As you are reading this article, the Consumer Financial Protection Bureau (CFPB) has set up shop in, or is about to knock on, the door of a credit bureau near you for the first round of historic examinations. For the very first time, starting Sept. 30, 2012 as instructed by the Congress that created and granted them vast powers, the CFPB will be examining the credit reporting industry in a similar fashion as the Federal Deposit Insurance Corporation (FDIC) examines banks holding consumer deposits. This is the new world for non-depository companies like credit reporting agencies, as this is not a “for cause” examination due to complaints or violations. This is the new norm, in which any credit reporting agency deemed a “larger” participant can expect a visit at any time as of Sept. 30, 2012.
The Dodd-Frank Act instructed the CFPB to first determine who the “larger” participants in the credit reporting industry were, and then set up the parameters to examine those entities for compliance with federal law. As I wrote about in National Mortgage Professional Magazine earlier this year, the “larger” participant was defined by the CFPB at a level that includes many mortgage credit reporting agencies. With the help of a strange accounting formula from the Small Business Administration (SBA), the actual number used by the SBA and CFPB of $7 million in annual receipts translates into mortgage credit reporting companies with just more than $4 million in revenues and about 15 employees. Not exactly what most people would consider a “larger” participant, but the rule has been made, and examinations are about to begin.
The CFPB estimates this rule to cover about 30 companies, who account for 94 percent of the credit reporting market. To help understand the dynamics of the industry, it should be noted that the three largest credit reporting companies (which I refer to as the credit repositories, TransUnion, Experian and Equifax) issue more than three billion consumer reports annually and maintain the raw credit files on more than 200 million Americans.
On Sept. 5, 2012, the CFPB released the procedures it will be using in examining credit and consumer reporting companies. These procedures will act as a field guide for CFPB examiners as they check these companies for compliance with the Fair Credit Reporting Act (FCRA) and other applicable laws.
“Consumer reporting, and especially credit reporting, plays a significant role in a consumer’s life,” said CFPB Director Richard Cordray. “It can dictate whether or not a consumer is able to get a credit card, a mortgage, or a student loan. Our supervision program will benefit hundreds of millions of consumers by making sure these companies are playing fairly and by the rules, and our field guide will ensure that all companies are held to the same standards.”
The CFPB release stated that examiners will be looking to specifically to verify that consumer reporting companies are focused on four key concerns:
►Using and providing accurate information: Examiners will assess whether companies have reasonable procedures in place to ensure accuracy of the information about consumers that appears in their reports. This will include looking at how companies screen information that they receive for accuracy and how companies match incoming information to a particular consumer’s file to make sure it appears on the right consumer’s report.
►Handling consumer disputes: Examiners will determine if reporting companies conduct reasonable investigations when consumers dispute the accuracy or completeness of their files. Examiners will also evaluate the systems, procedures, and policies used by the company for tracking, handling, investigating, and resolving consumer inquiries, disputes and complaints.
►Making disclosures available: Examiners will determine whether reporting companies disclose to consumers their file information and credit scores when required to do so, and whether they have trained personnel to explain the information in their disclosures to consumers.
►Preventing fraud and identity theft: Examiners will look to see whether these companies are fulfilling the requirements to address identity theft and to protect active duty military consumers, through such means as fraud and active duty alerts, and blocking of reporting of information that stems from identity theft.
This examination process is likely going to be long term and potentially ongoing for some firms. It includes a pre-examination scoping phase, review of information, data analysis, on-site examinations and regular communication with supervised entities. Then there could be follow-up monitoring and the potential for examiners to report their findings to and work closely with the CFPB’s enforcement staff, who could take enforcement actions to address any findings they determine detrimental to consumers.
The CFPB will follow a similar process and has already issued similar procedures for other industries under its supervision, and that includes mortgage originators, mortgage servicers, collection agencies and payday lenders.
A copy of the “Examination Procedures for Larger Participants of the Consumer Reporting Market” is available online by clicking here.
Terry W. Clemans is executive director of the National Credit Reporting Association Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail
[email protected].
