5 Tips to End the Credit Reporting Nightmare

Transcription

1 A New Economic Reality and a New Way to Work 5 Tips to End the Credit Reporting Nightmare and Reduce All Those Costly Disputes By Rozanne M. Andersen, Esq., Ontario Systems, LLC

2 Table of Contents Introduction #1 - Wait at least 45 days after the expiration of the validation period to report. #2 - Respond promptly to consumer complaints and disputes. #3 - Promptly update all newly acquired consumer information. #4 - Become a complaint magnet. #5 - Don t make false statements. Conclusion

3 Introduction The Nightmare 3 The U.S. credit reporting system affects all of us. Consumers, who pay their bills promptly, receive higher credit scores; debt collectors who accurately report consumer accounts experience increased recoveries; and lenders who rely on the credit reporting system make better lending decisions. According to the Federal Trade Commission (FTC), the U.S. credit reporting industry consists primarily of three national credit reporting agencies (CRAs) that maintain a wide range of information on approximately 200 million consumers. Creditors, debt collectors and others voluntarily submit information to these centralized, nationwide repositories of information. This information is then consolidated into consumer reports and credit reports. Users of credit reports analyze the data and other information to assess the risk posed by credit applicants, often using sophisticated predictive models called credit scores. This flow of information enables credit grantors and others to make fast, and generally reliable decisions about a consumer s eligibility for various products and services, allowing consumers to obtain credit within minutes of applying. But the U.S. credit reporting system is in a state of disarray and this spells n-i-g-ht-m-a-r-e for data furnishers. In February of 2013, the FTC released its fifth interim Report to Congress on a national study of credit report accuracy. This was an eightyear study by the FTC which involved 1,001 consumers and reviewed 2,968 credit reports. In this study, the FTC found: 26% of consumers had a material error on at least one of their three credit reports 5% of the consumers in the study had an error that, when corrected, placed them in a different credit risk tier which could result in paying a lower interest rate on their loans The most common errors involved information furnished by credit lenders (13.8%) and debt collectors (7.5%)* About 8 million credit report disputes are filed each year 30,000 data furnishers voluntarily provide information to the CRAs regarding consumers credit history

4 Introduction The Nightmare 4 Since the release of this study, at least two bills have been introduced in Congress to address the problems identified through legislation. The FTC has issued published advice to help consumers resolve their credit reporting issues. The CFPB has issued five letters to help consumers dispute their debts and communicate their concerns about debt collection activity with debt collectors, and published two guidance bulletins warning data furnishers and debt collectors of the perils of inaccurate credit reporting and making false promises about the credit reporting process. To complicate matters, the media has widely communicated the need for consumers to pull their credit reports at least annually and file disputes with the CRAs to correct any problems. For data furnishers, this means facing newfound challenges, heightened federal oversight, an increase in Fair Credit Reporting Act (FCRA) litigation, and an overwhelming influx of consumer disputes regarding items on their credit reports. This ebook offers practical tips to data furnishers, particularly those who collect debts on behalf of the credit granting community, on how to navigate the credit reporting mine field, implement technology solutions to reduce exposure to liability, and decrease costs associated with their data furnisher responsibilities. *The main types of disputed and confirmed material errors (defined as a disputed error that is modified by the CRA) are errors in the trade line (consumer accounts) or collections information. The most common alleged inaccuracies occur in the data on trade lines (708 alleged errors on 409 reports, comprising 13.8% of the sample) or collections accounts (502 alleged errors on 223 reports, comprising 7.5% of the sample). The most commonly modified errors are trade line information errors (395 modifications) and collections information errors (267 modifications).

5 and Reduce All Those Costly Disputes #1 Tip Wait at least 45 days after the expiration of the validation period to report.

6 6 #1 Wait at least 45 days after the expiration of the validation period to report. Most agree that reporting data to a CRA regarding a consumer s account is considered a collection activity. Consequently, both the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA) impose duties on data furnishers when reporting data to the CRAs. Section 15 U.S.C. 1692g of the FDCPA makes it clear consumers have the right to dispute the debt and request verification within 30 days after receipt of the validation notice. The reason Congress afforded consumers this degree of protection under the FDCPA was to provide them with an opportunity to advise the debt collector they are not the right party or to request the debt collector send them more information about the debt. But data furnishers, anxious to recover payment, often jump the gun when it comes to credit reporting and report consumer debts during the validation notice period. This practice contributes to one of the leading reasons consumers file disputes with CRAs and data furnishers the consumer does not owe the debt. Simply stated, often times when the credit report information is furnished too early in the collection process, there is a greater chance you are communicating with the wrong party or the amount due is incorrect, and therefore the information furnished to the CRAs [and which appears on their credit report] is just plain wrong. By waiting until the 30-day validation notice period expires, you improve your odds that the data provided by the creditor is accurate and associated with the right party, thereby greatly reducing the number of costly consumer disputes. Until you confirm you are communicating with the right party, at the correct address and regarding a valid debt, it makes little sense to use your valuable resources to report items to the CRAs before giving the consumer the full opportunity to dispute the debt, request verification or otherwise make you aware of a problem associated with the account. Patience is a virtue and one that makes good financial sense in this context. Technology Solution: Work with your software application provider to control the reporting of account information to the CRAs until at least 45 days have expired following the mailing of the validation notice to the consumer and prohibit the reporting of the account to a CRA if the validation notice is returned to sender. Debt buyers who report debts to the CRAs before they initiate direct collection activity with consumers should be particularly careful to establish procedures to update the CRAs with accurate and complete information upon learning any of the information previously reported was inaccurate or incomplete A New Economic Reality and a New Way to Work

7 and Reduce All Those Costly Disputes Tip #2 Respond promptly to consumer complaints and disputes.

8 8 #2 Respond promptly to consumer complaints and disputes. The FDCPA and the FCRA impose stringent requirements on data furnishers regarding their duty to report only accurate information to CRAs about consumers, and to respond to consumer disputes about the items on their credit report promptly. Failure to do so can subject the data furnisher to liability under the FCRA, support very low CFPB examination ratings for LMPs, and in egregious situations, subject the data furnisher to CFPB or FTC law enforcement activity, a supervisory examination, or both. But even in the absence of legal liability or federal oversight, when you fail to take credit reporting responsibilities seriously, you waste valuable resources. The administrative costs associated with responding to consumer disputes are increasing. Trained staff must conduct a reasonable investigation* upon receipt of each consumer dispute. In light of the FTC s report to Congress which states over 200 million Americans have consumer credit reports, 26% of all credit reports contain inaccuracies and 8 million disputes have already been filed with regard to those credit reports, we can only assume consumer disputes about items on their credit reports will increase. Technology Solution: Consumers can dispute items on their credit reports by contacting the CRAs. The CRAs will in turn generate notice of the dispute to the data furnisher via the E-OSCAR process. Consumers may also dispute items on their credit reports by contacting the data furnisher directly or generating a complaint via the CFPB s consumer complaint web portal. Data furnishers can take advantage of solutions such as Ontario Systems Complaint Tracker CL to seamlessly track all such complaints, launch the reasonable investigation, respond to the consumer or the E-OSCAR ACDV form, cease communication until the dispute has been resolved, and update the consumer s credit report with accurate and complete information about the reported information, including any fraud block notice information. *According to the CFPB s recent Advisory Bulletin, published September 4, 2013, entitled, The FCRA s requirement to investigate disputes and review all relevant information provided by consumer reporting agencies about the dispute, data furnishers shall implement a reasonable investigation process which includes: (1) An appropriate system for the nature, size, complexity, and scope of the furnisher s business operations; (2) Use of standard data reporting formats and standard procedures; (3) Maintenance of records for a reasonable period of time; (4) Appropriate internal controls regarding the accuracy and integrity of information; (5) Staff training program and process for your staff to inform you of new consumer information relative to the data reported; (6) Appropriate and effective oversight of relevant service providers; (7) Process to furnish information to CRAs following mergers, portfolio acquisitions or sales, or transfers of accounts in a manner that prevents re-aging of information and duplicative reporting; (8) Process to delete, update, and correct records as appropriate to avoid furnishing inaccurate information; (9) Reasonable investigations of disputes; (10) Use of advancing technology to mitigate inaccuracies in reporting; (11) Process to provide proper identification of the consumer; (12) Periodic evaluations of your own practices; and (13) Complying with applicable requirements under the FCRA and its implementing regulations A New Economic Reality and a New Way to Work

9 and Reduce All Those Costly Disputes Tip #3 Promptly update all newly acquired consumer information.

10 10 #3 Promptly update all newly acquired consumer information. We all know the drill. As a data furnisher you send batch reports to the CRAs on the 15th day of each month. The consumer submits a payment to your agency on the 16th day of the month. The CRA takes anywhere from 14 days (in a good scenario) to as many as 45 days to upload the new information to the consumer s credit report. According to your credit reporting process, you wait until the 15th day of the next month to update the consumer s credit report with the new balance. In this scenario, it is entirely possible the consumer s new balance will not be reflected on his or her credit report for up to 75 days. If the consumer pulls his or her credit report during that period or applies for an extension of credit the consumer will find the information you previously reported to be inaccurate and file a dispute. In a nutshell this defines the problem inherent in our existing credit reporting process. Upon the receipt of the consumer s dispute, your team will spend at least 45 minutes investigating the dispute* and responding to the consumer directly, via the CFPB consumer complaint web portal or through the E-OSCAR system. Obviously, this is a costly, unnecessary process all data furnishers want to avoid. The Technology Solution: The Fides Corporation, through its Link partnership with Ontario Systems, has established a central database for derogatory data that will provide single source reporting from collection agencies to Fides. This process will then allow all three bureaus to access up-to-the-minute updates from collection agencies in real time. Collection agencies can automatically submit their data in a single upload daily, and Fides will provide seamless integration to all three bureaus simultaneously, dramatically reducing complaints, disputes, and the costs and time associated with the use of E-OSCAR, while improving their compliance with the law. The Fides application has a variety of processes for validation of the information, including suspension of updates until the data furnisher is notified and provided with an opportunity to make corrections. The Fides solution also provides the CRAs with unique advantages. With the Fides Solution, efficiency and accuracy will be added to the credit reporting process when CRAs use the Fides technology to centralize derogatory credit information nationally. The Fides system will enable CRAs to electronically request (just as CRAs do now for other data such as court records, etc.) data daily, in real time, from the Fides nationwide central database. Doing so will eliminate, or greatly reduce, the majority of consumer disputes about the accuracy of information on their credit report. * Since 1996, the FCRA has also imposed certain accuracy and reinvestigation duties on both the furnishers of information to CRAs and the users of reports. For example, users of consumer reports (i.e., creditors who use report information provided by CRAs) are required to send notice to consumers if the consumer s credit report was used to deny credit (known as an adverse action notice ). The 2003 FACT Act imposed additional reinvestigation duties on furnishers. These amendments also recognize that furnishers the original source of the information have a critical role to play in the overall accuracy of consumer report information. Thus, Section 623 of the FCRA requires furnishers to investigate disputes received from CRAs and to correct and update information provided to CRAs that they later learn is inaccurate. Furnishers are also required to investigate and respond to disputes made directly to them by consumers regarding the accuracy of their information A New Economic Reality and a New Way to Work

11 and Reduce All Those Costly Disputes Tip #4 Become a complaint magnet.

12 12 #4 Become a complaint magnet. Aside from abiding by all the complicated compliance requirements imposed on data furnishers, there are really only two ways to approach the issue of consumer disputes. One is to sit and wait for them to come to you hoping you will remain under the radar. The other is to become a complaint magnet and attract the disputes to your organization first before consumers decide to file a dispute with the CFPB, the CRAs, their state attorney general, local BBB or retain the services of a consumer attorney. Consider providing consumers with a variety of opportunities to register their complaints or disputes about the data you furnished to the CRAs with you directly. A consumer web portal or link to your website is the most logical choice for this type of information sharing. You may also want to select a segment of your team to serve as consumer help desk associates. These specially trained individuals would be positioned within your organization to handle the verbal and written consumer disputes and inquiries your front line collection agents may be ill-equipped to handle. These help desk agents can also assist in resolving the debt when appropriate. Do not, however, completely rule out the role your front line collectors can play. Often times, the collector is the first person in the collection and credit reporting process to identify a possible issue with a consumer s credit report information. They learn of updated address information, new telephone numbers and changes in places of employment. Under the law, you are obligated as a data furnisher to update this type of demographic data, as well as account data, and any corresponding disputes with the CRAs. Your collectors can be an integral and valuable part of this process. Finally, do not forget to prominently post the address of the location where consumers may send disputes regarding the accuracy of the information you furnished to the CRAs. This simple step can actually serve as a defense to a credit reporting law suit under section 15 USC 1681s-2(A).* Technology Solution: In collaboration with your technology provider, integrate your consumer complaint web portal on your website with your collection system so complaints and disputes are properly updated to the account. Also use the Ontario Systems solution, Compliant Tracker CL, an integrated complaint management system, to manage, track and resolve disputes. Be sure to grant your help desk associates with limited access to Complaint Tracker CL so they may upload data about a consumer dispute directly into your complaint database. * 15 U.S.C. 1681s-2(C), No address requirement, A person who clearly and conspicuously specifies to the consumer an address for notices referred to in subparagraph (B) shall not be subject to subparagraph (A); however, nothing in subparagraph (B) shall require a person to specify such an address A New Economic Reality and a New Way to Work

13 and Reduce All Those Costly Disputes Tip #5 Don t make false statements.

14 14 #5 Don t make false statements. On July 10, 2013 the CFPB published an Advisory Bulletin entitled, Representations Regarding Effect of Debt Payments on Credit Reports and Scores. This bulletin provides guidance to creditors, debt buyers, and third-party collectors about compliance requirements that must be followed when making representations to consumers about the impact that payments on debts in collection may have on credit reports and credit scores. According to the CFPB, while communicating with consumers, creditors and debt buyers (collectively debt owners ) and third-party debt collectors often make material representations intended to persuade consumers to pay debts in collection. The CFPB is extremely concerned about representations data furnishers make to consumers about the impact payment of a debt may or may not have on their credit report, credit score, credit worthiness or likelihood of obtaining credit. Such representations may include, but are not limited to, statements regarding the relationship between: Paying debts in collection and improvements in a consumer s credit report Paying debts in collection and improvements in a consumer s credit score Paying debts in collection and improvements in a consumer s creditworthiness Paying debts in collection and the increased likelihood of a consumer receiving credit or more favorable credit terms from a lender The CFPB reminds data furnishers that representations such as those listed above are likely to be important to many consumers who view credit reporting as determinant of their future access to credit and other opportunities. Based on its supervision, enforcement, and other activities, the CFPB is aware these types of representations are being made and is concerned some may be deceptive under the FDCPA, the Dodd-Frank Act, or both. Technology and Training Solution: The best way to stop anyone on your team who serves in a consumerfacing role from making such statements is to: Establish a policy and the corresponding procedures to ban such practices Implement a remediation program that includes additional training, financial penalties upon receipt of notice any person on your staff violated your policy and possible termination for repeat offenders Use speech analytic solutions, such as the product Ontario Systems, in collaboration with Nexidia, provides to review all collector/consumer communications and search for key words that may suggest a discussion of the consumer s credit report, credit score, credit worthiness or likelihood of obtaining credit occurred A New Economic Reality and a New Way to Work

15 and Reduce All Those Costly Disputes Conclusion Credit reporting remains an extremely valuable collections tool. Though the price of credit reporting for data furnishers has certainly gone up, the problems associated with credit reporting don t have to give you nightmares. Organizations that implement sound policies and procedures, conduct reasonable investigations, and use technology solutions (such as those offered by Ontario Systems and Fides to promptly update consumer credit report information) will reduce the volume of complaints and disputes they receive from consumers about the accuracy of the data reported and drive their internal costs down dramatically. There is no question the U.S. credit reporting system is in the eye of the storm. But fortunately in the new world of CFPB oversight being forewarned is being forearmed. Now forget about those nightmares and get a good night s rest. Disclaimer This information is not intended as legal or business advice and may not be used as such. Legal and business advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up-to-date as of the date of this presentation. It is not intended to be a full and exhaustive explanation of the law in any area, nor may you use the information to replace the advice of your own legal counsel. The WebRecon, Fides, insidearm and Ontario Systems assume no liability for typographical or other errors contained in the presentation and materials or for changes in the law affecting anything discussed therein. About the Author - Rozanne Andersen Over 15 years of experience as General Counsel, Chief Lobbyist, Executive Vice President and CEO of ACA International The Association of Credit and Collection Professionals and 14 years as a practicing attorney specializing in banking and financial services have made Rozanne one of the most respected experts in the industry. Her advocacy before both state and federal regulatory bodies and her influence over compliance enhancements integrated in the Ontario Systems product suite helps our clients solve their most challenging legal issues, mitigate risk, and navigate an increasing complex regulatory and legislative environment. Rozanne earned her J.D. from the William Mitchell College of Law Ontario Systems, LLC. All rights reserved. Information contained in this document is subject to change