The first astonishing thing about the nation’s credit reporting system is its sheer massive size: data is compiled and exchanged about 1.3 billion consumer credit accounts pertaining to 200 million American adults. But what’s even more astonishing is how control over this ocean of data – information that can determine whether any one of those 200 million Americans will get a car loan, pay more for insurance, be allowed to rent an apartment, or be considered for a job – is consolidated into just a few hands. A new report from the Consumer Financial Protection Bureau (CFPB) maps out the industry, providing an overview of “how the nation’s largest credit bureaus manage consumer data.”
The report confirms Demos’ own research on the structure of the credit reporting industry, detailing how a handful of colossal companies trade in the data that shapes our economic lives. And while the CFPB’s findings draw on existing public data rather than original investigations using the new CFPB supervisory powers that went into effect in September, the report’s view of the industry and its shortcoming is nevertheless telling.
Three major privately-held credit reporting companies dominate the industry. And while the Big Three receive information from approximately 10,000 “furnishers of data,” from the bank that affirms you’re making student loan payments on time to the collection agency that insists you never finished paying off that hospital bill, more than half of the accounts appearing in consumer credit files come from just ten large institutions. Although the CFPB doesn’t name names, you can guess who they are: the big banks that issue credit cards, auto loans, student loans, and mortgages reporting information about these many lines of credit. Much of the credit reporting system is a mechanized conversation among these giant companies about the extent to which you’re keeping current with credit card payments so they can determine what rate they should offer you on the next card.
Sometimes, that conversation goes wrong. While the most recent CFPB report does not attempt to determine the rate of credit reporting errors, the many ways errors can arise – and the flawed system for resolving disputes – is amply documented. In the words of the National Consumer Law Center:
The CFPB report describes an automated dispute system in which the credit bureau often limits its role in disputes to little more than assigning codes as to what type of dispute is at issue: the credit bureaus do not examine documents, contact consumers by phone or email, or exercise any form of human discretion in resolving a dispute. The vast majority (85%) of credit reporting disputes are passed on to the company (known as a furnisher) that provided the information. However, according to the CFPB, “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.”
The problems with erronous accounts are daunting enough for the big banks that the system was geared to handle. But the proliferation of small, sometimes irresponsible debt collection companies presents even greater challenges: while debt collection accounts make up only 13 percent of the accounts in credit reports, they are the source of 40 percent of consumer disputes. Improved regulation and supervision of these firms is clearly necessary.
In “Discrediting America” Demos argued that “The CFPB should require credit reporting agencies to meaningfully review and evaluate disputes by consumers, and provide a meaningful review process to individuals who have had their disputes denied.” With its latest report, the CFPB has built its own solid research foundation that amply justifies taking action.