Compliance Blog

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel, NAFCU

It appears they are both legends born from the internet.

It appears this is a common recommendation that the internet makes to consumers seeking to improve their credit score. Here is one such article from NerdWallet. Here's another from The Balance. While these webpages indicate that creditors are likely to decline and cite the Fair Credit Reporting Act (FCRA) as their reasoning, the webpages often recommend that consumers persist and try to "wear them down."

The NAFCU Regulatory Compliance Team has had a variety of questions in the past several months about removing negative reporting from a member’s credit report. This is not addressing inaccurately reported or disputed information about an account, but removing truthful, accurate reporting that has a negative effect on a consumer’s credit score. Sometimes this request comes in the form of letters from third parties who claim to be helping the member fix their credit. Sometimes it is a conversation that the credit union is having in the context of working out a default loan. Sometimes the member simply asks nicely or sends in something printed from the internet. Credit unions almost always want to help or accommodate a member when possible.

Unfortunately, removing accurately reported negative information isn’t up to the credit union. Section 623 of the FCRA requires any credit union that furnishes information to a consumer reporting agency (CRA) to provide accurate information. Paragraph 623(a)(1)(A) explicitly prohibits furnishing any information relating to a consumer “if the person knows or has reasonable cause to believe that the information is inaccurate.” This is true regardless of whether it would be helpful or harmful to the consumer.

There are several policy reasons not to remove negative information at a consumer’s request. The Congressional findings and statement of purpose found in section 602 of the FCRA states:

“The banking system is depending upon fair and accurate credit reporting. Inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods undermine the public confidence which is essential to the continued functioning of the banking system.”

Even if information were only removed to benefit a consumer, another possible consideration is the issue of discrimination and fair lending. If the information is removed for one member, that could theoretically raise issues of discrimination if the credit union does not extend that same good will towards others.

The Bureau’s Compliance Bulletin 2016-01 details the obligation to report accurately, and  Appendix E to Part 1022 contains the Interagency Guidelines Concerning the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies. The Bureau’s consumer-facing information actually has a Q&A on this topic indicating the consumers cannot have negative but accurate information removed from their reports. While credit unions hate to disappoint members, it appears that requests for “goodwill adjustments” do represent a real risk of noncompliance.

However, one oft-referenced FicoForums website seems to contain a theory about how consumers may be able to have older negative information adjusted off legally:

"If denied for your [goodwill] request, they'll usually flat out tell you "no" that they won't remove it. In some examples in here, the creditor might say something like "it is illegal to remove accurate items from your credit report." Ignore it. It is illegal to report inaccurately, but not to remove items early." (Emphasis added.)

The missing piece of this analysis is that the CRAs typically remove information due to age automatically, not the credit union. However, the internet also contains stories of consumers being able to directly request from the reporting bureau that negative information be removed a few months before it would have aged off the report under the law. One legend dies and another rises to take its place…