CFPB Addresses Background Check Accuracy

Effective as of January 23, 2024, the CFPB issued an advisory opinion addressing issues in background check reports, which are used by most employers and landlords to screen workers and renters.

About forty-five states now allow people to expunge, seal, or set aside certain convictions in some circumstances, but background check CRA’s sometimes include these records in consumer reports they provide to employers and landlords.

The CFPB advisory opinion states that background reports should not contain records that have "been expunged, sealed, or otherwise legally restricted from public access” and that a CRA violates § 1681e(b) if it fails to follow reasonable procedures to prevent such records from appearing in consumer reports. FCRA Background Screening AO, 89 Fed. Reg. 4171, at 4172 (Jan. 23, 2024).

These laws are intended to give consumers a new start and recognizes that lingering criminal records hinder a consumer from housing, jobs, and economic stability.

Outdated Records

A common error in background reports is the CRAs’ failure to update public records information, resulting in the reporting of outdated records. This often occurs when the CRA fails to purchase updates from public record vendors or reliance on automated record scraping that ignores developments in a legal case. The CFPB advisory notes that these practices violate the FCRA. A CRA must have reasonable procedures to include “any existing disposition information if it reports arrests, criminal charges, eviction proceedings, or other court filings.”

Duplicate Records

Background reports commonly contain multiple entries for the same criminal case. Duplicate entries are because the CRA or its vendor obtains information from multiple sources. The CFPB advisory opinion requires that, when a CRA reports multiple stages of the same court proceeding, “it must have procedures in place to ensure that information regarding the stages of these court proceedings (such as an arrest followed by a conviction) is presented in a way that makes clear the stages all relate to the same proceeding or case and does not inaccurately suggest that multiple proceedings or cases have occurred.” If duplicate records caused by a CRA collecting information from multiple sources, the CRA “must take particular care to identify information that is duplicative to ensure that information is accurately presented in consumer reports.”

Seven Year Reporting Period

The FCRA limits the reporting of most adverse information to seven years (Section 1681c(a). The exceptions are for bankruptcies, which can be reported for ten years and criminal convictions which can be reported indefinitely. Arrests, criminal charges, and eviction cases are subject to the seven-year limit. A CRA cannot report an arrest for up to seven years from the date of dismissal, rather than from the date of the arrest record.

The CFPB Continues to Propose a Rule to Ban Medical Debt

The Consumer Financial Protection Bureau (CFPB) has proposed a rule to ban medical debt from credit reports. This has led to frustration among collectors and financial services firms. The proposal aims to help families recover from medical crises, prevent debt collectors from coercing people into paying bills they may not owe, and ensure that creditors do not rely on data that is often inaccurate. The CFPB's research shows that medical debt has little predictive value in credit decisions, and the data inaccuracies in medical debt reporting can erode the utility of the credit reporting ecosystem. Some collectors have already been moving away from reporting medical debt to credit agencies due to concerns about data integrity and their ability to comply with the Fair Credit Reporting Act

Consequences

The potential consequences of the CFPB's plan to ban medical debt from credit reports are a subject of debate. Collectors and financial firms claim that the proposal would restrict lending, raise borrowing costs, and result in more denials of credit to consumers. They argue that hiding medical debt from credit bureaus would further reduce credit scores' utility as a proxy for a borrower's ability to repay, which they believe doesn't benefit anyone.

The potential consequences for consumers are still uncertain and will likely depend on the outcome of the CFPB's proposal and any subsequent changes to the credit reporting system.

Arguments

The arguments against the CFPB's plan to ban medical debt from credit reports are primarily related to the CFPB's funding structure and the potential impact on the credit reporting system. The CFPB's funding mechanism, which allows it to request funding from the Federal Reserve instead of Congress, has been the subject of a legal challenge. Critics argue that this funding structure insulates the CFPB from congressional oversight and that the agency's actions, including the proposed rule on medical debt, could be called into question if the funding mechanism is found to be unconstitutional.

Efforts

CFPB research found that 58 percent of all third-party debt collection tradelines were for medical debt, making medical debt the most common debt collection tradeline on credit records in 2021. Last March, the big three credit reporting conglomerates, Equifax, TransUnion, and Experian, announced that they would stop reporting some, but not all, medical bills on an individual’s credit report. Large credit scoring companies are moving to models that completely or partially exclude medical bills, though many creditors still rely on older models that haven’t made that shift. VantageScore, an entity owned by the conglomerates, has stopped using medical debt in its scores entirely.

Last April, Vice President Harris launched an all-of-government effort to address the burden of medical debt, and to increase consumer protections around billing and collections. At the time, the Consumer Financial Protection Bureau issued a bulletin to prevent unlawful medical debt collection and reporting in light of the No Surprises Act. The CFPB has taken many steps to ensure that patients are not being unfairly treated, particularly when it comes to coercive credit reporting and collection tactics.

Rohit Chopra, director of the Consumer Financial Protection Bureau, continues to defend the agency's proposal to prevent credit bureaus from considering medical debt in consumer credit scores

What is a Mixed Credit File?

What is a Mixed Credit File

A mixed credit file occurs when your credit information gets combined with someone else's on your credit report, leading to inaccuracies that can negatively affect your credit scores. This can happen due to data entry errors, sharing a name with a family member, having a common surname, similar name spellings, sharing a birthday, or having a Social Security number similar to someone else's.

Consequences of Having a Mixed File

Having a mixed credit file can have several consequences, including poor credit ratings, credit denials, and higher interest rates. When your credit information gets combined with someone else's, it can lead to inaccuracies in your credit history and identifying information. This can result in you being denied for credit, receiving higher interest rates on loans or credit cards, and even being denied for a job or a home rental or mortgage. It can also lead to confusion and difficulty in fixing the errors, as well as potential violations of the Fair Credit Reporting Act.

How to Check If You Have a Mixed File

To check if you have a mixed credit file, you should periodically review your credit report for any unfamiliar information. You can do this by obtaining your credit report from the three major credit bureaus—Equifax, Experian, and TransUnion. You can check your reports for free once a week at: https://www.annualcreditreport.com

Look for any errors or inaccuracies, such as unfamiliar addresses, accounts, or personal information. If you find someone else's information on your credit report, you may have a mixed credit file. In this case, you should submit a dispute with all the credit bureaus that have incorrect information on your credit reports and provide documentation to verify your identity. This may include your full name, date of birth, Social Security number, and current address.

If you find a mixed credit file, you should take the following steps to resolve the issue:

1. Obtain Your Credit Reports: Regularly check your credit reports from the three major credit bureaus—Equifax, Experian, and TransUnion—to look for any errors or inaccuracies, such as unfamiliar addresses, accounts, or personal information.

2. File a Dispute with the Credit Reporting Agency: Contact the credit reporting agency that has the mixed file and file a dispute. You can do this online, by mail, or over the phone. Clearly explain the issue and identify the specific items that you believe are incorrect. Provide documentation and evidence to support your claim, including your full name, date of birth, Social Security number, and current address.

3. Provide Supporting Documentation: Ensure that you provide consistent and correct information to all of your creditors and financial institutions, including your full name, Social Security number, date of birth, and current and previous addresses.

4. Follow Up: Follow up with the credit reporting agencies to ensure that the errors are corrected and that your credit reports are accurate.

It's important to address any discrepancies as soon as possible to prevent any adverse impact on your credit and financial opportunities.

Contact us if you are having trouble disputing these errors. We can help!

What Does Your Credit Score Mean?

If you know your credit score but don't know what the number means, there are several resources available to help you understand your credit score and how it impacts your financial health. Here are some steps you can take:

1. Understand what a credit score is: A credit score is a three-digit number that represents your creditworthiness, or the likelihood that you will pay your bills on time. It is calculated based on the information in your credit report.

2. Learn about credit score ranges: Credit scores typically range from 300 to 850, with higher scores indicating better creditworthiness. Different lenders may have different criteria for what they consider a "good" credit score, but generally, a score above 700 is considered good.

3. Understand how your credit score is calculated: Credit scores are calculated based on several factors, including payment history, amounts owed, length of credit history, new credit, and credit mix.Understanding these factors can help you identify areas where you can improve your credit score.

4. Check your credit report: Your credit report contains the information that is used to calculate your credit score. You can request a free copy of your credit report from https://www.annualcreditreport.com Reviewing your credit report can help you identify errors or inaccuracies that may be impacting your credit score.

5. Take steps to improve your credit score: If your credit score is lower than you would like, there are several steps you can take to improve it. These include paying your bills on time, paying down debt, and avoiding opening too many new credit accounts at once.

Credit Score Range

Credit scores typically range from 300 to 850, and different credit score ranges can indicate different levels of creditworthiness. Here are the most common credit score ranges and what they mean:

1. Poor: A credit score below 580 is generally considered poor and may make it difficult to qualify for credit or loans.

2. Fair: A credit score between 580 and 669 is considered fair and may qualify you for some credit or loans, but at higher interest rates.

3. Good: A credit score between 670 and 739 is considered good and may qualify you for credit or loans at competitive interest rates.

4. Very Good: A credit score between 740 and 799 is considered very good and may qualify you for credit or loans at even more competitive interest rates.

5. Exceptional: A credit score above 800 is considered exceptional and may qualify you for the best interest rates and terms on credit or loans.

It's important to note that different lenders may have different criteria for what they consider a "good" credit score, and credit score ranges can vary based on the scoring model used to evaluate them. However, understanding these credit score ranges can help you gauge your credit health and take steps to improve your credit score over time.

How Often Do Credit Scores Update?

Credit scores typically update at least once a month, but the frequency could vary depending on your lenders and unique financial situation. Lenders usually report updated information every 30-45 days, so it's possible you might receive an updated credit score each month.

However, every lender has its own reporting schedule and policies, so there is no set date each month when you can expect your credit scores to be updated. The information in your credit reports must update first before your credit scores can update.

The frequency of credit score updates depends on how many active credit accounts you have and when each of those lenders reports new information

It's important to note that each credit monitoring service may update at different times, and not all lenders report to all three credit reporting agencies, which is one reason why you may see some variations in your credit scores.

Several factors can affect credit scores, including:

1. Payment history: Payment history is the most significant factor that affects credit scores, accounting for 35% of the total score. It considers whether you have paid your bills on time for each account on your credit report, including credit cards, loans, and other debts.

2. Amounts owed: The total amount you owe on your credit accounts and the percentage of your available credit that you are using also affect your credit score. This factor makes up 30% of your credit score.

3. Length of credit history: The length of time you have had credit accounts is another factor that affects your credit score, accounting for 15% of the total score. The longer your credit history, the better your score.

4. New credit: Opening new credit accounts can also affect your credit score, making up 10% of the total score.

5. Applying for multiple credit accounts in a short period can negatively impact your score.

6. Credit mix: The types of credit accounts you have, such as credit cards, loans, and mortgages, also affect your credit score. This factor makes up 10% of the total score. Having a mix of credit accounts can positively impact your score.

It's important to note that different credit-scoring models may weigh these factors differently, and lenders may also consider other factors when evaluating your creditworthiness. However, understanding these factors can help you manage your credit accounts and improve your credit score over time.

Ultimately, it's a good idea to check your credit reports regularly for accuracy and monitor your credit score to ensure that you are aware of any changes.

You can check your credit report for free once a week at: https://www.annualcreditreport.com

This site provides your full report from Experian, Equifax, and TransUnion.

Credit Bureaus Unveiled: The Power, Consolidation, and Consumer Struggles from 1970 to Today

In the labyrinthine annals of consumer reporting agencies, known colloquially as credit bureaus, the period spanning from 1970 to the present is a saga marked by intrigue, transformation, and the relentless march of capitalism. Let us dissect the history and evolution of these institutions with the scrutiny they so richly deserve.

The 1970s heralded a pivotal moment in the saga of credit bureaus. The dawn of this tumultuous decade bore witness to the enactment of the Fair Credit Reporting Act (FCRA) in 1970, a piece of legislation ostensibly designed to tame the unruly excesses of these shadowy data behemoths. As noble as its intentions may have been, the FCRA merely provided a veneer of respectability to an industry steeped in opacity.

With the FCRA came a semblance of consumer protection. Agencies were obliged to furnish individuals with the contents of their credit reports, and the onus was placed on creditors to report accurate information. Yet, as any keen observer of human nature might anticipate, the appetite for profit found innovative ways to circumvent these constraints. See e.g., “Key Dimensions and Processes in the U.S. Credit Reporting System: A review of how the nation’s largest credit bureaus manage consumer data,” Consumer Financial Protection Bureau (2012).

Throughout the following decades, the credit reporting landscape witnessed a complex dance of consolidation and acquisition. The likes of Trans Union, Equifax, and Experian, national consumer reporting agencies with insatiable appetites for market dominance, began swallowing smaller agencies whole.

The 1980s bore witness to a frenzy of mergers and acquisitions. Smaller credit bureaus, often regional or specialized in their focus, fell prey to the voracious appetite of the industry giants. This consolidation not only expanded the portfolios of the big three but also concentrated power in their hands, further obscuring the transparency that consumers so desperately needed.

As the 1990s dawned, the big three stood unassailable. Their consolidation of power and data was nothing short of Orwellian, as they amassed dossiers on millions, if not billions, of individuals, their solvency distilled into a numerical metric. Privacy became a quaint relic of a bygone era, as the collection and dissemination of personal financial data became an industry unto itself.

Fast forward to the present day, and the credit bureaus, the unseen puppeteers of financial destinies, have not lost their insatiable appetite for data or dominance. They remain entrenched in the digital age, orchestrating the fates of millions with every transaction, missed payment, and misguided investment.

However, the digital age has also given rise to nascent movements advocating for consumer empowerment. The right to challenge inaccuracies in one's credit report has gained some traction, thanks in part to technology. Furthermore, initiatives have emerged to educate consumers about the importance of financial literacy and the perils of debt. See e.g., “Annual report of credit and consumer reporting complaints: An analysis of complaint responses by Equifax, Experian, and Trans Union,” Consumer Financial Protection Bureau (2023).

I must implore you, dear reader, to remain vigilant in this ongoing narrative. The credit bureaus may have evolved, but their essence remains fundamentally unchanged—an unchecked power, shrouded in secrecy, that wields disproportionate influence over the lives of ordinary citizens.

In conclusion, the history of consumer reporting agencies in the United States from 1970 to the present is a tale of power, profit, and a perpetual struggle for transparency and fairness. As we navigate the treacherous waters of the credit industry, let us heed the lessons of history and demand a future where the balance of power tilts toward the individual, not the corporate behemoths that have long held sway over our financial destinies.

A Quick Guide on Disputing Inaccurate Information on Your Credit File

As an attorney with years of experience, I understand the importance of maintaining accurate credit information. In this guide, I'll walk you through the steps to dispute any inaccuracies you may find on your credit file. It's crucial for your financial well-being to ensure that your credit report is as precise as possible. Let's get started!

**Step 1: Review Your Credit Report**

The first step in this process is obtaining a copy of your credit report. You're entitled to one free report annually from each of the three major consumer reporting agencies: Equifax, Experian, and TransUnion. Just so you know, for public records, obtain your report from LexisNexis.

**Step 2: Identify Inaccuracies**

With your credit report in hand, carefully go through it. Look for any discrepancies, such as incorrect account balances, late payments, or accounts that you don't recognize. Make a note of each item that needs correction.

**Step 3: Gather Supporting Documents**

Having supporting evidence is crucial in the dispute process. Gather any relevant documents that prove the information is inaccurate. This might include receipts, letters, or other paperwork that strengthens your case.

**Step 4: Contact the Consumer Reporting Agencies**

Contact the consumer reporting agencies that issued the report with inaccurate information. You can do this online, by mail, or over the phone. However, we recommend you send your disputes by mail, if possible. Clearly state the errors and provide them with the supporting documents you've gathered.

**Step 5: Dispute with the Creditor**

Simultaneously, contact the creditor associated with the inaccurate information. Explain the situation and provide them with the supporting documents you sent to the consumer reporting agencies.

**Step 6: Keep Records**

It's essential for you to document all communications. Note the date, time, and the names of the individuals you spoke with. This information can be invaluable if the dispute process takes longer than expected.

**Step 7: Be Patient and Persistent**

Resolving credit report inaccuracies can be a time-consuming process. Stay patient and, if necessary, follow up with both the consumer reporting agencies and the creditor.

Conclusion:

Remember, it's your right to have accurate credit information. Stay vigilant and keep track of your progress. If you're in a situation where you need more advice, please don't hesitate to consult a legal professional. If you have any questions, feel free to reach out. Thank you for reading!

FCRA - The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is a federal law that aims to protect the accuracy, fairness, and privacy of consumer credit information. It was enacted in 1970 and has undergone several updates since then.

The FCRA applies to credit reporting agencies (CRAs), lenders, and businesses that use credit reports to make decisions about consumers. The law regulates the collection, dissemination, and use of credit information, as well as the rights of consumers to access and correct their credit reports.

Under the FCRA, CRAs must follow specific procedures to ensure the accuracy of the information they collect and maintain. They must also provide consumers with a copy of their credit report upon request and investigate any disputes regarding the accuracy of the information in their reports.

The FCRA also limits who can access a consumer's credit report and for what purposes. For example, employers must obtain written consent from job applicants before accessing their credit reports, and landlords must provide notice and obtain consent before accessing a tenant's credit report.

Another critical aspect of the FCRA is the requirement for CRAs to maintain reasonable procedures to ensure the confidentiality and security of consumer credit information. This includes implementing safeguards to prevent unauthorized access to credit reports and promptly notifying consumers in the event of a data breach.

Overall, the Fair Credit Reporting Act serves a vital role in protecting the rights of consumers and ensuring the accuracy and privacy of their credit information. To make informed credit decisions, lenders and consumers must understand their legal rights and responsibilities.

Basics of Consumer Credit

What is Consumer Credit?

Consumer credit is the borrowing of money for goods and services. This could be in the form of credit cards, personal loans, and other lines of credit. Total consumer credit comprises of two major types: revolving and non-revolving. The borrower agrees to pay back the borrowed amount plus interest over a set period of time, usually in monthly installments. Consumer credit is commonly used for big purchases such as cars, homes, and education.

Revolving credit

Revolving credit lets you borrow up to the pre-approved credit limit. The borrower is required to make monthly payments either on the full amount or regular payments. Interest is charged on the outstanding balance. Examples include credit cards, home equity lines of credit (HELOCs), and personal and business lines of credit.

Non-revolving Credit

Non-revolving credit is a type of credit a borrower repays in fixed payments over a set period. Unlike revolving credit, a non-revolving credit is a one time arrangement. Once the credit line is paid off, the lender closes the account. Examples include: home mortgage loans, student loans and business loans.

What is a Credit Report?

A credit report is a record of an individuals credit activity and current credit situation. The report is created by the credit reporting agencies also known as credit bureaus or credit reporting companies, that collect information about an individual’s credit accounts, payment history, and other financial transactions that is submitted to them by creditors, such as lenders, credit card companies, and other financial companies. Creditors are not required to report to every credit reporting company.

What’s in My Credit Report?

Your credit report will include:

Personal information

• Your name and any name you may have used in the past in connection with a credit account, including nicknames

• Current and former addresses

• Birth date

• Social Security number

• Phone numbers

Credit accounts

• Current and historical credit accounts, including the type of account (mortgage, installment, revolving, etc.)

• The credit limit or amount

• Account balance

• Account payment history

• The date the account was opened and closed

• The name of the creditor

Collection items

Public records

• Liens

• Foreclosures

• Bankruptcies

• Civil suits and judgments

• A credit report may include information on overdue child support provided by a state or local child support agency or verified by any local, state, or federal government agency.

Inquiries 

Companies that have accessed your credit report.

What are Inquiries?

An inquiry is a record of when a lender, a creditor, or other authorized entity requests to see your credit report. There are two types: hard inquiries and soft inquires.

Hard Inquiry: Occurs when a lender or creditor requests to see and individual’s credit report as part of a credit application for a loan or credit card. Hard inquires can impact a credit score and remain on a credit report for up to 2 years. Multiple hard inquiries within a short period of time can signal to lenders that an individual is seeking a lot of credit, which could be interpreted as a sign of financial distress.

Soft Inquiry: Does not impact credit scores and are not visible to lenders. Soft inquiries can be initiated by the individual when checking their own credit report or by organizations like employers or credit monitoring services.

How Do I Check My Credit Score?

As of April 2023, Annual Credit Report is still allowing access to free credit reports once a week. Go to this link: https://www.annualcreditreport.com/index.action to get your reports from Equifax, Experian, and TransUnion.

What if I See Errors?

If you see errors on your credit report, dispute the information with the credit reporting company in writing. Explain what you think is wrong, why, and included documents that support your dispute.

Missed Payments on Credit Reports

The most important detail in the calculation of your credit score is your payment history. This factor alone accounts for 35% of your FICO credit scores. When you miss or make a late payment it can cause significant damage to your credit score, especially if the late payment is recent or severe.

A late payment may remain on your credit report for up to seven years as allowed by the Fair Credit Reporting Act (FCRA). Getting the late payment removed depends on its accuracy.

The FCRA is a federal law that gives you the right to dispute inaccurate information that appears on your credit report. If you check your credit reports and you find that a late or missed payment shouldn’t be there, you can make a dispute to the three credit bureaus: Experian, Equifax, and TransUnion. The best form of contact is by certified mail and you should provide a form of proof that the missed or late payment is inaccurate. When the credit bureaus receive your dispute they have 30 (sometimes 45) days to perform an investigation and they will either delete, update, or verify that your disputed late payment is accurate and inform you of the results of their investigation.

Another situation to look out for is fraud or identity theft. When a late payment appears on your credit reports, it can damage your credit score even if the late payment is attached to an account that isn’t yours.

If you find that there is a fraudulent account (with or without late payment activity) on your credit report, you should visit IdentityTheft.gov to file an identity theft report. When submitting the dispute to the credit bureaus, you will need to include a copy of your ID theft report. Some consumers and even credit repair companies will file fake fraud disputes claiming that the consumer is a victim of identity theft to avoid their liabilities. Filing a false police report or false identity theft affidavit with the FTC is illegal and can cause you serious trouble.

Legitimate late payments are not likely to be removed. Your best shot to have it removed is at the mercy of your creditor to determine whether it will ask the credit bureau to remove the derogatory information. You can take the chance and call or write your creditor to request a goodwill removal. The best chance of getting a removal is if your account has been in good standing. For example, if you’ve had a loan with a lender for several years, you’re current on your loan, and the late payment in question was your first and only delinquency.

Ways to Improve your Credit Reports and Scores

• Pay down credit card debt and keep your payments consistent. When you reduce your credit card balances, your credit utilization rate may decrease as well. Keeping your payments consistent shows that you are consistent with payments. Making large or below minimum payments puts you at risk.

• Ask for a Credit Limit Increase. A higher credit limit reduces your credit utilization rate/ratio and improves your score.

• Become an authorized User. If you have a friend or family member add you to a well-managed credit card as an authorized user, this can help you build positive credit. You should consider asking someone close to you who has a credit card with no missed payments and a low credit utilization ratio.

Avoid future missed payments. Keeping up with your payments helps improve your credit score over time.

Credit Bureaus, Tenant Screening, Background Checks, and Other Reports

Credit and consumer reporting is one of today's most active areas of consumer litigation, involving individual and class cases against the national consumer reporting agencies aka the “Big Three credit bureaus” (Trans Union, Equifax and Experian), tenant screening agencies, background check companies, and furnishers and users of consumer reports. Credit and consumer report errors can cause significant injury to a consumer's access to credit, employment, residential rentals, and insurance.

Credit and consumer reporting is governed by federal law - the Fair Credit Reporting Act (FCRA).

What is e-OSCAR?

e-OSCAR is the “Online Solution for Complete and Accurate Reporting” system through which the consumer reporting industry (consumer reporting agencies and data furnishers) resolve disputes brought by consumers concerning the accuracy of information maintained in their credit files.

When a consumer contacts a consumer reporting agency with a dispute, the agency transmits an electronic form called an ACDV through e-OSCAR to the data furnisher. The data furnisher responds to the consumer’s dispute by returning the ACDV through e-OSCAR. For example, if a consumer disputes the accuracy of the payment history on their Citibank credit card to Trans Union, Trans Union will send an ACDV to Citibank informing Citibank of the consumer’s dispute and Citibank will respond to that dispute by returning the ACDV to Trans Union.

e-OSCAR also allows data furnishers to correct or delete a consumer’s account by sending an electronic form called an AUD. When a consumer contacts a data furnisher and requests a change of information that has been previously reported, the data furnisher researches the account. If the data furnisher verifies that the account information in question needs to be modified, the company will use the e-OSCAR system to complete an AUD.

Actual Payment Information Suppressed

The biggest credit card companies are suppressing actual payment information on credit reports.

The CFPB reported in 2020 that the largest credit card companies are purposely suppressing customers’ actual payment amounts from their credit reports.  Actual payments are the amounts the borrower repays each month, as opposed to the minimum payments or balance. This means that millions of borrowers are missing key information of their repayment behaviors that impacts their credit. This suppression harms the opportunity to receive better financial offers and costs billions of dollars in interest expenses.

As of 2022, the CFPB reported that Americans paid over $120 billion annually in interest and fees on credit cards and since then the average interest rates charged by credit card companies have been quickly increasing.

Last May, the CFPB sent letters to the CEOs of the nation’s largest credit card companies - JPMorgan Chase, Citibank, Bank of America, Capital One, Discover, and American Express - asking if they furnished actual payment information. They asked why they stopped sending complete data and if they had plans to change their practice.

They learned that:

• One large credit card company took the move first, and the others started suppressing their data shortly after.

• The companies didn’t say when they intended to restart reporting actual repayment information.

• Companies suppress data to limit competition. By withholding information it made it harder for competitors to offer more profitable and less riskier customers better rates, products, or services.

Credit card companies are making it difficult for people to shop for credit and to save money. People expect that their credit behaviors - like paying credit card bills in full each month will be reflected in their consumer reports and credit offer they receive.

More Information from the CFPB: CFPB Summary

Credit Reporting: Compliance Condition Code

What is the Compliance Condition Code (CCC)?

The is reported in a Metro 2 data field which allows furnishers to report a condition that is required for legal compliance. CCCs are used to reflect accounts closed at consumer’s request, and consumer disputes under the Fair Credit Billing Act (FCBA), the Fair Debt Collection Practices Act (FDCPA), or the direct dispute provisions of the Fair Credit Reporting Act (FCRA) .

According to the Consumer Data Industry Association (CDIA), which publishes yearly written reporting procedures on behalf of the national consumer reporting agencies (Trans Union, Equifax and Experian) to be followed by their data furnishers, CCCs should not be reported in response to a consumer dispute investigation request the data furnisher receives directly from the consumer reporting agencies, unless the data furnisher uses a CCC to satisfy its FDCPA obligation to communicate that a debt is disputed.

When the CCC is used to report that some information about the account is or was in dispute, this “dispute flag” should, in principle, be removed or changed to indicate the investigation is complete. In practice, furnishers and consumer reporting agencies often fail to remove this dispute flag from the CCC field after a consumer’s dispute has been resolved. As a result, the dispute flag often remains on the account long after the consumer’s dispute. Moreover, the dispute flag provides essentially no detail on the content of the dispute, including whether the dispute was initially lodged with the furnisher or the consumer reporting agency.

Fraud: Verification vs. Authentication

As we evolve to a virtual format, we are threatened by new forms of fraud. Providing confirmation that a consumer, customer, or organization  is who they say they are usually requires that they provide identity verification and authentication. These terms are not used interchangeably and not knowing the difference can make you vulnerable to fraud.

A verified identity proves that this identity exists, whereas an authentication proves that this user is who they claim to be. However, it is important to note that verifying an identity exists does not prove that it belongs to the person putting in the information.

When creating and securing an account online a combination of a name, address, phone number and email on a form can provide enough information for a company to verify a consumer’s identity to establish trust upon creation of an account. The information can be cross-checked among multiple data sources such as utilities or phone carriers, to ensure the name matches the data on file.

Fraudsters can illicitly obtain identifying information to apply for new accounts in their victims’ names. Some create synthetic identities and fabricate credentials that are not associated with a real person which can fool the verification process.

Some organizations recognized this type of identity theft and have shifted toward a better authentication process that require more than just simply verifying that an identity exists. Organization’s work to confirm that the person who created the new account provide some proof of identity by asking to provide a government photo ID for facial recognition.

Authentication is still an on-going identity-proofing process that checks both the identity of the digital user and ensures the integrity of the device they are using. The most notable system in place currently is the two-factor authentication and one-time passcode method that grant account access to the right person in real time.

A study from CMO Council in 2021 showed that authentication frustration caused 61% of consumers to abandon a transaction. Another report from TransUnions 2022 Global Digital Fraud Trends showed that approximately two-thirds of consumers would switch companies for a better digital experience.

Disputes Ignored: Credit Repair Companies to Blame?

There have been a record breaking amount of complaints from 2020 through 2021, with more than 619,000 in 2021 alone and Rep. James Clyburn, the chairman of the House Select Subcommittee on the Coronavirus Crisis wants credit reporting agencies TransUnion, Experian, and Equifax to be investigated.

The agencies have allegedly failed to respond to consumer complaints during the pandemic and continue to have longstanding problems with consumers raising complaints about credit reporting errors.

In May, the CFPB reported that  4.1% of complaints were resolved in 2021 compared to 25% in 2019 before the pandemic.

It appears that the majority of credit report disputes have not resulted in correction or removal of errors in consumers credit reports. The subcommittee found that between 2019-2012:

• Equifax corrected 43% - 47% of disputed items.

• Experian corrected about 52% of late payment disputes or other inaccurate data.

• TransUnion corrected approximately 49% - 53% of disputed credit reports during this time.

The CARES act, paused loan payments and were supposed to report them as current, though some lenders may have incorrectly categorized them as late.

Consumers have been reporting errors on a larger scale. The CFPB estimated the combined number of dispute submissions among Equifax, Experian and TransUnion to be 8 million in 2011. The subcommittee found that in 2021 Equifax received nearly 14 million complaints alone.

The record breaking amount of complaints consist of nearly 336 million items, including names, addresses and credit accounts on their credit reports. Yet evidence by the subcommittee found that credit raters discard millions of disputes a year without investigation. At least 13.8 million were thrown out between 2018 and 2021.

Discarding disputes violates the Fair Credit Reporting Act (FCRA) if they are submitted directly by consumers to authorized representatives.

The companies defense is that disputes are discarded without investigation when they suspect a credit repair service is making the complaint. Which highlights the importance of why you should make complaints yourself, as they may also be disputing information on your report that is accurate.

The agencies have a criteria that determine which disputes may be submitted by an unauthorized third party. For instance, Equifax, tosses out mail that tends to similar language and formatting and also comes from the same zip code.

Experian takes into account for envelope and letter characteristics, this includes same/similar ink color, same/similar formatting when choosing what disputes to discard.

It was found that credit rating companies referred more than half of the disputes to data furnishers for investigations between 2019 and 2021. TransUnion referred the most.

The prevalence of credit reporting errors have been especially concerning at a time when consumers needed access to their credit to handle difficult economic circumstances brought on by the pandemic. Errors in credit reports have the potential to lower credit scores that could deny access to loans, housing, and possibly employment, among other serious consequences.

Recent reports have noted increased activity among credit repair companies which can inflate the complaint numbers. This seems to be the biggest cause of consumer complaints being thrown out. It highlights the importance of making complaints about credit reporting errors yourself rather than relying on a third party, since many credit repair companies may make illegitimate complaints or dispute information on your reports that are accurate.

The credit reporting industry is continuing to to collaborate with the CFBB and policymakers to better serve consumers and will continue to make better economic opportunity solutions.

Negative Credit Information

Your credit score is likely to be hurt when negative information shows up on your credit report. There is a varying degree of impact from late payments, collection accounts, charge-offs and bankruptcies.

Negative information on your credit report tends to stick around for awhile, and could make it harder to qualify for new financing (such as loans and credit cards). The good news is: they don’t stay on your report forever.

It can be difficult to understand how credit scores work. One puzzling factor is that specific items on your credit report (credit score factors) are not worth a preset number of points.

For example, you won’t automatically lose 20 points, or any set number of points for a 30-day late payment that is newly showing up on your report. You could just be earning fewer points, which would result in a lower score the next time your credit score is calculated.

The credit scoring models like FICO and VantageScore consider all of your credit report information at once. Someone with a clean credit report who receives a new collection account might have a larger decrease in their score than someone who already has blemishes on their credit. However, the person with the cleaner credit report would still have a higher score overall.

Two other factors have a role in how negative information impacts your credit score: age and severity. As for age, a more recent late payment is likely going to damage your score more than a late payment that is several years old.  As for severity, a 90-day late payment tends to be more damaging than one that is 30 days late.

Negative information does the most damage to your credit score when it first appears on your credit report. The derogatory information will hurt your score as long as it is reporting, but becomes less pronounced over time, especially if you have avoided adding more derogatory items.

Any item that is reporting on your credit report is likely to affect your credit score for good or bad. The Fair Credit Reporting Act (FCRA) is a federal law that regulates the three major credit bureaus, as well as others. The maximum shelf life of derogatory information is seven to ten years. There are some exceptions to this rule.

Examples:

7 Years

• Late Payments

• Collection Accounts

• Medical Collections

• Charge- Offs

• Chapter 13 Bankruptcy

10 Years

• Chapter 7 Bankruptcy

• Accounts closed in good standing

2 Years

• Credit inquiries

Indefinite

• Defaulted federal student loans

Incorrect & Outdated Information

There isn’t much you can do about an accurate but negative item on your credit report. You can however, talk to the creditor about a goodwill removal (which is not always granted). Most negative items will keep showing on your credit report as long as the law allows.

If you have an item on your credit report that is inaccurate or it has been reporting for longer than the FCRA permits, there are a few actions you can take.

• Dispute: You have the right to dispute any incorrect or outdated information on your credit report. You can send disputes online or by mail, but the Federal Trade Commission (FTC) recommends using certified mail for dispute letters. This method allows you to verify that your letter was received and that a real person is reviewing your dispute. Online disputes are computerized.

• Complain: Along with disputing the incorrect information on your credit report, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

• Legal Action: If disputes and complaints aren’t fixing your issues, you might consider talking to an attorney specialized in the FCRA. An attorney can help you discover if your rights have been violated. They will advise you on steps you may not have taken and will initiate legal action when necessary.

Negative information on your credit report has the potential to damage your credit score and make it harder to qualify for financing and applying for any type of credit. It is best to avoid issues like late payments charge-offs, and collection accounts. If you do happen to make a mistake or have an error in your credit report, all hope isn’t lost. You can still bounce back and improve your credit for the future.

Hyundai Hurting Credit Reports

On July 26th on the Consumer Financial Protection Bureau (CFPB) penalized Hyundai Capital America (Hyundai) for providing inaccurate information to nationwide credit reporting companies and did not take the proper measures to address or correct this information when it was identified between 2016 and 2020.

Hyundai Capital America serves approximately 1.7 million drivers of Hyundai, Kia and Genesis vehicles and has agreed to pay a $6 million civil fine and $13.2 million in restitution to current and former customers, making this the CFPB’s largest Fair Credit Reporting Act case against an auto servicer.

The CFPB found that Hyundai used manual and outdated systems, processes, and procedures to furnish credit reporting information. This resulted in Hyundai providing negative inaccurate information over 8.7 million times across 2.2 million accounts from January 2016 to March 2020, damaging customers’ credit reports and often resulting in lowered credit scores.

In a statement Hyundai Capital America stated that it launched an “end-to-end review” of it’s credit reporting, and was committed to giving customers “timely, accurate, high-quality service and care.” In the investigation the CFPB received many consumer complaints that Hyundai was inaccurately reporting their accounts. Hyundai identified many of the issues causing these inaccuracies in its internal audit books but it still took years to address the problems.

The CFPB concluded that between January 2016 and March 2020 Hyundai violated the Fair Credit Reporting Act (FCRA) and it’s implementing regulation, Regulation V, by:

• Failing to report complete and accurate loan and lease account information: Hyundai repeatedly did not take steps to promptly update and correct information it furnished to credit reporting companies that it determined was not complete or accurate, and continued to furnish this inaccurate and incomplete information.

• Failing to provide date of first delinquency information when required: FCRA requires data furnishers to provide credit reporting companies the date of delinquency for when a delinquent account is being charged off or placed for collections. Hyundai failed to report a date of delinquency for many consumers who were more than 90 days delinquent.

• Failing to modify or delete information when required: Hyundai’s furnishing system often overrode manual corrections made by employees in responding to consumer disputes. The furnishing system would provide monthly updates to credit reporting companies that reintroduced the data error after it had been disputed and corrected.

• Failing to have reasonable identity theft procedures: FCRA requires furnishers to respond to any notifications from credit reporting companies about furnished information that is the result of identity theft. Hyundai failed to establish reasonable identity theft and related blocking procedures to respond to identity theft notifications, and continued to report such information that should have been blocked on a consumer’s report.

• Failing to have reasonable accuracy and integrity policies and procedures: Regulation V requires furnishers to maintain written policies and procedures regarding the accuracy and integrity of the information furnished. Hyundai failed to review and update its credit reporting furnishing policies and procedures from 2010 to 2017. It was not until 2021 that the company finally updated some of its credit reporting policies and procedures.

Enforcement Action

The CFPB was created by the Consumer Financial Protection Act, and has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices and violating FCRA, which protects consumers from the transmission of inaccurate information about them. Today’s order requires Hyundai to:

• Pay $13.2 million in compensation to current and former customers: As identified by the CFPB, consumers about whom Hyundai, after determining the information was inaccurate, furnished to credit reporting companies inaccurate information that the consumers were 30 or more days past due on an automobile retail installment contract or lease will receive compensation for the harm incurred.

• Pay a $6 million fine: Hyundai will pay a civil money penalty to the CFPB, which will be paid towards the victims relief fund. This fund provides compensation to consumers harmed by violations of federal consumer financial protection law.

• Take steps to correct all inaccurate account information: Hyundai will review all account files that it currently furnishes to credit reporting companies and correct all inaccuracies and errors described in the order and send updated information to the credit reporting companies. Hyundai will also examine its monthly furnishing data processes for the errors described in the order, take reasonable steps to identify such errors, and resolve identified errors before providing the data to any credit reporting company.

• Address procedures identifying and correcting inaccurate information: Hyundai will establish and implement written policies and procedures regarding the accuracy and integrity of the information relating to consumers that it furnishes to a credit reporting company. Hyundai must specifically include processes for identifying and promptly correcting systemic errors in Hyundai’s credit report furnishing system. Hyundai will also examine current policies and procedures and implement changes to the practices of its employees to ensure that its employees properly route, categorize, investigate, and respond to all direct and indirect credit reporting disputes.

Credit Scores are Not Controlled by the Government

There is a misconception that credit scores are controlled by the government and a meme portraying Spiderman that reads: “The people who are $30 trillion in debt are giving you a credit score” is making its rounds on the internet.

Credit scores come from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Consumers have a belief that they are somehow owned, managed and controlled by the federal government but they are not, in fact.

At a fundamental level, the credit bureaus all operate as private, for-profit companies. They are highly regulated by the government by the creation of the Consumer Financial Protection Bureau or the Fair Credit Reporting Act.  But in reality, none of the businesses are mandated by the government.

Credit bureaus work to collect consumer credit information and they sell that information to businesses such as banks and credit card companies. These companies want to know the financial risk of their consumers and are willing to pay for screenings. This determines the likelihood that the consumer will successfully manage a large expense and pay back a loan.

Credit bureaus also work directly with consumers. They are tasked with responding directly to consumer disputes due to mistakes and missing information on credit reports and allow consumers access to their credit scores. If there is fraudulent activity, they allow the consumer to freeze their account or place fraud alerts.

Each company works independently from each other. That is why each report may slightly differ. You may also find that you can access different reports from different places.

Even though the credit bureaus are not apart of the government they are still subjected to laws and regulation. The FCRA has been in existence since the 1970’s. It has been implemented to protect consumer rights when it comes to accuracy, fairness, and privacy of credit information. According to the FCRA you have the right to:

• Be told if information in your credit report has been used against you

• Know what’s in your credit report

• Access your credit score

• Dispute incorrect or incomplete information

• Have incorrect or incomplete information resolved by the credit bureaus

• Have outdated, negative information withheld from your report

• Limit who can access your file

• Give consent to your report being given to employers

• Limit pre-screened credit and insurance offers sent to you

• Seek damages from violators

• Be given additional protections if you’re the victim of identity theft or are on active military duty.