At a July 15, 2012 Credit reporting Field Hearing in Detroit, Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB), explained the bureau's role in overseeing the credit reporting industry. Some highlights from Mr. Cordray's speech:
"After the financial crisis and extreme credit crunch of 2007-2008, tens of millions of Americans are now being pursued by debt collectors. Many people’s credit ratings have taken a hit and... They are blocked from obtaining access to the credit that is often so essential to meaningful opportunity – to get an education, start a business, or buy a house. We understand these realities at the Consumer Financial Protection Bureau because we hear about them from consumers every day. We also believe it is important to get out of Washington and listen directly to consumers by meeting them face to face. So we are glad to be with you today..."
About the CFPB's oversight role:
"Today, the Consumer Bureau is issuing a new regulation to expand our supervision program to oversee these credit reporting companies. The authority to supervise firms is the authority to conduct on-site examinations of whether and how they are complying with the law... we will be supervising the credit reporting companies that are the larger participants in this marketplace. These companies have never before been subject to a federal supervision program. Starting this September, we will be monitoring and examining them just as we monitor and examine the big banks... Up to this point, no single federal government agency could access all the information necessary to generate a complete picture of what was happening inside these companies..."
The credit reporting industry is huge, as the three largest credit reporting agencies (Experian, Equifax, and TransUnion) maintain credit reports for about 200 million people in the USA. Those reports contain inputs from about 10,000 information providers: lenders and companies that make loans to individuals.The industry sells about 3 billion credit reports every year to potential lenders. What consumers may not know:
"A credit report contains information about the consumer’s transactions – including loans that a consumer has paid on time, has paid late, has not paid, or has paid off, along with current amounts and sources of debt. The credit reporting companies also collect and report on information about consumers’ finances available from public records, including civil judgments, liens, and bankruptcies from thousands of federal, state, and local courts and public offices. The information contained in consumers’ credit reports is used to derive their credit scores... Credit scores translate this great mass of information into a single number that indicates, in shorthand, a consumer’s expected likelihood of repaying a loan... But credit reports are also used in a wide range of other types of decision-making – including determinations about eligibility for rental housing, what deposits are required for utility or telephone service, and premiums for auto and homeowners’ insurance. Credit reports are even sometimes used to determine eligibility for a job. Banks, landlords, cell phone providers, and all kinds of other companies rely on the accuracy of this information..."
The CFPB will focus on three areas:
"First, our oversight of the credit reporting companies will help us make sure that the information provided to them is itself reliable. 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... Second, given the number of complaints we have already heard from consumers, and the findings reached in some (but not all) reports on the subject, we want and need to know more about the accuracy of how the credit reporting companies assemble and maintain the information contained in consumer credit reports. Accuracy is critical for consumers and for markets... because of the increasingly significant role these reports are taking on in our financial lives, the collateral consequences of mistakes can greatly harm consumers... Third, we are keenly interested in understanding more about the problems and frustrations that consumers tell us they encounter in trying to resolve disputes about the information contained in their credit reports. Some errors may be unavoidable even in the best of systems. 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..."
During the last five years, I've written plenty about credit reporting agencies including fraud alerts, security freezes, data breaches, violations, offshore outsourcing, consumer satisfaction surveys, reviews of credit monitoring services offered by credit reporting agencies, and several industries that historically haven't used but now want access to the information in consumers' credit reports. It was good to read Director Cordray's remarks.