The Consumer Financial Protection Bureau (CFPB) fined an auto lender for allegedly knowingly furnishing inaccurate consumer information to credit bureaus. The CFPB suggests that the lender used a third-party vendor that had flaws in its computerized credit reporting system. As such, this enforcement action provides a window into potential pitfalls of credit reporting and ways to help mitigate the risk.
Investigation and Credit Furnishing Practices
First Investors Financial Services Group, Inc. ("First Investors") is a Texas-based company that extends both direct and indirect auto loans to consumers and furnishes information relating to consumers to consumer reporting agencies (CRAs). Many of the borrowers who obtained credit through First Investors were subprime borrowers with impaired credit files. Following a lengthy investigation by the CFPB into First Investors’ business practices and their impact upon consumers, First Investors entered into a consent agreement with the CFPB on August 20, 2014.
The CFPB investigation that led to the consent agreement focused on the processes by which First Investors furnishes information regarding its borrowers to CRAs. The CFPB concluded that First Investors’ practices violated: (1) the Fair Credit Reporting Act and its Regulation V (Furnisher Rule) in that the company "failed to establish and/or implement reasonable written policies and procedures regarding the ‘accuracy’ and ‘integrity’ of the information relating to consumers that it furnishes to consumer reporting agencies;" and, (2) the Consumer Financial Protection Act in that representations the company made to consumer reporting agencies concerning the accuracy of the information it furnished were deceptive.
The Consent Order acknowledges that First Investors published an address to which customers could send disputes related to credit reporting inaccuracies and that "[i]n general, Respondent timely responded to disputes and corrected information when necessary." That effort was insufficient, however, particularly once the company realized it was inaccurately reporting to the CRAs "many of its customers’ date of first delinquency"—an error that exposed customers to the risk that the delinquency in question “would remain on their credit reports beyond the statutorily-allowed 7-year period.”
According to the consent agreement, First Investors was aware as early as April 2011 that it was providing inaccurate dates of first delinquency to the CRAs and "systemically overstating to the CRAs the dollar amount by which its customers were past due on their accounts." At that time, the company "notified its furnishing service provider of the inaccuracy," but did nothing further to resolve the problem until after receiving a Civil Investigative Demand from the CFPB in December 2012.
Although the company notified its furnishing service provider of the reporting problem and arranged a “workaround” with one of the CRAs to stop the misreporting of payment history, between the time they discovered the problem and implemented the workaround, First Investors "continued to furnish payment history profile information it knew to be inaccurate for between 11,804 and 14,622 customer accounts on a monthly basis."
Following an investigation by the CFPB, First Investors stipulated to certain facts related to its business practices and entered into a Consent Order with the CFPB, without admitting or denying any of the CFPB’s findings of fact or conclusions of law. Under the terms of the agreement, First Investors agreed to:
- Change those business practices that led to erroneous reporting to the CRAs;
- Remedy errors in its reporting to consumer reporting agencies;
- Inform affected consumers and assist them in obtaining free copies of their credit reports;
- Establish safeguards to guard against erroneous reporting in the future; and
- Pay a civil money penalty of $2.75 million.
Of note, the Consent Order does not discuss actual "consumer injury," which often can be difficult to prove in FCRA lawsuits without a specific fact-based inquiry. Rather, the Consent Order focused on potential consumer harm. As a result, the Consent Order suggests that a robust compliance management system, prompt remediation, and third-party vendor management are key areas on which furnishers should focus to help avoid similar potential risks to consumers.
The CFPB’s enforcement action may be only a preview of credit furnishing related enforcement actions announced by the CFPB. In announcing the enforcement action, CFPB Director Richard Cordray declared, "First Investors showed careless disregard for its customers’ financial lives by knowingly distorting their credit profiles for years." Director Cordray went on to emphasize, "Companies cannot pass the buck by blaming a computer system or vendor for their mistakes. Today’s action sends a signal that the CFPB will hold companies accountable for sending inaccurate information to credit reporting agencies.”
In addition, the CFPB has made furnisher responsibilities a top priority. In September 2013, the CFPB released a bulletin stressing that furnishers are responsible for investigating consumer disputes forwarded by consumer reporting companies. In February 2014, the CFPB placed furnishers of consumer information to CRAs on notice that they are responsible for investigating and resolving any consumer complaints that they may receive from reporting agencies. In addition, the CFPB has been adamant about its expectations surrounding robust compliance management systems and third-party vendor monitoring.
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Furnishers should take steps to understand and satisfy obligations under the FCRA. The CFPB is subjecting furnishers of consumer information to CRAs—and any third party vendors and systems used to avoid potential harm to consumers—to heightened scrutiny.