WASHINGTON (Reuters) - The U.S. consumer financial watchdog is reviewing whether credit-reporting agencies are breaking the law by not doing enough to correct potentially erroneous consumer credit reports, an official said on Wednesday.
Corey Stone, an assistant director at the Consumer Financial Protection Bureau, told a U.S. Senate panel that some firms are failing to pass along to creditors all of the documentation that consumers provide when disputing information in their reports.
“We have many tools with which we can make determinations about whether the law is being violated or not. And in this case, that is what is going to happen,” Stone said. He did not name specific firms.
Wednesday’s Senate Banking hearing came in response to a report issued by the CFPB earlier this month about the credit-reporting industry.
Created by the 2010 Dodd-Frank Wall Street reform law, the CFPB is tasked with protecting consumers from predatory lending practices or other harmful financial products.
Part of its new authority allows the government to examine the country’s three largest credit-reporting bureaus - Equifax Information Services LLC, TransUnion LLC and Experian Information Solutions Inc.
Those agencies, which collect data from lenders to help tabulate credit scores, have great power over consumers’ finances. The higher the credit score, the easier it is for a consumer to get access to credit such as auto loans, credit cards and mortgages.
The report found that while most consumer complaints about possible errors are passed along to the original furnishers of the data, any other documentation consumers provide to bolster their claims often does not get back to the lenders tasked with investigating the complaint.
The failure to share all the supporting documentation from consumers raises questions about whether the practice violates the Fair Credit Reporting Act. That law requires credit-reporting bureaus to follow “reasonable procedures” to ensure the accuracy of information and to reinvestigate any consumer disputes that arise.
As part of the reinvestigation, credit-reporting agencies must consider all of the relevant information supplied by a consumer and forward it to the data furnisher within five business days.
Stone declined to say directly whether credit reporting agencies are violating the law when asked about it by Senator Sherrod Brown, a Democrat, who chaired Wednesday’s hearing.
But he said lenders have the upper hand when it comes to challenging the accuracy of the data used to tabulate credit scores, placing the burden on consumers to get errors corrected.
“Is it a fair statement to say consumers must provide evidence when they challenge a credit score, but that creditors are taken at their word?” asked Brown.
After about a 10-second pause, Stone replied: “To describe the system that way I think would be accurate.”
Consumer advocates have long complained about the credit-reporting system, saying it is riddled with errors that are difficult to get corrected.
Stuart Pratt, chief executive of the Consumer Data Industry Association, told lawmakers there are some challenges in how credit-reporting bureaus share documents with furnishers.
If, for instance, consumers send letters that highlight problems with multiple accounts at different banks, then legal concerns arise.
“Consumers will often talk about two or three different accounts on the same front page of the letter. One of our challenges is, we can’t send Bank of America information about Citigroup or information about another lender. So how do we parse through the letter and get the right information of the right letter?” he said.
But he added, “We think we’re getting it right,” saying that many consumers choose to dispute problems directly with their lenders instead of with the credit-reporting bureaus.
Reporting By Sarah N. Lynch; Editing by Leslie Adler