; and (B) has furnished to a CRC
information that the person determines is not complete or accurate,
to promptly notify the CRC of that determination and provide to the
company any corrections to that information, or any additional
information, that is necessary to make the information provided by
the person to the company complete and accurate, and to not
thereafter furnish to the company any of the information that
remains incomplete or inaccurate.
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Failing to promptly update the information provided to
CRCs after determining that consumer information was not complete or
accurate;
failing to promptly update payment information for
charged-off accounts when consumers made payments under payment plans;
lacking oversight of the furnisher's service providers,
who delayed updating incomplete or inaccurate consumer information from
a range of 190 days up to 337 days; and
failing to update reports to reflect delinquencies that
had been cured when a consumer had a qualifying deferment during the
period of delinquency.
Supervision directed the furnisher(s) to correct these violations
to ensure prompt updating and correcting of inaccurate or incomplete
information.
3.5 Dispute Handling Requirements
Notice That Dispute Is Frivolous or Irrelevant
Notifications to consumers regarding action, or inaction, taken on
disputes by furnishers play an important function in the dispute
process. Regulation V requires furnishers to conduct a reasonable
investigation of a direct dispute and report the results of the
investigation to the consumer.\41\ There are exceptions to this
requirement, including where a furnisher is unable to investigate the
dispute due to the consumer not providing sufficient information, or
providing substantially the same information as a previously submitted
dispute, when the furnisher can make a reasonable determination that
the dispute is frivolous or irrelevant.\42\ In those instances, the
furnisher must notify the consumer of the determination no later than
five business days after making the determination.\43\ The notice must
include the reasons for such determination and identify any information
required to investigate the disputed information.\44\ In one or more
reviews, furnishers decided not to investigate consumer disputes,
having determined that certain consumers did not provide sufficient
information to investigate the disputed information. When the
furnisher(s) made this determination, they failed to provide proper
notice to consumers of a reasonable determination that a dispute was
frivolous or irrelevant, in violation of Regulation V. Supervision
directed furnisher(s) to provide proper notice to consumers of a
frivolous or irrelevant dispute determination.
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\41\ 12 CFR 1022.43(e).
\42\ 12 CFR 1022.43(f)(1).
\43\ 12 CFR 1022.43(f)(2).
\44\ 12 CFR 1022.43(f)(3).
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Failure To Report the Results of Direct Dispute Investigations to
Consumers
The FCRA and Regulation V require furnishers to complete their
investigations of direct disputes received from consumers and to report
the results to the consumer before the applicable expiration
period.\45\ Examiners found that one or more furnisher(s) conducted an
investigation of disputes and sent the consumers response letters, but
the letters did not adequately address the actual substance of the
disputes. For example, if a consumer disputed that the furnisher(s) had
reported the consumer as delinquent during a particular time frame, the
furnisher(s) sent a form letter in response that contained only a
payment history of the account, including for the time period at issue
in the dispute. Supervision determined that the furnisher(s)' policies
and procedures did not provide sufficient guidance on the content of
resolution letters for disputes and directed the furnisher(s) to
evaluate and improve the clarity of dispute resolution letters to
ensure the results are more clearly reported to consumers.
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\45\ 15 U.S.C. 1681s-2(a)(8)(E)(iii) and 12 CFR 1022.43(e)(3).
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Examiners also found that furnisher(s) failed to provide the
results of direct dispute investigations to consumers in bankruptcy.
Examiners determined that the furnisher(s) had system errors, which
misinterpreted the automatic stay provision of the bankruptcy code and
suppressed result letters to consumers. Supervision directed
furnisher(s) to rectify these issues.
Failure To Comply With Indirect Dispute Handling Requirements
Furnishers are required, after receiving notice of a dispute of the
completeness or accuracy of any information from a CRC, to conduct an
investigation with respect to the disputed information.\46\ This
includes a review of all relevant information provided by the CRC and
reporting the results of the investigation to the CRC within required
time periods.\47\ Examiners found that furnisher(s) failed to complete
their dispute investigations within the time periods required by the
FCRA. Examiners found that furnisher(s), in order to meet the timing
requirements, responded to notice of disputes from CRCs by verifying
the information when, in fact, the furnisher(s) had not completed the
investigations and had not determined the accuracy of the information
disputed by the consumer. Supervision directed furnisher(s) to
investigate such disputes in compliance with the FCRA, which requires
furnishers to complete an investigation and provide the results of that
investigation to the consumer and to the CRCs.
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\46\ 15 U.S.C. 1681s-2(b)(1)(A).
\47\ 15 U.S.C. 1681s-2(b)(1)(B)-(D).
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Examiners also found that one or more furnishers failed to conduct
an investigation of indirect disputes. Supervision directed furnishers
to update and implement dispute handling policies and procedures to
ensure disputes are handled in accordance with the requirements of the
FCRA.
3.6 Permissible Purpose
The FCRA prohibits a person from obtaining a consumer report unless
the consumer report is obtained for a purpose authorized by the
FCRA.\48\ This prohibition protects the privacy of consumers and
prevents the potential negative impact of certain inquiries. Examiners
found that one or more institutions obtained consumers' consumer
reports by falsely representing to CRCs that those consumers had
applied for a loan and that the institution(s) thus had permissible
purposes to obtain the reports. Supervision directed the institution(s)
to:
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\48\ 15 U.S.C. 1681b(f).
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Establish and implement effective policies and procedures
to ensure the
[[Page 16817]]
consumer's report is not obtained without a permissible purpose;
strengthen the monitoring and testing function to respond
to agent violations more quickly; and
report to the board quarterly on the number of complaints
and disputes involving consumer reports obtained without a permissible
purpose.
4. Conclusion
Supervision's work in the consumer reporting market is ongoing and
remains a high priority. Consumer reporting companies and furnishers
have an obligation to maintain the accuracy of consumer data, but
experience indicates that they lack incentives and under-invest in
accuracy. Indeed, these most recent supervisory findings underscore
Supervision's concern about the lack of resources that furnishers in
particular have devoted to this important function and the resulting
violations of law.
We have targeted substantial resources to improve the accuracy of
consumer information, and we will continue to do so. We have observed
steady progress at consumer reporting companies to improve data
governance. However, we also observed that one or more CRCs have not
yet finalized the development of data governance programs as required
by Supervision, although such improvements are reported to be in the
implementation phase. As to furnisher monitoring programs, Supervision
found one or more CRCs made significant progress in leveraging
furnisher dispute data as part of an accuracy program. But Supervision
also observed that one or more programs require additional development
and formalization of the corrective actions taken for furnishers that
have been identified through the monitoring program. Overall, we are
satisfied with the steady pace of progress in addressing weaknesses
identified in Supervision's first round of accuracy and dispute
resolution reviews and will continue to work with supervised companies
to ensure that they invest the necessary resources to solve compliance
challenges.
Supervision will continue to conduct reviews at a wide range of
furnishers subject to our authority and expects furnishers to evaluate
carefully their entire operations as they relate to their furnishing
practices in light of the FCRA and Regulation V's requirements. We are
encouraged by some positive trends. For example, at one or more large
furnishers, Supervision observed a special emphasis on evaluating, on
an enterprise-wide basis, the furnisher's FCRA compliance management
system. In addition, furnisher(s) proactively established action plans
for recordkeeping and taking inventory of dispute resolution letters
that they will more clearly communicate the results of investigations
to consumers.
Supervision will continue to prioritize new and existing FCRA areas
based on insights from a robust number of data sources that help us to
identify areas where the risk of consumer harm is greatest.
Dated: March 22, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-06904 Filed 4-5-17; 8:45 am]
BILLING CODE 4810-AM-P