CFPB Fall 2019 Supervisory Report Focuses on Consumer Reporting
On December 9, 2019, the Consumer Financial Protection Bureau (CFPB or bureau) issued its Fall 2019 Supervisory Highlights featuring supervisory observations from recent examinations. This is the second special edition focusing exclusively on furnishing information to consumer reporting companies (CRCs) as well as CRC’s general obligations under the Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V (The term CRC, used throughout the report, is analogous to “consumer reporting agency” as defined in the FCRA). The CFPB released its first special edition in March 2017. As the new decade begins, these findings indicate trends regulators may continue to review in future exams, since furnishing was also included as an area of focus in the Summer 2019 Supervisory Highlights.
With respect to furnishing activities at institutions within the CFPB’s supervisory authority, including credit unions, the report details newly identified violations and compliance management errors with regard to policies and procedures, reporting information with actual knowledge of errors, the duty to correct and update information, the duty to provide notice of delinquencies to CRCs, and the obligation to respond to notices of disputes. Let’s briefly touch on each of these topics.
Reasonable, written policies and procedures. Under section 1022.42(a) of Regulation V, credit unions who furnish consumer information to CRCs “must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information” provided. The policies and procedures need to be appropriate to the nature, size, complexity and scope of each furnisher’s activities. In reviewing mortgage reporting, the bureau found that one or more furnishers maintained general FCRA-related policies and procedures that did not provide sufficient guidance for responding to disputes in a timely manner or reporting changes when the status of furnished accounts changed.
In reviewing auto loan reporting, the bureau found that one or more furnishers’ procedures did not specifically require agents investigating disputes alleging identity theft to review internal fraud investigation records prior to completing the investigation. Under section 1022.43(a)(1) of Regulation V, furnishers are required to conduct a reasonable investigation of certain direct disputes, including when such dispute relates to whether there is or has been identity theft or fraud against the consumer. It appears that the bureau expects furnishers to have procedures in place that include reviewing internal records of fraud investigations when investigating disputes alleging identity theft.
The bureau also found errors with debt collection furnishers and deposit account furnishers to specialty CRCs who did not have adequately tailored policies and procedures in place. Appendix E to Part 1022 of Regulation V provides interagency guidelines which are essential to developing reasonable written policies and procedures concerning the accuracy and integrity of furnished information. NAFCU members may also find additional information in this Compliance Monitor article, A Furnisher’s Guide to the FCRA.
Reporting Information with Actual Knowledge of Errors. The FCRA prohibits credit unions from furnishing information if the furnisher “knows or has reasonable cause to believe that the information is inaccurate.” See, 15 USC §1681s-2(a)(1)(A). The bureau found that one or more furnishers reported thousands of accounts with derogatory status codes that were inaccurate. In investigating disputes related to these status codes, the furnisher failed to conduct a root-cause analysis that would have identified the systemic coding inaccuracies. The bureau also found that one or more furnishers failed to provide consumers with a clear and conspicuous disclosure of the address to which they could send notices of dispute.
Duty to Correct and Update Information. Under the FCRA, furnishers must promptly notify a CRC if it determines that furnished information is inaccurate or incomplete. See, 15 USC §1681s-2(a)(2)(B). Furnishers are also required to provide corrections or additional information when it is necessary to make the information accurate and complete. The report details instances of auto loan and deposit account furnishers who violated this duty, as well as corrective actions taken by one such deposit account furnisher responding to a previous exam finding.
Duty to Provide Notice of First Delinquency. The FCRA requires furnishers of information regarding delinquent accounts to report the date of delinquency to the CRC within 90 days after furnishing the information. See, 15 USC §1681s-2(a)(5)(A). This applies to accounts being placed for collection or charged to profit/loss among other circumstances. The bureau found one or more instances where furnishers reported the incorrect date of first delinquency. For example, an auto loan furnisher was found to have a practice of reporting the date of repossession, rather than the date of first delinquency.
Obligations Upon Notice of Dispute. The final issue addresses furnishers who failed to fulfill certain obligations outlined in section 1681s-2(b)(1) of the FCRA and section 1022.43 of Regulation V, which cover a furnisher’s responsibilities after receiving a notice of dispute. Without getting into too much detail, the bureau found violations in the following areas:
· Failure to investigate disputes submitted directly by consumers. For example, one more furnishers responded to backlogs of disputes through broad categorizations instead of undertaking individual investigations for each dispute.
· Failure to investigate indirect disputes provided by a CRC. For example, one or more furnishers responded to the CRC with instructions that the consumer should contact the furnisher directly regarding the accuracy of furnished information, instead of conducting an investigation, as required.
· Failure to notify consumer of determination that a dispute is frivolous or irrelevant. Section 1022.43(f) of Regulation V allows furnishers to decline to investigate frivolous or irrelevant disputes if certain conditions are present and the furnisher provides notice to the consumer of the determination within five business days. The bureau found that one or more furnishers failed to provide such notices on several occasions, including when the furnisher determined that disputes were sent by a credit repair agency, and when the furnisher believed that the disputes were the same as a previously submitted dispute. The bureau also found instances where furnishers failed to communicate the reasons for a frivolousness determination. For additional information, NAFCU covered the rules for managing frivolous disputes in this Compliance Blog.
· Failure to timely complete investigations. Section 1681i(a)(1) of the FCRA establishes a general 30 day time period to complete an investigation, which may be extended up to 45 days in certain circumstances.
Although the report does not impose any new requirements, it implies that this will continue to be an area of focus for the CFPB and other regulators. Given that reporting under the FCRA is also included in NCUA’s 2020 Supervisory Priorities, this may be a good opportunity for credit unions to review their policies, procedures and practices for compliance in light of these observations.