InfoBytes Blog

FTC Settles with Operators of Alleged Credit Repair Scheme

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.

FTC Enforcement Credit Scores

CFPB Study: Over 26 Million Consumers Are Credit Invisible

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 Credit Scores

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 Nonbank Supervision FCRA Credit Scores

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.

CFPB Debt Collection Credit Scores

CFPB Report Suggests Remittance Transfer History Offers Little Value For Credit Scores

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.

CFPB Consumer Reporting Remittance Credit Scores