Today the Consumer Financial Protection Bureau released a study focusing on the “infrastructure and processes” employed by the three major credit reporting bureaus, Experian, Equifax and Transunion. The paper and the accompanying conference call with the media both focused on the centrality of the credit reporting industry in the lives of American consumers in the search for and managing of credit and debt, as well as the accuracy of the information in the credit reports themselves.
“The report highlights the basic systems the credit reporting companies use to collect, organize, and maintain consumer credit information… And, importantly, it brings us one big step forward in understanding this industry and making it more transparent for consumers,” said CFPB Director Richard Cordray. “The industry is critical in our economy. Without credit reporting, many consumers would likely be unable to get credit.”
Cordray went on to say that just one in five Americans with a credit file actually check their credit reports each year. “This is a shame because the most effective way for consumers to identify errors in their reports is to obtain copies of them and review them. This is also a shame because — while we do not know for sure how common these errors are — we know that people do find errors. And if consumers are not checking their reports, these errors can persist and pop up when a consumer can least afford them, blocking them for borrowing money for a larger purchase or causing them to pay a higher rate of interest than they should,” he said.
Among the central findings of the report were the following:
Furnishing credit information to the NCRAs is a highly concentrated activity, both by institution and by product. The 10 largest institutions furnishing credit information to each of the NCRAs account for more than half of all accounts reflected in consumers’ credit files. Likewise, retail and network-branded revolving credit cards account for nearly 60% of all trade lines.
Inaccuracies can enter into credit reports in a number of ways. Inaccuracies can occur if consumers provide inaccurate data when applying for a loan or if the creditor who furnishes data to the credit bureau inputs consumer information to its systems inaccurately. Inaccuracies can occur when the bureaus match information about a consumer from a particular data furnisher to the wrong individual consumer’s file. Inaccuracies can also come from errors or the lack of identifying information in government records. Inaccuracies can occur when consumers have become victims of identity fraud or identity theft.
The extent to which credit reports contain material inaccuracies is uncertain. There have been conflicting reports on this issue. The Federal Trade Commission (FTC) is expected to release results from its decade-long study on credit report accuracy later this year.
The NCRAs have created an automated system for handling consumer disputes and forwarding them to data furnishers. Through this automated system — called e- OSCAR — the NCRAs provide furnishers with one or two numeric codes indicating the nature of the consumer’s dispute and in a minority of cases (26%), explanatory text. At present, the NCRAs generally do not forward documentation that consumers submit with mailed disputes or provide a mechanism for consumers to forward supporting documents when filing disputes online or via phone. The NCRAs resolve an average of 15% of trade line disputes internally (without furnisher involvement) and refer the remaining 85% of the disputes they receive from consumers concerning trade lines to data furnishers through e-OSCAR. The furnisher of the disputed data is then required by the FCRA to investigate the dispute and report back to the NCRA.
The NCRAs’ reliance on furnisher responses as the principal means of resolving disputes is a source of controversy. The NCRAs report that in seeking to maximize accuracy and in resolving disputes, they rely on furnishers meeting their obligations under the FCRA to report information accurately and to respond to disputes appropriately. Consumer advocates have argued that the NCRAs have an obligation to monitor and manage furnisher practices as part of their broader obligation to achieve credit report accuracy.
While the measurement of credit report accuracy and the level and causes of inaccuracies present challenges, periodic measurement of credit report accuracy holds promise for establishing baseline accuracy levels and measuring improvements over time.
Image: teesha dunn, via Flickr