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U.S. Government Warns Credit Report Providers about Consumer Accessibility


WASHINGTON, D.C. — The Consumer Financial Protection Bureau took aim at the three major credit reporting agencies again this week.

This time, CFPB officials released a bulletin to nationwide specialty consumer reporting agencies — primarily Experian, Equifax and TransUnion — for what they said was for "underscoring their obligation under the law to provide a streamlined process for consumers to request a free annual consumer report."

After reviewing a number of agencies' practices, the CFPB issued warning letters to those that may be violating the law by failing to provide consumers the required streamlined process for accessing their reports.

"Nationwide specialty consumer reporting agencies can have great influence over a consumer's tenancy, insurance premiums, or even employment," CFPB director Richard Cordray said.

"The CFPB is reminding these companies that they must follow the law and provide consumers with easy access to their free annual report. If we have reason to believe that companies are not following the law, we will take action," Cordray continued.

The bureau noted nationwide specialty consumer reporting agencies primarily collect and provide specific types of information on a consumer's history, such as check-writing, medical payments, tenancy, employment or insurance claims. They are included in the larger industry category of consumer reporting agencies, which also includes credit reporting companies or credit bureaus.

The CFPB acknowledged credit reporting businesses generally assemble or evaluate a consumer's credit and other information then sell it to third parties such dealers and lenders.

Officials believe there are roughly 400 consumer reporting agencies in the U.S., with three companies dominating the market - Equifax, Experian and TransUnion.

This week's actions aren't the first time the CFPB put credit reporting companies in its crosshairs.

Back in July, Cordray told a gathering assembled for a credit reporting field hearing how regulators might oversee how credit report providers do business.

Cordray insisted at the event in Detroit, "credit reporting plays a critical role in consumers' financial lives, a role that most people do not recognize because it is usually not very visible to them. Credit reports on a consumer's financial behavior can determine a consumer's eligibility for credit cards, car loans, and home mortgage loans - and they often affect how much a consumer is going to pay for that loan.

"If you have a credit record that appears to show a greater risk that you will fail to repay a loan, then you may be denied credit and you likely will be charged higher interest rates on any loan offered to you," he continued.

"Because no federal agency has previously had the kind of broad access to information about the operations of the credit reporting companies that the bureau will now have, there is much we do not know yet about the true risks that consumers face in this market," Cordray declared. "As we go forward, we will be gathering data to determine how the various parts of the Consumer Bureau can best act to protect consumers."

Cordray spelled out what the three areas of focus the CFPB intends to take when it comes to credit reporting.

The bureau believes oversight of credit reporting companies will help make sure that the information provided to them is itself reliable.

Cordray reiterated that lenders and others who furnish information to the credit reporting companies are legally required to have policies in place about the accuracy and integrity of the information they report - which includes identifying consumers accurately, correctly recounting their actual payment history and keeping their information and record keeping in order.

"Otherwise, their sloppy work becomes the true source of harm to the consumer's overall creditworthiness," Cordray said. "We want to deepen our understanding of the record keeping and reporting practices by lenders and we want to see what the credit reporting companies can be doing to test and screen for the quality of information they receive.

Next, the CFPB noted that given the number of complaints it already has heard from consumers, and the findings reached in some reports on the subject, regulators want to know more about the accuracy of how credit reporting companies assemble and maintain the information contained in consumer credit reports.

"Accuracy is critical for consumers and for markets," Cordray said. "We recognize that achieving such accuracy takes a great deal of discipline and effort, particularly for a company that is handling and processing a huge volume of information. But because of the increasingly significant role these reports are taking on in our financial lives, the collateral consequences of mistakes can greatly harm consumers.

"The wrong information may cause them to be denied a loan, to be charged a much higher interest rate, or to be passed over for a job, causing them serious economic hardship," he added. "And inaccurate credit reports also deprive lenders of essential information they need to assess credit risk properly."

Furthermore, the CFPB pointed out that it's keenly interested in understanding more about the problems and frustrations that consumers say encounter in trying to resolve disputes about the information contained in their credit reports.

"Some errors may be unavoidable even in the best of system," Cordray said. "But when consumers find what they perceive to be erroneous information in their credit reports, they should not be burdened by unreasonably laborious processes to get errors removed from their files.

"There are certainly valid reasons why a credit reporting company must conduct a reasonable investigation when a consumer disputes information, and follow the procedures outlined in the law," he went on to say. "But the harm done by errors is borne above all by consumers, and they deserve straightforward, effective, and timely mechanisms for addressing disputed items."

This week, the CFPB reiterated consumers have a right to a free annual report, technically known as a "file disclosure," not only from the largest three credit bureaus, but also from nationwide specialty consumer reporting agencies.

"Because many creditors make financial decisions and set terms on the basis of information contained in these reports, accuracy is critical," officials said again this week. "Under federal law, consumers have a right to dispute the information in these reports and the underlying information consumer reporting agencies have about them. The consumer reporting agency must then investigate the dispute and correct any inaccuracies it discovers."

The bulletin released this week emphasized that the Fair Credit Reporting Act (FCRA), which the CFPB oversees, requires all nationwide specialty consumer reporting agencies to provide an easy way for consumers to get free access to their annual reports.

Companies must provide a toll-free number that is published in every telephone directory in which a number for the company appears, and is clearly and prominently posted on the company's website.

In addition, federal law requires the company to have clear and easy instructions for consumers to get these reports, and adequate staff in place or means to deal with consumers' requests.

Officials explained their newest actions stem from a CFPB review of how nationwide specialty consumer reporting agencies are complying with these requirements.

The CFPB looked at phone listings and websites for nationwide specialty consumer reporting agencies across the country and also attempted to request reports. The review identified several problems, such as companies that are not listing toll-free numbers, and companies that have toll-free numbers but do not make it easy for consumers to request reports.

The CFPB is sending warning letters to several companies that advise recipients that they may be in violation of the law, and that they should review their compliance with requirements to provide consumers streamlined access to their free annual reports.

"A warning letter is not a determination of wrongdoing," officials said. "The CFPB has invited the companies receiving letters to advise the bureau of the steps they have taken or will take to ensure compliance with the law, or to explain why they believe these legal requirements do not apply to them. The CFPB is committed to a fair and reasonable inquiry into these matters."

Companies that the CFPB believes have violated the requirement to provide consumers streamlined access to their reports could be subject to enforcement actions.

Through its supervisory and enforcement functions, the bureau said it will continue to monitor consumer reporting agencies to ensure compliance with this obligation and other federal consumer financial laws.

In October 2012, the CFPB began accepting individual complaints about consumer reporting agencies.

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