[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