An Emboldened CFPB Means That You Should Immediately Examine and Audit Your Credit Reporting Practices
Unless you have been hibernating for the past few months, it’s impossible to ignore the heightened attention that the Consumer Financial Protection Bureau (“CFPB”) has been paying to credit reporting companies and furnishers of credit information. Last November, the CFPB, through Regulation F, prohibited debt collectors from furnishing delinquent consumer accounts to the Credit Reporting Agencies (“CRAs”) without first notifying consumers of the existence of the debt. More recently, the CFPB has questioned whether medical debt should even be reported.
Medical Debt Questions
To get ahead of the CFPB on the medical debt issue, the CRAs recently announced that as of July 1, 2022, they will not display paid medical debt collection accounts and will wait one year from the date of first delinquency to report such accounts. Additionally, as of March 30, 2023, they will not report medical debt collection accounts with a balance of at least $500. These changes raise myriad legal, economic, social, and political questions, including:
- Which accounts will be considered medical accounts (e.g., is a medical procedure financed through credit card debt a medical debt)?
- Will a prohibition on reporting lead to an increase in small claims litigation to collect the accounts?
- Does removal of paid collections accounts hurt the credit score of consumers or impact the ability of prospective lenders to evaluate their creditworthiness?
- Will access to healthcare become more limited due to service providers requesting upfront payment?
A Robust Compliance Management Program Is Essential For Furnishers
Although these issues will likely be hotly debated in the coming weeks and months, one aspect of credit reporting remains crystal clear: furnishers should be using their robust compliance management system to holistically examine and audit their credit reporting practices, policies, and procedures. Companies are not required to furnish information; it is purely voluntary. But once a company decides to furnish information, there are significant operational and compliance costs associated with doing so in a compliant fashion.
Being a compliant furnisher is costly. You must have the right infrastructure, technology, and sufficient and competent personnel to furnish with integrity and accuracy. You need to respond to direct disputes from consumers and disputes from the CRAs (mishandling an investigation of a dispute received from the CRAs can result in far more significant damages under the Fair Credit Reporting Act than a garden-variety claim under the Fair Debt Collection Practices Act). You also need to properly track and audit disputes by the type of dispute, the creditor, and/or the portfolio.
It is critical that you invest in technology and personnel that can track and audit credit reporting disputes and feed the data into your larger dispute data in your compliance management system. And it’s not enough to just compile the data. You must analyze the data and react to that data if and when appropriate. This latter point cannot be overstated. The CFPB will expect this feature to be a critical component of your compliance management system. Those companies that have operationalized this functionality have uncovered and remediated issues before they materialized into a significant liability. The examination of your credit reporting practices should conclude with an evaluation of whether to continue to furnish information to the CRAs. A cost-benefit analysis should be performed to determine whether the benefits of furnishing information to the CRAs outweighs its risks and costs. This analysis and recommendation should be presented as an action item to the Board of Directors or commensurate highest level of authority within the company. With the CFPB clearly signaling a more aggressive compliance posture as to furnishers of credit information, those furnishers that fail to engage in such internal scrutiny leave themselves at much greater risk of costly and disruptive enforcement actions.
Robert M. Horwitz
Shareholder, Financial Services and Real Property Litigation Group member
Phone: (248) 351-7014
Fax: (248) 359-6181
rhorwitz@maddinhauser.com