Rep. James Clyburn, the chairman of the House Select Subcommittee on the Coronavirus Crisis, said the nation’s three largest nationwide consumer reporting agencies have “longstanding problems” with responding to consumers who raise complaints about credit reporting errors.
“These data also raise concerns about whether the [credit rating companies] are fulfilling all of their obligations to consumers and to the Consumer Financial Protection Bureau (CFPB) under the Fair Credit Reporting Act (FCRA),” the South Carolina Democrat wrote in an Oct. 13 letter to Consumer Financial Protection Bureau Director Rohit Chopra.
Clyburn asked the chief executive officers of Equifax, Experian and TransUnion in May for the companies’ responses to consumer complaints in the early days of the pandemic.
CFPB reported then that 4.1% of complaints were resolved in 2021, compared with nearly 25% of complaints in 2019, before the pandemic.
And the majority of credit report disputes have not resulted in the correction or removal of reported errors from credit reports. The subcommittee found that Equifax didn’t change more than half of the disputed items each year from 2019 through 2021. Experian corrected about 52% of the disputed late payments or other bad data while TransUnion made fixes to between 49% and 53% of credit reports during this time.
The subcommittee partly credited the pause on student loan payments and an increase in pandemic-related identity theft to credit reporting errors.
Under the CARES act, paused loan payments were supposed to be reported as current, though some lenders may have incorrectly categorized them as late. Consumer fraud can also lead to faulty consumer credit reports.
But consumers have been disputing information found in their credit reports on a larger scale than previously known, the subcommittee found. The CFPB estimated the combined number of dispute submissions among Equifax, Experian and TransUnion to be 8 million in 2021. But data obtained by the subcommittee showed Equifax, alone, received nearly 14 million complaints that year.
CFPB also received a “record-breaking” amount of complaints about the credit rating companies from 2020 through 2021 with more than 619,000 in 2021 alone. Consumers disputed nearly 336 million items, including names, addresses or credit accounts, on their credit reports from 2019 through 2021, the subcommittee found.
Yet according to evidence obtained by the subcommittee, the credit raters discard millions of disputes a year without investigation. At least 13.8 million were thrown out between 2019 and 2021, the subcommittee found.
Discarding disputes violates the fair credit laws if any are submitted directly by consumers to authorized representatives. The companies’ defense, says the subcommittee, is that disputes are discarded without investigation when they suspect a credit repair service is the one making the complaint.
But the subcommittee says each agency uses vague criteria to determine which disputes are submitted by an unauthorized third-party. Equifax, for instance, tosses out mail that “tends to use identical language and format [and] come from the same zip code.”
Experian accounts for “envelope characteristics” and “letter characteristics,” including “same/similar ink color,” and “same/similar font,” when choosing which disputes to disregard. TransUnion also uses envelope-based criteria in its discard process.
The subcommittee also found that the credit rating companies referred over half of the disputes to data furnishers for investigation between 2019 and 2021. TransUnion referred the most at 80% to 82%.
Data furnishers have been cited by the CFPB for conducting insufficient investigations. The bureau also cited the credit reporting companies for accepting these findings without an independent investigation.
“The prevalence of credit reporting errors has been particularly concerning at a time when Americans have needed access to credit in order to weather difficult economic circumstances brought on by the pandemic,” Clyburn wrote in the letter to Chopra. “Errors in credit reports can reduce consumers’ credit scores, potentially blocking access to loans, housing, and employment, among other serious consequences.”
The Consumer Data Industry Association, the trade association that represents Equifax, Experian and TransUnion, said that all disputes that consumers share directly with three credit raters are processed according to federal requirements.
“Recent reports have highlighted trends including increased activity by certain credit repair companies, which can inflate complaint numbers and undermine the process of addressing legitimate requests,” a representative for the association told CNBC. “The credit reporting industry will continue to collaborate with the CFPB and policymakers to better serve consumers and continue to deliver innovative solutions to increase economic opportunities for consumers.”