21
Dec

In the wake of a major federal study on the way in which credit reporting agencies obtain and handle consumer financial data, federal lawmakers convened a hearing about these practices in an effort to better understand the process.

The federal Consumer Financial Protection Bureau recently released the results of an examination of the credit reporting industry which found that, in general, there may be a number of flaws in the process, which in turn can end up costing consumers significant amounts of money. That report, was used as the basis for a hearing held by the U.S. Senate Committee on Banking, Housing and Urban Affairs' Subcommittee on Financial Institutions and Consumer Protection. The hearing, entitled "Making Sense of Consumer Credit Reports" included officials from the CFPB itself, as well as representatives from the credit reporting and legal industries.

What was discussed
In general, the hearing sought to better understand some of the specifics in the CFPB's findings, such as how credit reporting works and why financial institutions lean on it so heavily, the report said. Further, because many other organizations — ranging from utility providers to landlords and insurance companies — also use data from credit reporting agencies, the reasons for these practices were discussed as well.

One issue that was brought up by Stuart Pratt, the president and CEO of the Consumer Data Industry Association, was the relationship between credit reporting agencies and the CFPB itself. In prepared testimony, he said that there has been significant cooperation between companies in that industry and the federal watchdog.

"Our members have sought a positive and collaborative relationship with the CFPB," he told lawmakers. "Free of charge, our nationwide credit reporting agencies provided the CFPB with 600,000 depersonalized credit reports and another 3 million credit scores so that the Bureau could conduct a study of the similarities of various credit scores in the marketplace. One of our members voluntarily provided the CFPB with free, depersonalized credit reports for a study of the usefulness of remittance data in predicting creditworthiness of consumers who may have 'thin' credit reports or no credit report."

He further noted that in many instances, companies across the industry worked closely, and for free, with the CFPB to cull data that could be used in a white paper on the entire credit reporting landscape itself. However, Pratt also criticized the agency for being "driven by the headlines," and not necessarily working to improve the industry in a more meaningful way.

What the CFPB had to say
Also testifying in the hearing was Corey Stone, the assistant director for the Office of Deposits, Cash, Collections, and Reporting Markets at the CFPB. He discussed the many ways the agency's efforts to closely examine the credit reporting industry are designed to help consumers find more clarity in the process, and make it easier for them to dispute any issues they may encounter as part of their financial dealings.

Stone noted many of the facts in the watchdog's report that show just how frustrating credit reporting can be for consumers, such as the fact that more than half of all information in the industry comes from credit card companies, or that more than 75 percent of that data comes from just 100 reporting agencies. Further, about one-third of all consumer disputes about items on their credit reports relate to accounts that have been sent to collections, and only 20 percent of people actually take the time to check their credit reports every year. And when complaints do come, 85 percent of the time, they are sent back to the firm that initially reported the disputed information, indicating there may be a problem with the ways in which these companies compile data.

Chi Chi Wu, an attorney at the National Consumer Law Center, backed up the CFPB's general assertions that the credit reporting industry is, in her words, "plagued by inaccuracies." She noted that the goal of the companies that put together this data, which can dramatically affect many aspects of consumers' lives, even beyond their credit, should be to reduce the number of errors on people's reports to zero. Many studies have shown there are far more inaccuracies than that — some say the issues may exist on as many 80 percent of all such documents — and Wu said steps must be taken to whittle that number down significantly.

Because credit reporting can still be problematic for many consumers, it's usually a good idea for them to take the time to order copies of these documents and check them closely for unfair markings. If any are discovered, working with a credit repair firm may help to clear up the issues.