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Outdated Records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error in background reports is the CRAs’ failure to update public records information, resulting in the reporting of outdated records.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

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.

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

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 Bureaus Still Failing Consumers

Recently on November 10, 2021, U.S. Senators Senators Brian Schatz (D-HI), Sherrod Brown (D-OH), Ron Wyden (D-OR), Elizabeth Warren (D-MA), Jack Reed (D-RI), Chris Van Hollen (D-MD), and Ben Ray Luján (D-NM), urged the Consumer Financial Protection Bureau (CFPB), to take action to reform the credit reporting industry. 

They want the consumer reporting agencies (CRAs) to improve the accuracy of credit reports, minimize the hassle, and hold the CRAs accountable for errors. 

The smallest of errors could affect millions of people. This could prevent them from getting a job or housing at no fault of their own. These mistakes, consumers may pay more for credit and be denied loans, getting mortgage, or renting an apartment. 

A study that took pace in 2012 found that one in five consumers had an error on their credit reports and five percent had errors that were economically damaging. A followup in 2015 found that nearly 70% of the impacted consumers surveyed three years earlier continued to dispute information. 

If you need information on the disputing process or to seek legal action, contact us for help at anytime. 

Navient's Deceptive Practices

Navient is one of the most well know student loan services in the United States. Millions of borrowers use this company to repay their federal and private student loans. They have lawsuits that allege harmful and deceptive practices that could impact your student loans. 

Below we will go deeper into Navient lawsuits that have began since 2017. 

Borrowers Being Mislead

The Consumer Financial Protection Bureau (CFPB) stated that Navient “illegally failed borrowers at every stage of repayment.” The CFBP alleged in a lawsuit that Navient damaged borrowers by providing negative and sometimes false information such as: not processing payments correctly and not taking the appropriate steps to rectify situations when borrowers submitted complaints to company.

The lawsuit had alleged that Navient purposely caused many borrowers to pay more on their loans than they were expected to. The CFBP is suing Navient for borrowers to get financial relief from their mishandling. 

The suit alleged that Navient directed borrowers into forbearance over other preferred options such as income-driven repayment plans. A forbearance temporarily pauses student loan payments without hurting the borrowers repayment standing, but the interest builds up while the borrower is not making payments. This means that borrowers end up paying more in interest rather than being able to save money while choosing the IDR plan. 

Navient Advises Pricey Options 

A lawsuit filed in October 2020 in New Jersey alleges that Navient pressured borrowers into taking out private student loans with co-signers, even though it wasn’t in the best interest of the borrower. New Jersey states that Navient told borrowers they could have family members guarantee their private loans as co-signers, but set in place almost impossible hurdles to let borrowers release their co-signers from the loan. This makes it so that Navient gets paid if the borrower defaults on the loan since Navient is able to collect by charging the co-signer on the loan. 

Lies and Collections

New Jersey states that Navient would tell borrowers that they owed more on the loan than they really did if they were behind on their loans. Navient did this by collecting the amount that was past due and also the next months amount. This has caused borrowers to overpay hundreds of dollars oftentimes when they could not afford it. The CFPB alleged that Navient would not allow some borrowers to discharge their loans even though they qualified. The CFPB stated that “severely and permanently disabled borrowers with federal student loans, including veterans whose disability is connected to their military service, have a right to seek loan forgiveness under the federal Total and Permanent Disability discharge program—Navient misreported to the credit reporting companies that borrowers who had their loans discharged under this program had defaulted on their loans when they had not.” 

How This Affects Your Student Loans 

Many lawsuits are still on-going, so as of right now you won’t see an impact. If you are experiencing any issues with your student loan servicer, you can take these steps to ensure that it is working in your best interest: 

• Review all of the details in your loan. Whether you have been on autopay or have not been able to make payments in awhile, you might not know what is happening with your loans or even the types of loans you have. Since Navient services private and federal loan lenders, you should check what you have before exploring your options.

• Look for alternatives on your own. You can explore different repayment options such as: income-driven repayment plans, forgiveness, or student loan refinancing. It is vital to know what options you have before speaking to your loan servicer so that you are informed about different offers.

• Ask the servicer for options. After researching on your own, contacting your servicer is next. Ask them what you qualify for and how each option will impact your repayment and what you will eventually repay over the lifetime of your loan. If the lender mentions that you do not qualify for specific programs or if they direct you to more expensive programs and payment options — it may be a red flag.

• File a complaint if necessary. If you believe that your loan servicer is causing you to pay more money than you think you owe or you’re being mislead, consider filing a formal complain. You can do this directly with your lender, your states attorney general or at the federal lever with the U.S. Department of Education, Federal Trade Commission, or the CFPB. If you do this, you will need documentation proving your case. Keep a detailed record of notes, every phone calls, and correspondence with your lender.

Does Navient Service Your Loan? 

Navient services millions of borrowers but it does not service ever borrower. You can check your servicer with the Department of Education if you have federal loans. The best way to find out who services your private loans is to check your latest correspondence. If you have not made payments in awhile, you should check your credit report. You can do this for free through www.AnnualCreditReport.com. Due to the pandemic you can check your reports weekly for free until April 2022. This will allow you to see all of your debt, including delinquencies, in default, and paid off loans. 

Will Navient Forgive Student Loan Payments? 

A lawsuit against Navient that was settled July 2020 gave no monetary damages to the borrowers affected. Instead, Navient implemented improved training for employees regarding PSLF. It is a possibility that future lawsuits could proved the affected borrowers a monetary compensation, but it is unlikely that Navient will forgive student loan payments. 

Many lawsuits are still ongoing. If you feel that you have been negatively and wrongfully affected by Navient, consider reaching out for help and guidance. 

Home Security Company Violated FCRA and Must Pay a $600,000 Civil Penalty

On December 11th, 2020 a home security company in Utah  had an alleged violation of the Fair Credit Reporting Act (FCRA). The Consumer Financial Protection Bureau (CFPR) announced that the Arkansas Attorney Generally reached a settlement with Alder Holdings, LLC. Alder charged higher activation fees to consumers with lower credit scores without providing a notice. 

The settlement terms include a $600,000 civil penalty that Alder will pay and they will have be required to provide proper notices to their customers in the future. Alder sells home security alarm systems by door-to-door selling. They have sold products and services to over 115,000 customers. When a salesperson sells an alarm system, the customer is entered into a long-term contract that contains monthly monitoring fees and an initial activation fee. Through monthly installments, the activation fee may be deferred. 

The alarm and monitoring material is sold to the customer at a much lower price than the retail value. Alder then recoups their costs and makes a profit through the deferred activation fee, monitoring fee, and the arrangement of the long-term contract. 

Alder grants that their customers have the right to defer payment of the activation fee and this arrangement qualifies as an extension of credit for FCRA purposes, according to the complaint. Not all customers of Alder are charged the same activation fee. Each customer is evaluated by Alder, and is evaluated by their credit score. The score determines the amount that the customer has to pay for the activation fee. The FCRA’s Risk-Based Pricing Rule regulates the practice of providing a less than favorable credit terms based on a review of a consumers credit report. This requires that that a company utilizing this practice must provide a Risk-Based Pricing Notice to the affected customers. This notice has to contain information about the consumers report, the identity of the provider of the report, and the customers rights under the federal law to obtain a copy of the report and include an option to dispute its accuracy, among other things. 

Alder failed to provide these notices to their customers, and has violated the FCRA and regulation V according to the complaint. 

Alder is also currently involved in a related litigation with the State of Arkansas in Arkansas state court. According to the terms of the settlement, if Alder will agree to pay $100,000 to settle the related state-court litigation, that amount will be offset from the $600,000 civil penalty in this case.