Credit reporting’s new expectations

By Aug. 12, 2018, thousands of furnishers of credit information may have to significantly alter their policies, procedures, and processes as a result of a massive, multistate investigation and subsequent legal agreement between three of the largest U.S. credit reporting agencies—TransUnion, Experian, and Equifax—and 31 state attorneys general.  

The settlement, which responds to growing consumer complaints about credit-report inaccuracies, does not amend any Fair Credit Reporting Act (FCRA) laws.

However, some of the new requirements agreed to by the credit agencies will affect nearly all organizations that collect personal credit information, including procurers and users¹; furnishers and transmitters²; marketers; and even employers.

Meeting the new standards, which will be set by the credit agencies, could be a complex, time-consuming process. Compliance will require a significant investment in upgrading systems, operations, and controls as well as recruiting and training staff.

Examining the agreement

Three key components of the new requirements include the following:

1. Improved data accuracy and quality: Data submitted without the name of the original creditor and the creditor classification code associated with each item reported will be rejected. So will debt collection data not supported by a contract or agreement to pay. Moreover, birth dates for authorized users will also be required for new accounts to be reported.

2. Enhanced dispute resolution: The credit agencies will need to accelerate their processing of consumer complaints about mixed files (credit reports that contain information relating to two different consumers with the same name); fraud; and identity theft to improve the fairness, transparency, and effectiveness of the dispute resolution process.

The changes also mandate that the credit reporting agencies review all supporting documentation for disputes initiated with the agencies prior to submitting it to the furnisher.

Additionally, under the settlement agreement, the onus is on furnishers of credit information to affirm to the agencies that any images of documentation related to a consumer dispute were reviewed. Furnishers must have clear procedures for investigating disputes initiated with the agencies.

3. Monitoring furnishers: The top three credit agencies will form a National Credit Reporting Working Group to develop and share best practices, policies, and data quality metrics. The group will monitor furnisher performance and data accuracy, providing timely reports on their findings.

If furnishers fail to comply with the metrics and benchmarks established by the Working Group, the agencies are obliged to take corrective action.

Actions could potentially include fines and a prohibition against making transactions for 30 days or longer if the problem is not remedied.

Keeping up with the new requirements

As the agencies implement requirements set forth upon them and require new or additional information from furnishers like banks, furnishers should take time to review internal credit-reporting practices as a whole to identify any necessary changes to current operations, systems, reporting process, and data.

They should consider the following five projects as they build a more compliant system:

1. Centralizing management of credit-reporting systems.

Many financial institutions use multiple systems to record and report on customer credit data. The systems are not always directly linked despite their importance. Without centralized system management, furnishers face challenges when making systemic updates, revising processes and data, or trying to ensure that reporting is updated and accurate.

2. Establishing or enhancing controls.

These apply to several stages of the process, including extracting the right data from source systems; managing data flow from source systems to reporting systems; and creating and submitting Metro 2 files.

This is best accomplished by setting up an oversight group consisting of senior risk, compliance, technology, data, and internal audit executives to develop sound policies and procedures for data and systems control.

3. Improving the effectiveness of the dispute resolution process.

Institutions will need to establish procedures to track the review and resolution of customer disputes. Procedures will need to identify ownership of dispute reviews; establish investigative procedures and timelines; and determine how to review dispute documentation. 

4. Implementing proper change-management processes.

These will be necessary to handle updates from business, regulatory and technology stakeholders, including software vendors. Furnishers need an interdisciplinary group with members from the lines of business, compliance, internal audit, and technology functions to identify, approve, and implement systemic changes to the reporting process. Downstream reporting impacts should be assessed before changes are implemented.

5. Engaging subject-matter experts on regulations in each step of the process.

Compliance departments should identify subject-matter experts on different types of risks and compliance issues and make them available to line managers to answer questions and review reports before they are entered into the system.

Moving forward

The settlement agreement will create additional challenges not only for the credit reporting agencies, but also financial institutions and other entities that furnish personal credit information.

Meeting the standards that will be set by the agencies could be time consuming, complex, and costly. However, by starting with a clear understanding of the changes, establishing proper oversight and deploying the right resources to implement new policies and procedures, systems changes, and data identification, organizations can streamline the process, ensure compliance, and minimize costs.

Read the credit reporting agencies’ settlement with the state attorneys general [pdf]

¹Although FCRA does not define “procurer,” the general definition refers to persuading, inducing, or causing a particular transaction to occur or to find and obtain information. Resellers of credit reports are typically considered procurers within this context. A user is an individual or entity that uses the information for various purposes. With respect to obtaining credit reports, a procurer either acts on behalf of a user to obtain credit reports or engages in the assembly of credit reports obtained from consumer reporting agencies for resale to users.

²A furnisher means an entity that furnishes information relating to consumers to one or more consumer reporting agencies for inclusion in a consumer report.  While FCRA does not provide a definition for transmitter, the general definition refers to passing on, sending out, or communicating the information. A furnisher, as the owner of data/information, can either transmit the data/information directly to consumer reporting agencies or may use a data transmitter to send the information to the consumer reporting agencies.  

Authors of article:

• Stephanie White Booker, executive director, Ernst & Young LLP, [email protected], 214-969-8027

• Carina Dacer, senior manager, Ernst & Young LLP, [email protected], 212-773-3006

• Tracy Hatt-Doering, senior manager, Ernst & Young LLP, [email protected], 703-747-1506

• Pegah Kuhl, senior, Ernst & Young LLP, [email protected], 312-879-2879

Disclaimer: The views expressed in this article are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or any other member firm of Ernst & Young Global Limited