Thank you for joining us as we meet with our Consumer Advisory Board. We all look forward to our dialogue with our CAB members, who share with us their perspective, their expertise, and their actual experience on the ground. We are all here because we care deeply about how people are being treated in the consumer financial marketplace.
I will be focusing today’s remarks on one particular component of this marketplace, which is the credit reporting industry. Every consumer who seeks to make use of credit to help manage his or her financial affairs is affected by this industry. For whether they are aware of it or not, people’s ability to access credit, and how much they pay for credit, is typically governed by what is contained in their credit profiles.
Credit reports and scores can determine the terms of people’s mortgages, whether they qualify for auto loans, or if they are eligible for different credit cards. A potential employer may look at a consumer’s credit report as a factor in making a hiring decision; or a landlord may review it before deciding whether to approve a potential renter. In short, credit reports, and the scores derived from them, play a fundamental role in determining whether and how each of us will be able to take advantage of opportunities to shape our futures.
Most Americans have a credit file. In fact, each of the three biggest credit reporting companies maintains files on over 200 million consumers. They compile consumer credit profiles based on information supplied by thousands of providers known as data furnishers. Using information from the furnishers, credit reporting companies track people’s payment records and other aspects of their credit history. The companies then use all of this data to compile scores that assess the risk lenders face when deciding whether to extend credit to a given consumer. Consumers with high credit scores generally pose lower risk and therefore get approved for loans on better terms.
This financial scorekeeping exerts a tremendous and growing influence over consumers’ lives. The amount of data collected and exchanged in the credit reporting industry is astounding. Each year, approximately 36 billion updates are made to consumer credit files at the three largest credit reporting companies alone. Assuring that such personal financial information is updated timely and accurately, and that it is maintained securely, is a critical responsibility.
When I addressed this group a year ago, I expressed concern that the credit reporting industry is a “market in which consumers can become largely incidental to a business relationship between others.” That is because consumers have no real say in decisions made about their credit report. When consumers cannot “vote with their feet” by choosing to take their business elsewhere, their influence is inevitably limited. This can be very frustrating to the consumers whose information is at stake, since this industry can have a profound influence on their lives.
Indeed, we have heard from many people who are at their wit’s end. One woman said she was struggling to obtain copies of her credit report and felt like she was “at a dead end.” Consumers should never be made to feel that way in the marketplace. Our job at the Consumer Bureau is to stand on their side and ensure that the industry deals with consumers in a fair and transparent manner. So let me begin by discussing the progress we are making to help ensure that people are being treated fairly in the credit reporting market. I also will touch on where we think more could be done. And we look forward to hearing your thoughts.
Too often, consumers feel like they are getting the runaround. If they cannot get the credit reporting companies to listen, they cannot get problems resolved. To enhance consumers’ voice in this process, we began accepting consumer complaints on these issues in October 2012. Since then, we have handled approximately 31,000 credit reporting complaints. Nearly three-quarters of these complaints have been about the accuracy and completeness of credit reports.
Consumers report that key information is wrong or missing from their report and that they have trouble getting errors corrected. Maybe a debt has been misreported or maybe some of the consumer’s personal information is wrong. We have even heard about credit reporting companies and data furnishers refusing to change information that identifies consumers as deceased, when, as the consumers themselves are frustrated to attest, they are very much alive.
Other consumers complained about being unable to get a copy of their report or about having problems with how a credit reporting company investigated a dispute. Some reported that an investigation took too long or that they could not get proper help over the phone. These are not minor matters for people. When consumers have unresolved problems with their credit reports, it can prevent them from qualifying for a job, or can block them from securing a rental home, a mortgage, or a car loan. In addition to these very tangible troubles, these problems generate significant frustration and stress, and they reinforce a basic distrust in the market.
When a consumer complaint is submitted to the Bureau, we forward it to the appropriate company and work to get a response from them on a relatively fast time frame. Complaints are listed in our Consumer Complaint Database when the company responds to the complaint confirming a relationship with the consumer or after the company has had the complaint for 15 calendar days, whichever comes first. We make the database available to the public online so that anyone can see what complaints are coming in and analyze that information.
Today we are releasing a snapshot of the consumer credit reporting complaints that we have received. It shows that companies are already responding to over 90 percent of complaints made about them. We are helping consumers to be heard and to get their issues addressed.
Another way we are seeking to make credit reporting fairer for consumers is by exercising our supervisory authority over larger credit reporting companies and many of their largest furnishers. Our examination teams ensure that they are complying with the consumer financial laws. We now oversee companies that account for about 90 percent of the annual receipts in this market.
This oversight allows us to step behind the curtain of these companies and their internal processes. We then can find specific pain points for consumers, identify problem areas, and work directly to improve their responsiveness to consumer problems. Our supervisory authority extends to the largest financial institutions and collections agencies, which provide a majority of the credit reporting companies’ trade lines and collection items.
We have also identified major process changes that were needed. When consumers find a problem with their credit report that they want to dispute and get corrected, they often send along copies of the relevant documents to support their claim. Anyone would naturally assume that this information will be shared between the credit reporting company and the furnisher to respond appropriately in addressing the dispute. This, however, was not how matters were handled.
The three largest nationwide credit reporting companies use an established system, which is known as “e-OSCAR,” to communicate consumer disputes to furnishers. In December 2012, we reported that, when credit reporting companies forwarded disputes, they did not send attachments, such as account statements, supplied by consumers. Instead, they simply reduced everything submitted by the consumer to a three-digit code and, occasionally, a few words that described the dispute. Without any of the crucial supporting information from the consumer, disputed claims were often denied because there was nothing to dictate any change in the outcome.
This is completely unacceptable. Consumers are often in the best position to explain why a particular account or item in a file is inaccurate. They should have a full chance to explain their disputes to furnishers. But they lose this opportunity when the credit reporting companies do not forward consumer-supplied documents.
Last fall, we announced that the three major credit reporting companies had agreed to upgrade the e-OSCAR system to correct these problems. At first, they made the necessary changes so that they could send furnishers any relevant documents that consumers either mailed or faxed to them. Obviously that was only a partial fix, but today we are pleased to update you with further enhancements to the e-OSCAR system. Now consumers can upload documents whenever they file a credit dispute online, and furnishers will have direct access to those documents.
These changes will make it easier and more convenient for consumers to support their claims. They will also make it more feasible for companies to investigate fully and address the actual details in context. The result should be more disputes being resolved correctly, leading to credit reports that more accurately reflect the current facts about consumers’ credit histories.
Moreover, in September 2013, we put furnishers on notice that they are responsible for following the law by investigating consumer disputes, correcting inaccurate information, and sharing the corrected information with the credit reporting companies. We expressly informed furnishers that they are to have reasonable systems and technology in place to receive and process notices of disputes and information about disputes – including any relevant documentation that is forwarded to them by the credit reporting companies.
When consumers know they have a better chance of having their disputes resolved, they are likely to be more proactive in tackling problems with their credit reports. We want to see even more of that. In order for consumers to know to dispute items on their credit reports, they need to be checking their reports regularly enough to notice any mistakes. Yet fewer than one in five Americans check their credit reports in any given year. We need to do more to see that everyone understands the importance of doing so. Consumers often learn the importance of their credit standing when it is too late: after a credit application is denied or identity theft has had time to cause extensive damage. Sometimes they fail to see the importance of their credit standing even after it has affected them in a material way, such as being rejected for a job or charged a higher price for a loan.
That is why we are focused on empowering consumers to take more control of their financial lives by providing consumers with information to help them know what to do when they encounter a problem or to avoid problems in the first place. In the area of credit reporting, we are working to make this information available to consumers through multiple channels. “Ask Miss April” is our interactive online tool that helps consumers find unbiased, authoritative answers to their financial questions accessibly stated in plain language. Two of the most viewed questions are “Where can I get my credit score?” and “How do I dispute an error on my credit report?”
We also offer a range of short, plain-language paper guides that can be downloaded and distributed for free and also can be ordered in bulk by nonprofit and government organizations. Two of our most popular paper guides are “Check Your Credit Report” and “Pay Attention to Your Credit.” We have designed these resources to help people take control of their money.
Nevertheless, we remain keenly aware that information about credit standing needs to be made more salient for consumers.
So today I am also pleased to announce the Consumer Bureau’s strong support for a major initiative in the credit card industry. This initiative will make credit scoring information more easily and regularly available to credit card customers at no cost. Recently several issuers have introduced programs that promise to expand dramatically the number of consumers who are more routinely acquainted with their credit information. The programs provide customers, directly and at no cost, with the same credit scores these issuers obtain in their normal course of business, along with educational materials to help them understand the credit score.
Although credit scores provide just a partial picture of one’s finances, they could raise awareness of credit issues and prompt busy Americans to review their credit standing. If scores are lower than expected or if they change over time, more consumers may take the initiative to request their credit reports. This will allow them to address concerns, dispute errors or fraud-related entries, and improve negative aspects of their credit usage. So we consider this initiative to be a “best practice” in the industry.
Making this information available through existing channels, such as including credit scores with other online account information and on monthly statements, is likely to yield positive returns that are worth the effort. Customers who monitor and manage their credit standing should, on average, be less likely to become delinquent or to default. And given that more than two-thirds of Americans have at least one credit card, having their credit score made available through their credit card issuer could broadly improve consumer well-being.
With these purposes in mind, I recently sent letters and followed up with phone calls to the CEOs of the nation’s top credit card companies strongly encouraging them to consider making credit scores and educational content freely available to their customers on a regular basis. I believe this initiative will benefit both providers and consumers by making people more capable of protecting themselves, more able to benefit by the opportunities that credit can create, and ultimately more productive members of our economy. Indeed, I see no reason why this approach should not be replicated with customers across other product lines as well.
This is just one example of how we can find ways to work together with financial providers to strengthen financial education efforts across this country. Similarly, recent upgrades have been made to annualcreditreport.com, which is the only website where consumers can get their free annual credit reports as the law requires. We contributed to these upgrades, which have resulted in better educational content for the millions of Americans who visit that website each year. The upgrades include over forty web links to helpful content about credit reporting developed by the Consumer Bureau and the Federal Trade Commission.
With all of the examples I have discussed here today, from e-OSCAR upgrades to financial education about credit standing, we can see the prospect of significant improvements for consumers trying to navigate the complexities of the credit reporting market. But more needs to be done to prevent unnecessary frustration and obstacles that consumers frequently encounter.
We continue to observe problems with those that provide information to the credit reporting companies. Some furnishers are taking short-cuts to avoid undertaking appropriate investigations of consumer disputes. For example, a consumer may find an error on the credit report and file a dispute about an incorrect debt or a credit card that was never opened. In response, the furnisher may simply delete that account from the information it passes along to the credit reporting company.
This practice can be detrimental because it deprives consumers of an important protection. Not only do investigations determine the accuracy of a particular consumer’s dispute, but they also help furnishers uncover and correct broader problems within the systems they use to provide information to the credit reporting companies. When a furnisher learns more about these types of problems, it benefits not only the consumer who submitted the dispute, but also all other similarly situated consumers who did not. A furnisher that does not actually investigate disputes is cutting corners and will have less effective checks on the accuracy of its information.
In addition, without an investigation that correctly resolves the dispute, consumers are left with less assurance that the inaccurate information will not reappear later on. They also may not get the intended benefit of having the credit reporting company notify those who have already received the report that the inaccurate information has been identified and corrected.
So today, we are issuing a supervision bulletin putting furnishers on notice that taking a shortcut by simply deleting a line in a credit report does not generally constitute a reasonable investigation of a consumer dispute that is enough to satisfy their obligations under the law.
We will continue to use our supervisory authority to require responsible behavior in the credit reporting market, and we will also use our enforcement authority where appropriate. We know that fixing just one error on a credit report could save people thousands of dollars in the long run by increasing their credit score and thereby helping them secure a mortgage or a credit card when they might otherwise have been denied or charged a higher rate. For all of these reasons, we believe that consumers must have their voices heard. Everyone deserves to be treated fairly.
At the Consumer Bureau, we are dedicated to fostering a marketplace for financial products and services where sensible practices benefit both industry and consumers alike. As the American economy continues on its path to recovery, we need to have confidence that consumers enjoy the full benefits of credit reports that are accurate and reliable. Consumers bear their own share of responsibility to monitor and manage their credit standing. As we have discussed, however, there are some steps that can be taken to put them in a better position to succeed in protecting themselves.
When consumers do take the initiative to manage their credit reports, they also deserve to have their disputes investigated in a meaningful way and to have their reports corrected where that result is justified on the facts. In the end, we can all agree that people who apply for financial products should be evaluated on the basis of their true credit history, reflecting how they have actually managed their financial affairs.
But we can also appreciate that it is not a simple matter to accomplish this shared goal in a diverse and vibrant free-market economy driven every day by the aggregate activity of more than 300 million Americans. That makes the credit reporting industry a fitting topic for the expertise and experience of our CAB members, and we appreciate all of you joining us here today to engage in what I am sure will be a most robust conversation. Thank you.
The Miss april is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov
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