Should Your Company Just Stop Credit Reporting? (The Debt Collection Drill Videocast)
Recent actions by the Consumer Financial Protection Bureau (CFPB) – including the issuance of a $19 million penalty against a company for errors in credit reporting – substantially complicated and increased the risk for creditors and debt collectors furnishing consumer information to the credit reporting agencies. Due to the cost and risks associated with credit reporting, many creditors are questioning whether to continue reporting consumer data to the credit bureaus or simply cease reporting entirely. In this episode of The Debt Collection Drill video series, Moss & Barnett attorneys Sarah Doerr and John Rossman examine the recent actions by the CFPB and provide specific guidance for how furnishers may assess and address the risks and costs associated with credit reporting in 2022 and beyond.
John Rossman (00:04):
Welcome to The Debt Collection Drill, the video cast featuring Moss & Barnett shareholders, John Rossman, and Mike Poncin, providing sage tips for collection and compliance. Welcome to the Debt Collection Drill. I'm John Rossman, a shareholder here at Moss Barnett. Typically I do these shows with my law partner, Mike Poncin. He's working on another show today, so I have my law partner, Sarah Doerr here today to assist with this episode. Welcome Sarah.
Sarah Doerr (00:32):
John Rossman (00:32):
Today, we're going to be talking about credit reporting and specifically, some of the things that have happened in our industry that have made a number of people really say to us, "Should we even be credit bureau reporting anymore?" Sarah, there have been really three instances that we're going to talk about that have happened recently, that have made people wonder what they should be doing. Certainly the first and foremost would be recently, within the past couple weeks, there was a furnisher that was fined by the CFPB to the tune of $19 million. And that fine arose from credit bureau reporting mistakes that were made. And here again, when you look at some of the mistakes that were made that were discussed by the CFPB in this consent order, it really gives a lot of folks who are doing credit reporting, pause to wonder whether they're doing the right thing and whether they should still be doing credit reporting.
John Rossman (01:19):
Sarah, I know one thing in particular that concerned a lot of folks about this CFPB, this most recent CFPB consent order, was the fact that the furnisher had done audits both in 2013 and in 2016, trying to fix these problems or at least identify these problems. But unfortunately, those previous fixes weren't enough. Sarah, talk to me a little bit about what we would be looking for when we're trying to determine what is the best way to go about, first of all, auditing a system for credit reporting, and then making sure that we're fixing those mistakes.
Sarah Doerr (01:51):
There are a number of things and the CFPB, in sanctioning the furnisher that you mentioned and making some of its findings, they do give furnishers a bit of a roadmap as to what could have been done differently. We say all the time that hindsight is 2020, but even with the prior audits, there are, like I said, a number of things. First of all, making sure that individual questions from consumers or disputes are examined with a lens towards whether they are systemic issues. Are these mistakes happening beyond just the scope of this one particular account or this one particular consumer? Secondly, with respect to the audits themselves, it's all fine and well that you may have done previous audits, but did you have a third party involved in that audit, somebody who might be able to identify your institutional blind spots? And we all have them.
John Rossman (02:52):
That's such a great point, Sarah, because I know the CFPB specifically talked about subject matter experts and the fact that a company that's credit reporting, it's not enough to just have folks who are working on it. You actually have to have subject matter experts. People who really know credit bureau reporting and how to appropriately handle credit bureau reporting and issues. Those people either need to be on your team or you need to retain those people as part of the process.
Sarah Doerr (03:16):
Absolutely. The third major step that I think is important to recognize when you're looking at these sort of issues, is whether you have the resources in place to address them, whether your tech, your software programs are speaking to each other in a way that is useful and providing consistency as to how you're reporting and as to how consumer disputes are being handled, rather than talking past each other or relying too much on manual inputs, which, as operations scale in increasingly large organizations, when there's those manual inputs, there's more and more chances for mistakes and inconsistencies.
John Rossman (04:02):
Another thing the regulator mentioned in this consent order was the fact that there were manual changes and fixes that were made in some accounts, but then there were automatic overrides that changed back the mistakes that were previously made. So, I think it's one thing too, it's not enough just to go in and make these manual changes or fixes to credit bureau reporting, you have to go in and actually understand what you're doing and then go back after the fact and ensure that the changes that you made didn't some way or another get negated by something else that's going on with your system.
John Rossman (04:31):
Sarah, not only have we seen the CFPB come down with its regulatory action recently relating to credit bureau reporting, we've also seen the CFPB come down with a supervisory highlight, where it spoke about some issues with credit bureau reporting. And here again, it's interesting, the timing of this. You look at the CFPB supervisory highlight being issued in early July, 2022, and then this $19 million fine being issued later in 2022, clearly the regulators trying to send a message across all industries that credit bureau reporting is going to be of paramount importance to this particular administration and this particular CFPB.
John Rossman (05:10):
Now, with this supervisory highlight that the CFPB issued in early July, 2022, one thing that the CFPB identified that furnishers were making a mistake, that furnishers were making related to the mass deletion of accounts. The example that was given in the supervisory highlight was, there were thousands of disputes. And rather than the furnisher investigating every dispute, the furnisher just said, "We'll just delete all the trade lines." While that might seem like a consumer friendly fix. The CFPB said no. When you have a dispute, you can't just say, "Hey, we're going to delete all these thousand or million disputes." The FCRA specifically requires that a furnisher go through review and investigate each dispute to ensure that it's accurate and ensure that the information that the credit reporting agency has is accurate. Sarah, what kind of other takeaways could we have from the CFPB supervisory highlight?
Sarah Doerr (06:07):
John, there's three specific points that the CFPB made in issuing those supervisory highlights. First, the failure to specify how particular data fields are being handled. That was the first big one. Second, there's a need to address how records are being retained. Over time, you need to keep those records for a defined period of time so that they can be reviewed. Again, going back to what we talked about before with those audits that should be done on a regular basis. And third, then this is a big one, we'll explore it in more detail, addressing, specifically, how the reporting of accounts and bankruptcy is handled. Specifically, during the pendency of a bankruptcy and also after discharge.
John Rossman (06:56):
These are great points, Sarah, and I want to focus first for a minute on the data fields piece. There's one data field that seems to trip up furnishers time and time again. And that's the date of first delinquency. As we know, as furnishers, that date of first delinquency is going to determine, among other things, how long that trade line appears on a consumer's credit bureau. So, if you've messed up the date of first delinquency, you potentially have extended the period of time when that can be on a consumer's credit bureau report. So, that date of first delinquency, when you're auditing and you're thinking about what types of data fields should we be looking at and what kind of accuracy do we need? We know that the CFPB in both the supervisory highlight, as well as the furnisher consent order, the $19 million consent order, specifically talked about that date of first delinquency. So, it's something we definitely want to think about.
John Rossman (07:43):
Sarah, you also mentioned credit bureau reporting as it relates to bankruptcy, and that is such a huge topic. I know you and I were talking before we started recording this here, we were looking at the docket this morning, and there were a number of new cases again today, where consumers and consumer attorneys are suing furnishers, be they collection agencies, debt buyers, or financial institutions, such as banks. They're getting sued for furnishing information about a consumer who's in bankruptcy that is incorrect. Sarah, can you tell me a little bit more about these types of claims?
Sarah Doerr (08:16):
Absolutely. And this is really just the latest in what we see in our industry all the time is, plaintiff's attorneys taking a look and seeing, what can they come up with in terms of a claim? And here, what they're doing is reviewing, post-discharge, a consumer's credit reports and saying, "Okay, is everything being reported correctly?" And that's the question, is it accurate? And that's what we advise our clients.
Sarah Doerr (08:42):
And what I think we want to get across here is that, first and foremost, what is being reported by a furnisher needs to be accurate, both during the bankruptcy. So during, for example, a chapter seven, when debts are pending discharge, they should be reported as such. Likewise, after they're discharged, they should report as a zero balance discharged in bankruptcy. There are situations where we would advise that you do consult an attorney, for example, where a consumer reaffirms a debt and then claims that it should not have been reported as a bankruptcy.
John Rossman (09:25):
Sure, Sarah, or even where they don't bother to reaffirm, they just keep on paying. So, you've got to chapter seven, consumer files bankruptcy and says, "I'm just going to keep paying the creditor." Well, the consumer comes back six months later, or the consumer attorney, comes back and says, "Wait a minute, this debt wasn't included in my bankruptcy because I'm paying the creditor outside of the bankruptcy, therefore creditor, you shouldn't be reporting on my credit bureau report that this debt is included in bankruptcy." But of course, as we know, that's contrary to law and certainly contrary to what would set forth in the CDIA manual.
Sarah Doerr (09:55):
Exactly. There's any number of situations you could come up with that get into the nuances of this. But that's exactly right. You want to take a step back and say, what is accurate? A lot of times, with a reaffirmation or a consumer that continues to pay the debt throughout bankruptcy, a creditor or furnisher is not necessarily going to know that at the jump, when they receive a notice of bankruptcy. They're going to do the best, most conservative thing, which is to report all debts from that consumer as being in a pending bankruptcy action.
John Rossman (10:29):
So, really, those are the considerations that you have to look at when making these types of assessments. We are out of time for today, but Sarah, I'd like to thank you for another great episode of the Debt Collection Drill, and we look forward to speaking with you next time.
Sarah Doerr (10:40):
John Rossman (10:41):
Thank you. This video is provided only as a general discussion of legal principles and ideas. Every situation is unique and must be reviewed by a licensed attorney to determine the appropriate application of the law to any particular fact scenario. If you have legal questions, consult with an attorney. The listener of this video cast will not rely upon anything herein as legal advice and will not substitute anything contained herein for obtaining legal advice from an attorney. No attorney client relationship is formed by this video cast and Moss & Barnett assumes no liability for any errors contained herein, or for changes in the law affecting anything discussed herein.