CFPB White Paper December 2012 – Credit Repair
Consumer Financial Protection Bureau1 (CFPB) Report Details How the Nation's Largest Credit Bureaus Manage Consumer Data
Prepared remarks by Richard Cordray on a credit reporting white paper press call
The report highlights the basic systems the credit reporting companies use to collect, organize, and maintain consumer credit information. It is based on information submitted by the three largest credit bureaus and other sources, and is one of the most comprehensive looks at the credit reporting industry to date. And, importantly, it brings us one big step forward in understanding this industry and making it more transparent for consumers.
As you know, credit reporting plays a critical role in consumers’ financial lives. Credit reports on a consumer’s financial history and behavior can determine eligibility for credit cards, car loans, and home mortgage loans – and they often affect how much a consumer is going to pay for that loan. The industry is critical in our economy. Without credit reporting, many consumers would likely be unable to get credit.
Almost every adult in America has a credit file. Estimates are that Experian, TransUnion and Equifax each maintain files on about 200 million Americans gleaned from approximately 10,000 providers of information. The amount of data collected and exchanged is astounding. Each year, approximately 36 billion updates are made to consumer credit files. There are more than 1.3 billion trade lines actively reported. Trade lines are individual consumer credit accounts, so one person will likely have multiple trade lines, such as her car loan, bank account, and home mortgage, as well as different trade lines for each credit card she holds.
Today’s report found that credit card history makes up more than half of the information on an average credit report. It also found that most of the information provided to the credit reporting companies comes from a few large companies, such as big banks. This means credit cards are given great weight in credit profiles – a lesson that consumers could end up learning the hard way. Especially around this holiday season, consumers may take out a retail credit card in order to save 20 percent off their purchases on a given day. If they are not responsible with that one card, it could end up costing them a lot more down the line when they go to take out a mortgage and that credit card is a black mark on their credit report.
We also learned that more than a third of consumer disputes have to do with collection items. Now, some of that may have to do with a consumer’s incentive to wipe out any negative information on their report. But whatever the incentive, we found the information provided by the collections or debt buying industry is more likely to be questioned by a consumer than, say, the data from their mortgage lender. In fact, the information provided by the collections industry is five times more likely to be disputed than mortgage information.
We also found that only about 44 million consumers – just one in five people with a credit history – check their report in a given year. This is a shame because the most effective way for consumers to identify errors in their reports is to obtain copies of them and review them. This is also a shame because – while we do not know for sure how common these errors are – we know that people do find errors. And if consumers are not checking their reports, these errors can persist and pop up when a consumer can least afford them, blocking them for borrowing money for a larger purchase or causing them to pay a higher rate of interest than they should.
We also found that the credit reporting companies resolve an average of 15 percent of consumer disputed items internally, without getting the data furnishers involved. The remaining 85 percent are passed on to the furnishers. Today’s report found that the documentation consumers mail in to support their cases may not be getting passed on to the data furnishers for them to properly investigate and report back to the credit reporting company.
As a data-driven agency we believe in informational reports like this. We believe in doing deep dives into the markets we regulate, because we think the best and most effective way to oversee an industry or market is to understand it thoroughly. And our markets teams, such as those that authored this report, are key to this function of our mission.
I also consider today’s report a significant addition to the Consumer Bureau’s oversight of credit reporting. You will recall that in July, we adopted a rule to begin supervising the larger credit reporting companies. These companies had never been supervised at the federal level. Then, in October, we began taking individual complaints about credit reporting companies. If a consumer files a complaint with a credit reporting company and is dissatisfied with the resolution, the CFPB is available to assist.
Today’s report establishes a baseline knowledge about the industry as we embark on our regulatory and supervisory mission. Given our supervisory role over many of the providers and distributors of credit report information, we can play a positive role in resolving accuracy issues and other risks to consumers within the system. And given our enforcement authorities, we can make sure that consumer financial laws are being followed. Overall, we are very interested in finding better ways to measure and improve accuracy within this system.
What consumers can do is to be smart about how they manage their own credit. They need to know how to build up their creditworthiness, so they can take control over their credit history in a positive way. They also need to be aware that federal law gives them the right to a free credit report once a year from each of the nationwide credit reporting companies, which they can obtain at www.annualcreditreport.com. It is critical for each of us to exercise that right.
Keep in mind that nobody else has as much incentive to protect you as you have to protect yourself. Checking your credit report can reveal odd entries you do not recognize, which may be signs of identity theft. It also can uncover errors that will hurt your creditworthiness unless you dispute them and get them fixed. I urge every consumer to perform this self-check at least once every year. Consumers can learn more about how to check their credit reports, and fix any errors that they may find, at www.consumerfinance.gov.
Today’s study helps bring clarity to the confusing world of credit reports. It will help educate regulators and consumers about how this important industry works. If consumers know how these companies handle their credit histories, they can make better decisions on how to manage their financial lives. And, as I said earlier, credit reporting is a critical market at the heart of our lending systems. Given its enormity, given its influence over people’s lives, and given its wide impact on our overall economy, you can see that there is much at stake in ensuring that it is working properly for consumers.
1) The Consumer Financial Protection Bureau was formed in 2010, and began investigating the credit world in 2011. This governing body is now charged with regulating the major bureaus, and making sure that they do things right. See their website at www.consumerfinance.gov