Consumer reporting companies that use only an applicant's name to screen potential tenants and employees run the risk of using inaccurate information, the Consumer Financial Protection Bureau said Thursday.
The CFPB issued an advisory opinion warning the large credit bureaus as well as specialty screening companies that using "shoddy" name-only matching procedures to check the credit histories of rental and job applicants violates federal law.
The bureau is concerned that consumers are being denied loans, housing and even jobs when their names are mixed up by subsidiaries of the giant credit reporting companies and newer entrants to the background screening industry.
In its opinion, the agency said that checking only first and last names without using other information such as an address, date of birth or a Social Security number violates the Fair Credit Reporting Act.
The advisory opinion cited the "the high risk that name-only matching will result in the inclusion of information that does not pertain to the consumer who is the subject of the report" and said using other identifying information results in a "relative lack of burden."
"The Bureau continues to conclude that it is not a reasonable procedure to use name-only matching to match information to the consumer who is the subject of the report in preparing a consumer report," the agency said in its opinion.
At particular risk are Hispanic, Black and Asian applicants who may be more likely to have a common last name that matches other individuals, the bureau said. The issue is “particularly concerning” during the COVID-19 pandemic, the agency said, as millions of Americans have been uprooted from their jobs and homes and are seeking replacements but could be shut out by credit report mistakes.
“No one should lose out on a job or an apartment because of sloppy and illegal matching,” CFPB Director Rohit Chopra said in a press release announcing the opinion. “Error-ridden background screening reports may disproportionately impact communities of color, further undermining an equitable recovery.”
The Federal Trade Commission has sided with the CFPB on the opinion and is prepared to work with the bureau to enforce the protections, FTC Chair Lina M. Khan said in the release. (Chopra was an FTC commissioner before taking the helm of the CFPB.)
Some consumer reporting agencies continue to use matching practices that fall short of satisfying “reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates,” as required by the Fair Credit Reporting Act, the bureau said in its opinion.
In a longer statement included with the opinion, Chopra warned credit reporting agencies against using a disclaimer saying their report might not match to the correct person in order to avoid their responsibilities under the Fair Credit Reporting Act.
“These sloppy practices hurt all of us,” he said in the statement.
The opinion came after the CFPB received 191,000 complaints about incorrect information on credit reports in 2020 alone, about 68% of all complaints filed that year. Credit report errors have made up the biggest category of complaints submitted to the agency in each of the past five years, the CFPB said.
Meanwhile, one in five consumers who participated in a study by the FTC had an error on at least one of their three nationwide credit reports, according to findings published in 2012.
Census data shows that applicants of color are most at risk from mistakes stemming from cheaper name-only matching screenings. Just 26 last names cover 25% of the Hispanic population, compared with 319 last names that cover the same percentage of those who identify as white, according to a 2020 census study.
The CFPB said the advisory opinion amounts to an interpretive rule issued under the agency's authority to interpret the FCRA as granted by the Dodd-Frank Act.
"As an interpretive rule, this advisory opinion is exempt from the notice-and-comment rulemaking requirements of the Administrative Procedure Act," the agency said.
