Credit Reporting Supervisory Highlights
On Monday we blogged about the Consumer Financial Protection Bureau’s (CFPB) most recent Supervisory Highlights, and more specifically about the CFPB’s mortgage servicing supervisory observations resulting from its prioritized assessments, which were conducted to gather information in certain areas deemed to pose an elevated risk of consumer harm because of the COVID-19 pandemic. Today’s blog covers the CFPB’s supervisory observations related to credit reporting.
The CFPB indicated that it focused on credit reporting and the furnishing of information during its prioritized assessments because of harm that can be caused by inaccurate information reported to credit reporting agencies. The risk of harm was heightened by Congress’s response to the pandemic. Section 4021 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) amended section 623(a)(1) of the Fair Credit Reporting Act (FCRA) and prescribed how to furnish information to credit reporting agencies if a credit union makes an accommodation for a borrower. An accommodation under the CARES Act is an agreement to defer payments, accept partial payments, forbear delinquencies, modify loans, or provide any other relief to members affected by the COVID-19 pandemic during the period beginning January 31, 2020 and ending 120 days after the COVID-19 national emergency ends. As amended, the FCRA required credit unions making accommodations for their members to report those members as current if the members were current before an accommodation was made. If the members were delinquent, then the CARES Act called for continuing with the delinquent reporting unless the members became current during the accommodation. The CFPB, however, noted that the CARES Act prohibited advancing a delinquency when furnishing information during the accommodation. For more information about section 4021 of the CARES Act, please see this NAFCU compliance blog post from last year.
The CFPB’s supervisory observations related to the industry’s response to the pandemic identified three areas of risk for consumer harm. The first issue related to the inaccurate reporting of accommodations made. The CFPB noted that many furnishers offered new or more expansive options for accommodations to consumers in light of the high volume of requests received. This required changes in staffing and also required “changes in procedures to appropriately code accounts so that they would be furnished correctly according to the statute’s new requirements.” The CFPB noted that some furnishers represented that accommodations were effective as soon as an application was made even if they had a glut of applications that prevented the furnishers from processing the accommodation applications as quickly as they were being received. Under these circumstances, the CFPB observed that this delay in processing sometimes led to “(i) reporting some consumers who were current as delinquent, and then improperly advancing and reporting their incorrect delinquency status, or (ii) improperly advancing the delinquency status of other consumers who were delinquent at the time of the accommodation.” In other words, these furnishers were not properly reporting accommodations as required by the CARES Act.
The second issue related to furnishing policies and procedures. The CFPB observed that an automotive furnisher of information failed to update its furnishing policies and procedures to deal with changes to its leasing practices. Regulation V, which implements certain FCRA requirements, requires furnishers of information to have reasonable written policies and procedures addressing the accuracy and integrity of information they furnish to consumer reporting agencies, and the written policies and procedures need to be tailored to a furnisher’s size and complexity. Here, the CFPB noted that an automotive furnisher started to pick up leased vehicles from consumers’ homes at the end of a lease to deal with the pandemic but failed to update its policies and procedures to incorporate this practice. The failure to update the policies and procedures resulted in the furnisher reporting consumers as delinquent even though their vehicles had been returned as required by the terms of the lease.
The CFPB also observed that some furnishers of information failed to update their written policies and procedures regarding the accuracy and integrity of the information they reported to consumer reporting agencies to address accommodations provided to consumers in response to the pandemic. This created the risk that information would not be furnished as mandated by the CARES Act.
Finally, the third issue dealt with consumer disputes. The CFPB observed that the pandemic affected the ability of credit reporting agencies and furnishers to investigate consumer disputes as required by the FCRA. Under the FCRA, credit reporting agencies and furnishers generally have 30 days, and possibly up to 45 days, to investigate consumer disputes. The CFPB noted that staffing issues at the onset of the pandemic precluded some entities from completing their investigations in the time permitted by the FCRA. While the agency noted that many entities were able to resolve these issues by summer 2020, it advised that it “is continuing to monitor dispute timeliness at [consumer reporting agencies] and furnishers.”
Credit unions may wish to review their credit reporting policies and procedures to determine whether they have adequately addressed the issues observed by the CFPB.
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