The Consumer Financial Protection Bureau has wide-ranging powers to regulate and police the financial services industry, and for the first time in four years it has a director in Rohit Chopra who appears poised to use those powers to the fullest.
Observers have speculated as to Chopra’s priorities for his tenure, but powerful congressional Democrats seem to want oversight of credit reporting agencies to top his list.
In a letter to the director on Wednesday, seven Senate Democrats, including Banking Committee Chairman Sherrod Brown of Ohio, Finance Committee Chairman Ron Wyden of Oregon and noted financial-services critic Sen. Elizabeth Warren of Massachusetts, urged Chopra to address the issue of incorrect data on consumer credit reports.
They pointed to several studies by the Federal Trade Commission over the last decade that estimate that tens of millions of Americans have errors on their credit score so serious that they could be denied credit, housing or a job as a result.
“These impacts can persist for years, putting innocent people in positions that are nearly impossible to resolve,” the lawmakers wrote. “Americans have more complaints with the credit reporting industry than any other type of consumer financial product or service, and the CFPB is empowered to improve this broken system.”
Over the past three years, consumers have lodged nearly 700,000 complaints against credit reporting and credit repair companies, more than three times the next closest industry, debt collection.
The senators argued that the Dodd Frank financial reform law gives the agency “broad supervisory, rule making and enforcement authority over the largest nationwide consumer reporting agencies,” including Equifax Inc.
“We request you take immediate action to protect consumers and introduce much-needed accountability to the credit reporting system,” they added.
One step that fair-lending advocates have long campaigned for is for the CFPB to institute strict new rules on how credit reporting agencies resolve disputes over allegedly incorrect information on Americans’ credit profiles.
“Despite decades of attempts at reform, credit bureaus and furnishers [of consumer data] continue to have serious problems in ensuring the accuracy of credit reports, and the dispute process remains ineffective and biased,” Chi Chi Wu, staff attorney at the National Consumer Law Center said at a House Financial Services subcommittee hearing in June.
Sens. Brown, Wyden and Warren believe the CFPB could address this problem through its authority to supervise credit reporting agencies’ adherence to the Dodd-Frank and Fair Credit Reporting Acts, and suggested Chopra create “an ombudsperson position at the CFPB to facilitate the dispute reloution process and help ensure accuracy.”
New rulemaking or oversight of these companies that forces them to devote significantly more resources to dispute resolution could crimp their profits. “The CFPB is continuing to monitor dispute timeliness at credit reporting companies and furnishers,” wrote Edwin Groshans, senior vice president for financial services at Height Capital Markets, in a recent client note. “The ongoing review may pose a risk to credit reporting companies as the industry has been in the spotlight for not addressing consumer disputes in a timely manner.”
Wu argued, however, that Congress will likely need to pass new legislation to give the CFPB greater oversight authority of the dispute resolution process, given that the Fair Credit Reporting Act only requires private companies to conduct a “reasonable” investigation into reports that consumers say contain errors. An effort to require credit reporting companies to spend more money on their dispute resolution could otherwise run aground in the courts, she added.
Wu said in her June testimony that Congress should create a law establishing a right of appeal for customers when they disagree with information on their credit histories, with the cases overseen by the CFPB, Federal Trade Commission or strictly-regulated units within the companies themselves. She also argued that Congress should clarify that the CFPB has the authority to force companies to devote sufficient resources to independent analysis of disputes.