Home > 2014 > Credit 101

CFPB Fines Auto Company $2.75 Million for Distorting Credit Reports

Advertiser Disclosure Comments 0 Comments

It’s every consumer’s worst credit score nightmare — a lender dinging their score repeatedly by sending wrong, negative information to the credit bureaus for years.

On Wednesday, the Consumer Financial Protection Bureau said a Texas-based auto lender did just that, sending bad data to credit bureaus through “systemic inaccuracies,” and ordered the firm to pay a $2.75 million fine.

First Investors Financial Services Group Inc. lends primarily to subprime auto loan borrowers, both through dealers and directly to consumers. The CFPB says the firm discovered a computer glitch in 2011 that caused thousands of errors, but allowed the errors to continue for months, or in some cases, years.

“The company did not replace the system or take any steps to correct the inaccurate information it had supplied,” the CFPB said. “It continued for years to use a system that it knew was flawed. Tens of thousands of consumers were likely subject to these systemic reporting problems.”

Since 2011, First Investors furnished data on 118,855 accounts to the nation’s credit bureaus.

Among the costly mistakes caused by the computer problems:

  • Payments were understated, and past due amounts were overstated
  • Delinquencies were reported as more recent than they should have been, causing consumers’ credit scores to drop excessively. It also meant the derogatory reports would remain on consumers’ credit reports beyond the seven years allowed by law
  • Delinquency rates were inflated “substantially.” In one case, a consumer who was late once in the past 24 months was reported as delinquent 11 times
  • Consumers who voluntarily surrendered their cars were reported as having their cars repossessed.

The lender told the agency that computer glitches, not a desire to harm consumers, were at fault. CFPB Director Richard Cordray said that was no excuse.

“First Investors showed careless disregard for its customers’ financial lives by knowingly distorting their credit profiles for years,” Cordray said. “Companies cannot pass the buck by blaming a computer system or vendor for their mistakes. Today’s action sends a signal that the CFPB will hold companies accountable for sending inaccurate information to credit reporting agencies.”

In its consent order, the agency says First Investors violated the Fair Credit Reporting Act by failing to enact “reasonable …procedures regarding the accuracy and integrity” of the information it supplied to the credit bureaus.

Through a statement emailed to Credit.com by First Investors CEO Tommy Moore Jr., the firm said it admits no wrongdoing. It said the errors impacted between 1% and 12% of consumer accounts.

“To resolve the matter and to avoid the expense and business disruption associated with defending any lawsuit, First Investors elected to settle the CFPB’s claims rather than dispute them in court,” the statement read. “First Investors, like many companies, relies upon an industry-leading service provider to furnish its account information to the consumer reporting agencies. When issues were identified, First Investors worked with its service provider to correct them. All of the issues described in the Consent Order were reported by First Investors to the CFPB and were either corrected or in the process of being corrected when reported.”

As part of the settlement, First Investors will contact impacted consumers and help them obtain a copy of their credit report, the CFPB said.

The story is a good reminder that through human error, computer error, or myriad other reasons, credit reports often contain mistakes, and those mistakes can be costly. Monitoring your credit scores can also help you identify a problem so you can address it before it does bigger damage. You can get your credit reports for free once a year through AnnualCreditReport.com, and you can obtain your credit scores for free, updated monthly, through Credit.com. It’s important to check your credit regularly, especially if you plan to make a major purchase using credit in the near future.

More on Credit Reports and Credit Scores:

Image: Berkut_34

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team