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On December 12, the CFPB announced the release of a brief on credit invisibility, following up on a 2015 report, which found that 26 million Americans—or one in 10 adults—do not have a credit history with one of the nationwide credit reporting companies. According to CFPB research, an additional 19 million consumers have “unscorable” credit files—i.e., files that are thin or contain insufficient or too brief credit history—and thus, overall, there are 45 million consumers who may be denied access to credit because they do not have credit records that can be scored. The Bureau also provided a checklist for consumers that incorporates the information from the post and identifies actions that consumers can take concerning credit reports. According to the CFPB, consumers should obtain and read credit reports and act quickly to correct any errors they may find in the reports.
Seventh Circuit Finds No Enforceable Arbitration Agreement Case Involving Chicago-Based Credit Reporting Company
Recently, the U.S. Court of Appeals for the Seventh Circuit issued an opinion affirming a district courts denial of a credit reporting companys motion to compel arbitration in a putative class action. The Seventh Circuit considered whether a particular online process was sufficient to form a contract between the company and its customer. Sgourros v. TransUnion Corp., No. 15-1371 (7th Cir. Mar. 25, 2016). The plaintiff in the case purchased a credit score report from the company that he alleged was inaccurate it was 100 points higher than a lenders report and therefore he alleged that the report was useless. The plaintiff sued the company under various state and federal consumer protection laws. The company sought to compel arbitration, arguing that the plaintiff had agreed to the terms of a service agreement that included a mandatory arbitration clause because he clicked on various acceptance buttons in the online ordering process. In this regard, the company took the position that the plaintiff had agreed to the terms of the service agreement by clicking the I Accept & Continue to Step 3 button. The federal district court disagreed, concluding that no contract had been formed, and the Seventh Circuit affirmed. In reviewing the matter, the appellate court found that the online presentation process was insufficient to form a contract, because the web pages did not include a clear statement that the purchase was subject to the terms and conditions of the service agreement. The court observed that no such statement appeared either in the displayed text of the agreement visible within the scroll box, or in the statement displayed below the scroll box. The company argued that there was additional language in the service agreement stating that the purchase was governed by the service agreement, and the plaintiff should be bound by that language. However, the court held that since the additional language was not readily visible unless the plaintiff scrolled the agreement or opened the printable version, it was insufficient to put him on notice that the service agreement applied to the purchase. The court also observed:
Illinois contract law requires that a website provide a user reasonable notice that his use of the site or click on a button constitutes assent to an agreement. This is not hard to accomplish, as the enormous volume of commerce on the Internet attests. A website might be able to bind users to a service agreement by placing the agreement, or a scroll box containing the agreement, or a clearly labeled hyperlink to the agreement, next to an I Accept button that unambiguously pertains to that agreement. There are undoubtedly other ways as well to accomplish the goal.
Accordingly, the Seventh Circuit found that no enforceable agreement to arbitrate arose between the company and the plaintiff and remanded the case to the District Court for further proceedings on the merits.
On January 27, the CFPB announced that it published its 2016 list of consumer reporting companies. The list includes contact information for the three largest nationwide reporting companies and various specialty reporting companies concentrating on specific geographic market areas and consumer segments. In addition, the list provides consumers with (i) tips on determining which specialty credit reports may be important to review depending upon the particular circumstances, such as applying for a job or a new bank account; (ii) information regarding how companies confirm the identity of the consumer requesting a copy of his or her credit report; and (iii) information on which companies also provide free credit scores. The CFPB also reminds consumers of their legal rights to (i) obtain the information in their credit reports, per the FCRA; and (ii) dispute inaccuracies contained in the report.
On December 17, the CFPB announced a consent order against a Minnesota-based auto dealer and its affiliated financing company for alleged violations of the FCRA and the CFPA. The CFPB alleged that the auto dealer, acting through its financing company, (i) repeatedly furnished inaccurate consumer credit information for more than 84,000 customers from January 2009 through September 2013; and (ii) engaged in deceptive acts and practices by failing to report “good credit” to the credit reporting agencies (CRAs) for tens of thousands of consumers after making written representations that the it would report positive credit information to help consumers build and maintain good credit. Alleged FCRA violations include: (i) inaccurately reporting that vehicles were repossessed and borrowers owed balances after the vehicles were returned to the dealer in accordance with the company’s 72-hour return policy; (ii) inaccurately reporting that consumers had outstanding balances after issuing documentation that disputed accounts had been settled; and (iii) failing to establish and maintain reasonable written policies and procedures to ensure the accuracy and integrity of consumer information furnished to CRAs.
Under the terms of the consent order, the companies are required to pay a $6,465,000 civil money penalty. In addition, the companies must (i) establish and implement written consumer-information furnishing policies and procedures that comply with the Furnisher Rule; (ii) identify and correct inaccurate consumer-information that was furnished to the CRAs (iv) cease from making false representations that it will report “good credit” or other positive information to the CRAs; (v) provide affected consumers with free credit reports; and (vi) implement an effective audit program of its credit reporting practices.
On October 21, the FTC announced a $2.95 million settlement with a telecommunications company for alleged violations of the FCRA. According to the FTC, the company violated the FCRA’s Risk-Based Pricing Rule by failing to provide consumers with a fully compliant risk-based pricing notice when they were placed into a cell phone and data service program with an additional monthly fee because of information from their consumer reports and their credit scores. Specifically, the FTC’s complaint alleges that the company (i) failed to provide consumers in the program with required disclosures in their risk-based pricing notices, such as the key factors that adversely affected their credit scores and language encouraging consumers to verify the accuracy of their consumer reports; and (ii) provided consumers with the disclosures only after they have become contractually obligated. In addition to the $2.95 million civil money penalty, the proposed consent order would require the company to (i) abide by the requirements of the Risk-Based Pricing Rule in the future; (ii) provide consumers with the proper disclosures within five days of signing up for the company’s services, or by a certain date that would allow them to avoid recurring charges; and (iii) send the consumers who originally received incomplete disclosures new, corrected risk-based pricing notices. The proposed order is subject to court approval in the District Court for the District of Kansas.
On August 4, the FTC announced a settlement with a California-based company and its employees for allegedly violating the FTC Act and the Credit Repair Organizations Act. According to the associated complaint filed by the FTC in March 2015, the defendants operated a bogus credit repair scheme targeting Spanish-speaking consumers. The FTC alleged that the company and the four named employees deceived consumers with false representations that the company was affiliated with the FTC and false promises that they could repair consumers' credit reports and guarantee that the consumer would have a credit score of 700 or higher within six months or less for a fee of approximately $2,000. The FTC’s final orders against the individuals and the Company (i) hold the defendants jointly and severally liable for a $2.4 million monetary judgment; (ii) prohibit the defendants from selling or advertising credit repair services to consumers, and from deceiving consumers about any good or service they are selling, and (iii) bar the defendants from benefiting, through sale or otherwise, from having customers’ personal information. The final orders were approved by the Commission in a 5-0 vote and filed in the U.S. District Court for the Central District of California, Western Division on July 30 and August 3.
On May 5, the CFPB released the results of its latest analysis of the credit reporting industry, finding that more than 26 million consumers are categorized as “credit invisible” (i.e., consumers without credit histories with a nationwide consumer reporting agency). The report also found that an additional 19 million consumers’ credit records (roughly 8 percent of the adult population) are unscored because of insufficient credit history or information not recently reported. Other notable findings of the study include: (i) almost 15 percent of Black and Hispanic consumers are more likely to be “credit invisible” compared to 9 percent of White consumers; and (ii) consumers in low-income neighborhoods are much more likely to be credit invisible or to have an unscored credit record. During a conference call to announce the results of the study, Kenneth Brevoort, Section Chief within the CFPB’s Office of Research, alluded to what the Bureau’s next steps may be in the area, stating that the Bureau wants “to have a better understanding of exactly what interventions are possible in the regulatory space or perhaps, industry initiatives that may improve the functioning of these markets for the consumers’ well-being.”
CFPB Initiative Results in Free Access to Credit Scores, Agency Pledges to Increase Credit Reporting Enforcement Authority
One year after launching an initiative to improve consumer access to credit reporting information, the CFPB announced on February 19 that at least 50 million Americans now have the ability to directly and freely access their credit scores. As a result of the CFPB’s credit score initiative, over a dozen major credit card issuers have elected to provide free credit reports to their cardholders, and more issuers are expected to follow suit. The initiative was launched to emphasize the significance of monitoring credit scores and to make it easier for consumers to keep themselves informed. CFPB Director Richard Cordray applauded the agency’s efforts to increase transparency in this arena in his prepared remarks for Thursday’s Consumer Advisory Board Meeting, stating that improving both the accessibility and accuracy of credit reports is vital to consumers and credit providers alike. Cordray also alluded that the CFPB intends to leverage its enforcement authority to more closely regulate the credit reporting industry, thereby placing creditors, debt collectors, and other businesses that furnish consumer credit information on high alert. “Using our supervision and enforcement authorities,” Cordray said, “we are already bringing significant new improvements to the credit reporting system − and we are only getting started.”
CFPB Addresses Medical Debt Collection, Requires Consumer Reporting Agencies To Provide Accuracy Reports
On December 11, the CFPB held a field hearing on medical debt collection and how it affects consumer credit reports. In his prepared remarks, Director Cordray announced the release of a white paper focused on the specific issue of medical debt collection. According to Cordray, medical debt collection presents unique challenges as compared to other industries due to inconsistent debt collection practices by medical service providers, insurance companies, and collection agencies. More broadly, Cordray addressed issues within the consumer reporting system and announced that major consumer reporting agencies will now be required to submit “regular, standardized accuracy reports” as part of its ongoing examinations efforts. Specifically, consumer reporting agencies will have to (i) identify furnishers with the most disputes; (ii) identify industries with the most disputes, and (iii) provide peer group ranking of furnishers consumer disputes relative to their industry.
On July 3, the CFPB published a report on its study of the use of remittance histories in credit scoring, which found that (i) remittance histories have little predictive value for credit scoring purposes, and (ii) remittance histories are unlikely to improve the credit scores of consumers who send remittance transfers. The report follows a 2011 CFPB report on remittance transfers, which was required by the Dodd-Frank Act and assessed, among other things, the feasibility of and impediments to using remittance data in credit scoring. At that time, the CFPB identified a number of potential impediments to incorporating remittance history into credit scoring, and noted the need for further research to better address the potential impact of remittance information on consumer credit scoring.
To conduct its supplemental analysis of the potential effect of including remittance histories in credit models, the CFPB collected a random set of 500,000 consumers from a single remittance transfer provider. The CFPB was able to match approximately 212,000 of those remitters to a credit record held by one of the three major consumer reporting agencies. The CFPB analyzed the remitter data set in comparison to a control set of 200,000 consumers with credit records.
First, the CFPB estimated a credit scoring model that used only credit history information to serve as a baseline estimate of the level of predictiveness that credit history information alone produces. The CFPB then evaluated how large of an increase in predictiveness results when remittance histories are added to that baseline model. The CFPB determined that including remittance histories in credit scoring models is unlikely to increase the predictiveness of the models enough to warrant generating scores for otherwise unscorable credit records. The report cautions that the CFPB’s analysis of the predictiveness of remittance histories is limited in numerous ways.
Second, the CFPB assessed the impact of remittance histories on the credit scores of three different populations: (i) remitters without credit files or who could not be matched to a credit file—the majority of the original 500,000 sample size; (ii) remitters with credit profiles insufficient to be scored (“unscoreable”); and (iii) remitters with credit scores.
The CFPB determined that for remitter sample members without credit records remittance histories likely would not allow those individuals to develop a credit profile. The CFPB hypothesizes that given the limited utility of remittance history for predicting future performance, credit model builders would not construct a credit scoring model for this population without any credit records. Similarly, although the CFPB found that although remittance transfers appear to be associated with better credit outcomes for the small segment of remitters with “unscorable” credit, model builders still would be unlikely to score these consumers because remittance histories offer little with regard to predictiveness,. Finally, the CFPB reported that for remitters who already have credit scores, remittance history information appears to drag down credit scores.
The report adds that remittance transfers also are likely to correlate with race or ethnicity, which could raise fair lending risk for credit model developments. Further, the CFPB states that the credit scoring value of remittance histories appears even less valuable compared to other potential alternative data—specifically rental and utility payment data. The bureau suggests that future efforts to enhance consumer credit scoring models should focus on activities that involve regularly scheduled payments, as opposed to voluntary payments like remittance transfers.
- Jonice Gray Tucker to discuss “Getting your company ready: Managing fair lending for IMBs” at the Mortgage Bankers Association Independent Mortgage Bankers Conference
- Jonice Gray Tucker to discuss “Be Your Compliance Best in 2022” at the California Mortgage Bankers Association webinar
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program
- Jonice Gray Tucker and Kari Hall to discuss “Equity, equality, regulation and enforcement – The evolving regulatory landscape of fair lending, redlining, and UDAAP” at the ABA Business Law Committee Hybrid Spring Meeting