CFPB Puts Consumer Data Suppliers in Crosshairs

WASHINGTON — The Consumer Financial Protection Bureau issued a stark warning Wednesday to banks and other firms that exchange information with consumer reporting agencies, saying such companies will be heavily scrutinized for how they resolve customer disputes.

The agency said that so-called information "furnishers" — a category that includes banks, credit card companies, retailers and collection agencies — need to take responsibility when a consumer disputes something on their credit score.

"Credit reports play a critical role in the lives of consumers," said CFPB Director Richard Cordray in a press release. "Given the importance of these reports, consumers need to know that their documents are being reviewed when they dispute what they believe is a mistake on a report."

Agency officials have repeatedly cautioned banks, debt collectors and credit reporting agencies about mishandling consumer credit reports but a bulletin released Wednesday was the first official notice specifically about handling consumer disputes.

The move shows that the bureau is preparing to come down even harder on the companies it regulates, observers said.

"It's like a smoke signal to everybody," said Alan Kaplinsky, head of Ballard Spahr's consumer financial services practice. "It signals that the CFPB is saying, 'Now we're going to be tougher and the industry is on notice that this is what we expect.' "

The CFPB said its primary expectation for all furnishers is that they maintain a system "reasonably capable" of handling information they receive from a credit reporting agency when there is a dispute. Typically, when a consumer disputes a piece of information on a credit report, the complaint is passed on to the furnisher that initially provided the data to resolve the issue. The CFPB is looking at whether the furnisher is appropriately handling such complaints, including sharing follow-up information with the reporting agency and providing accurate and complete documentation related to its investigation.

Some federal regulators, including the Federal Trade Commission and the Office of the Comptroller of the Currency, have raised similar concerns about how furnishers handle disputes on a credit report and cited poor documentation practices.

Because of the regulatory attention, "consumer reporting agencies are going to have to submit disputes to furnishers and the furnishers are going to have to do meaningful investigations and document it. And if the investigation reveals inaccuracies, they're going to have to fix them," said Peter Holland, instructor of the Consumer Protection Clinic at the University of Maryland Francis King Carey School of Law. "As simple and as non-controversial as that sounds, this really is the sign of a new era that we're not going to accept lip service anymore."

Regulators have already cracked down on banks and debt-related companies for improperly handling credit reporting, particularly in the past year. One of the more high-profile probes is the OCC's ongoing scrutiny of JPMorgan Chase's debt collection practices, resulting in a recent pullback by the bank. More recently, the Federal Trade Commission reached a $3.5 million settlement last month with Certegy Check Services, a consumer reporting agency, for allegedly violating laws when handling disputes and information provided to furnishers. The FTC said it was the first action taken alleging violations of the furnisher rule and the second-largest penalty related to the Fair Credit Reporting Act.

The CFPB has also taken several actions against debt-relief companies and issued warnings against the largest debt reporting agencies. The timing of Wednesday's notice was partly triggered by an update to e-OSCAR, the software system that the three largest credit reporting agencies use. The bureau highlighted deficiencies with the system in a report last year, saying it didn't have a way for credit reporting companies to forward documents submitted by consumers to furnishers.

"Since then, the CFPB has been working to ensure that the dispute system was improved," the CFPB said in the press release. "The 'e-OSCAR' system has been upgraded so that the three companies can now send furnishers any relevant dispute documents mailed in by consumers. The CFPB is continuing to work to see that the capacity of the system is expanded further in the near future."

With the updated system, there are fewer excuses for errors. As a result, many observers expect furnishers to quickly update their own systems or face much larger actions against by the CFPB after its notice.

"We've been working with a number of clients whose systems are deficient to help bring them up to the level the CFPB is obviously wanting," Kaplinsky said. Furnishers have "got to clean up their systems right away because the next time the CFPB comes in to do an examination, or sees consumer complaints on their database pertaining to information on a credit report, they will come down hard."

The bureau echoed that message in its notice, saying that it will monitor consumer complaints and prioritize exams and other actions based on risk to the consumer.

"If the CFPB determines that a furnisher has engaged in any acts or practices that violate" federal consumer laws "it will take appropriate supervisory and enforcement actions to address violations and seek all appropriate corrective measures, possibly including remediation of harm to consumers," the notice said. "The CFPB will continue to review furnisher compliance with these requirements during examinations and investigations."