If you’ve ever had the misfortune of discovering inaccurate information on your consumer report (also known as a “credit report”), you likely know the significant negative impact this kind of inaccurate information can have on a person’s life. From causing higher interest rates on their mortgage or car loan, to giving a landlord a reason to decline their apartment application, to leading some employers to say “No, thank you” to a job application, consumer reports wield an immense influence over our lives.
That’s why inaccurate, derogatory information appearing on our consumer reports is so problematic. But equally problematic has been the response from the consumer reporting industry, including consumer reporting agencies (“CRAs”) like Equifax, Experian, and TransUnion, and smaller background screening companies, to repeated attempts by the federal government and the plaintiffs’ consumer rights bar to get them to improve their procedures for eliminating inaccurate information they report or include on consumer reports. One kind of particularly pernicious inaccurate information is information that is facially false or logically inconsistent, such as information claiming someone has a loan that was first disbursed years before they were born, or that a child has a mortgage.
With the industry showing little progress in eradicating this problem, the U.S. Bureau of Consumer Financial Protection (“CFPB”), recently released an advisory opinion reminding CRAs that they have an obligation under the U.S. Fair Credit Reporting Act (“FCRA”) to screen for and eliminate this “junk data” from consumer reports.
There’s too much junk data today in consumer reports
Despite the FCRA having been enacted in 1970, inaccurate consumer reports have been, and still remain, a problem. A 2012 Federal Trade Commission report found that one in five consumers surveyed had an error on at least one of the consumer reports they received from Equifax, Experian, and TransUnion. Almost a decade later, a 2021 Consumer Reports study found that over 34% of consumers surveyed identified at least one error in their consumer reports.
The CFPB need not look outside its four walls for evidence that inaccurate consumer reports are plaguing consumers. For at least the last six years, “incorrect information on your report” has been the largest category of consumer reporting complaints that consumers submitted to the CFPB. In 2021 alone, companies responded to almost 160,000 complaints from consumers that were referred to them by the CFPB concerning incorrect information on their consumer reports.
Federal law requires consumer reporting agencies and others to screen for junk data
Congress enacted the FCRA to protect consumers from inaccurate information being transmitted about them and the harms it could cause, as well as to establish consumer reporting practices that ensure CRAs and other companies transmit accurate and timely information about consumers.
The latter principle is at the heart of section 607(b) of the FCRA. It provides that “[w]henever a [CRA] prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The CFPB views section 607(b) as requiring CRAs to create and maintain reasonable screening procedures that identify inaccurate information—including facially false and logically inconsistent consumer data—and prevent that information from being included in consumer reports they prepare.
The CFPB explains the types of junk data CRAs should keep out of consumer reports
Against the backdrop of both the problems consumers face with facially false and logically inconsistent data appearing on their consumer reports and the FCRA’s language that the CFPB views as requiring CRAs to keep junk data out of their consumer reports, the CFPB issued its advisory opinion to “highlight that the legal requirement to follow reasonable procedures to assure maximum possible accuracy” under section 607(b) “includes, but is not limited to, procedures to screen for and eliminate logical inconsistencies to avoid including facially false data in consumer reports.”
The CFPB then walked through a non-exhaustive list of examples of the logically inconsistent data it believes CRAs’ reasonable procedures to assure maximum possible accuracy should screen for and eliminate.
The first type of data is “inconsistent account information or statuses.” According to the CFPB, CRAs’ policies and procedures should be capable of detecting account statuses or codes that are plainly inconsistent with other information reported for that same consumer. Examples of this data include accounts with a status of “paid in full” that reflect a balance due, an account with an “original loan amount” that increases over time, and derogatory information that predates an earlier report that did not include the derogatory information.
Also included in this category is the illogical reporting of a Date of First Delinquency (“DFD”) in connection with an account. The FCRA prohibits certain types of information from being included in a consumer report after a period of time, such as accounts placed for collection that predate a consumer report by more than seven years and 180 days. Incorrect DFDs that are more recent than the actual date a delinquency began or that suggest a delinquency where one does not exist falsely suggest that either a consumer has had financial problems more recently than is the case or that they are delinquent with at least one of their accounts.
The second type of inaccurate data that the CFPB believes CRAs’ policies and procedures should identify and prevent from reporting is “illogical information relating to consumers.” The CFPB considers this category of data to be information on a consumer report that necessarily renders other information on the report inaccurate because of inconsistencies between the two pieces of information. This category includes “impossible information,” such as relevant dates pertaining to an account that are in the future, that predate the birthdate of the consumer, or that are so far in the past that they predate all living consumers’ dates of birth. The category also would include plainly inconsistent information like where all accounts on a consumer report show ongoing payment activity, except for one that indicates the consumer died years ago.
The CFPB added that CRAs’ policies and procedures should also identify and prevent reporting of illegitimate credit transactions for minors. The CFPB noted that with the exception of student loans, authorized users of credit cards, emancipated minors, and other indications of legitimate activity, it is usually logically inconsistent for a credit transaction to be reported for a minor. According to the CFPB, roughly 400,000 children in the U.S. foster care system lack permanent addresses, and their personal information is frequently shared among numerous adults and agency databases, making them frequently susceptible to identity theft and eventually inaccurate credit histories.
Will the CFPB walk the walk when it comes to junk data?
The CFPB framed this advisory opinion as “one in a series of actions being taken by the CFPB to ensure consumer reporting companies comply with consumer financial protection law.” But if the CFPB wants to truly ensure consumer reporting companies comply with the law, it must crack its prosecutorial whip more frequently.
For five decades, CRAs have known that the FCRA requires them to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual” about whom their reports relate. Many federal courts, including federal appellate courts, have held that “maximum possible accuracy” means keeping inaccurate information out of consumer reports, such as the junk data at the heart of this advisory opinion. Yet, CRAs continue to fail to comply with their obligations under the law by failing to adopt procedures that prevent junk data from making it into consumer reports and wreaking havoc on consumers’ lives.
The consumer rights plaintiffs’ bar has been aggressive—and successful—in holding CRAs accountable for their alleged violations of the FCRA. But CRAs have apparently determined that paying to settle FCRA litigation while continuing to run afoul of the FCRA is a better business decision than revamping their procedures to comply with the FCRA.
Advisory opinions have their role, but CRAs will only change their unlawful behavior when the CFPB takes a more aggressive approach to investigating and prosecuting CRAs who are allowing junk data on the consumer reports they publish. High-profile investigations and prosecutions of one or more CRAs will force other CRAs to realize that it is no longer business as usual regarding their lackluster “procedures to assure maximum possible accuracy.”
Only by walking the prosecutorial walk will the CFPB finally get CRAs to comply with their legal obligations regarding facially false or logically inconsistent data that they should have been complying with since Richard Nixon was president.
Mark Mailman is a founding shareholder of Center City-based Francis Mailman Soumilas, P.C., a leading consumer rights law firm. He can be reached at mmailman@consumerlawfirm.com.
Reprinted with permission from the December 20, 2022 edition of The Legal Intelligencer © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.