A Discussion of Recent Developments Involving Credit Reporting With Special Guest Eric Ellman, Senior Vice President for Public Policy and Legal Affairs, Consumer Data Industry Association


Welcome to the consumer Finance Monitor podcast where we explore important new developments in the world of consumer financial services and what they mean for Your Business, your customers and the industry. I'm your host Chris Willis and on the deputy practice leader of Ballard's bars, consumer financial services group, and I'll be moderating states program for those of you who aren't even more information. Don't forget about our blog consumer finance monitor DOT com. We've posted a blog since two thousand eleven. So there's a lot of relevant industry content there. We also regularly hosts webinars on subjects of interest to those of us in the industry. So to subscribe to our blog or to get on the list for our webinars, please visit us at Ballard SPAHR. DOT, com, and if you like our podcast, let us know leave us a review on apple podcast, Google play or wherever you get your podcast. Now, today's episode is all about credit reporting and I'm joined by tooth. Very great guests I. I've got my partner Kim Fan, who is one of our consumer financial services in privacy and credit reporting lawyers are Washington DC office, and we have a special guest today Eric Element who's the senior vice president for public policy and legal affairs at the Consumer Data Industry Association, which if you haven't. Heard of it is the Industry Association responsible for the Credit Reporting Resource Guide that is the metro two format, and so eric is going to have a lot of great insights to share with us today. So I'm not going to get in the way of this conversation anymore. So Kim Eric why don't you guys take it away? Thanks Chris and Eric Welcome and we're so glad to have you here today. First of all I, just WanNa make sure that I congratulate you on CD as first virtual conference what a great success during. These challenging Cova, Times Yeah Kim thank you so much for having me deeply appreciated, and of course, Kim for the benefit of all of your listeners. Kim was one of our speakers on a panel that I've moderated, which I think was not only the best panel because Kim, you're on it, and because I moderated on it because I thought we had a lot of great information to offer. So thank you for the invitation I. Also Hope it will be our last virtual conference by the way a WHO knows what happens next year but We would all like to be backing person again I think it was certainly my pleasure to participate but I certainly wasn't the biggest name that you had lined up. You had some great speakers including Tom, Paul the deputy director of the Consumer Financial Protection Bureau in Andrew Smith Director of the Federal Trade Commission's Bureau Consumer Protection Let's talk first about Tom Paul. Minor stand is the Tom announced that the C. V. will be conducting a study on the accuracy of credit ports. Can you share any details about the CF approach to this research? Yes. Sure. I. Can share a little bit first of all the. Federal agencies and perhaps particularly the this year don't always make news but we are grateful that they made news at our law conference a couple of weeks ago when Tom Paul had announced that the CFPB was to undertake a new fresh accuracy studied the last couple of. Studies were done in two, thousand, Ten, twenty eleven. And they showed the perks study showed a ninety seven, ninety eight percent accuracy rate. An FTC study showed a ninety five percent accuracy rate. So the numbers are really high, but they're also a little bit dated and the PB decided that it's gone too long since a an empirical of an impeccable unimpeachable study of accuracy was done. So they are undertaking something that we hope will, and we expect to be empirical and scientific, and will show an even higher accuracy rate from the ninety seven. Ninety, eight percent rate that we showed a number of years ago we'll see dia as the Trade Association for their credit reporting industry will presumably have a lot of involvement in this process. Are there some key points that CDI WILL WANNA? Make sure I get stressed with the bureau during their research yet good question obviously, it's the study so it's going to be independent and they are going to do their own thing one of things i. hope the CFPB will consider is an outcome based Review, just like the perk work and the study was pretty similar in that as we know, not all accuracy inaccuracies are created equal. For example, if a consumer lives on Main Street Ma I n but it's listed on the credit report is m. a. n. e. main street that is an error. Sure. But that's not an area that's going to impact somebody's ability to get credit and the the beauty of the perk work that was done a number of years ago, and the beauty of the of the FTC study is. All that they were both outcome based and it looked into was this error. Resulting in a significant enough change to put somebody in a different slash lower credit here and and that's what we're hoping that the CFPB will will look at this time around. I'm assuming also that industry will have some opportunity to be involved in the study. Do you have any recommendations for our audience about how they as furnitures and end users of credit reports could get involved? Yeah. Good question. I'm not really sure I haven't advice other than if you have kind of a regular cadence with the PB that you might want to reach out to the CFO. I think one of the great benefits of the PB study compared to the FTC study is that because the PGA has a holistic at the consumer reporting ecosystem, which the FTC didn't when it did it study the can look at kind of the end to end process from how the data is. Is furnished from the furniture to the Sierra and how it's provided by the consumer reporting agency to the data user, and then the dispute resolution process along that. So the PGA has an opportunity, a unique opportunity to look at the whole life cycle of the consumer reporting system, and also get even closer or get closer than the FTC did to like these sources of inaccuracy and where those inaccuracies coming from in the hope that even the very high rate of inaccuracy of the very high rate of accuracy now can be even higher so. It's It's a long answer to your short question, but it ultimately boils down to if you have like, I said regular cadence with the PB connections to the PB. This may be a good time to reach out to them the they are really just starting this study. I think they recognize. that. This is an elephant and the only way to eat the elephant is to take it one bite at a time and they are probably on their first nibble or two, and I suspect that this will take several years to fully unpack to go from hey, we should do a study to hey, we have a study. There's a, it's a very long road in between and in fact, you didn't ask but what happens if there's a change in administration, maybe that was on your list. I don't know but I would like to think that this year pb to do something So that's going to be really thoughtful and very empirical and unimpeachable that it will survive any change in bureau director and he changed in presidential administration. Thanks Eric that's certainly big news drop from the CFPB at your conference anything else from Tom's remarks that you WanNa highlight today for our well. I think it's important to say that we in the consumer reporting community and the credit reporting community are really looking forward to an excited about this particular study. Again, as I said, before the accuracy studies that were done by the FTC perk twenty, ten, two, thousand eleven in that range showed ninety five percent for the FTC accuracy ninety, seven, ninety, eight, percent perk. And there's been so many advances in the credit reporting system since two, thousand, Ten, twenty eleven, twenty twelve that I have to imagine that when this is studied again, the accuracy rates will be even higher. So I guess the bottom line is that we're looking forward to it and we think this will ultimately be a net positive, not just for data furniture data users, but also for credit bureaus and. Most importantly for consumers who none of us could function without and we are only here because we have consumers as our customers and hopefully we work really hard or we work really hard to treat them well, and hopefully they overall see that. So I think ultimately, this is probably gonNA, benefit consumers, which is really the the the and the Omega of the whole credit reporting process says I've said before. Is Our north star and we believe that this year PBS. Show shifting now from the BBC to the FTC, which you mentioned multiple times has has done a lot of work in the. F.. Cra Space as well. Andrew Smith spoke the director of the FTC's Bureau of Consumer Protection and I know the Andrew spoke number of topics that would be of great interest. For example I. Know he spoke about the FTC's efforts to combat credit repair. Can you fill us in on some of that? Yes. Sure. Credit repair is at I guess on a good day it's an annoyance on a regular day It is a royal pain in the behind and ultimately what credit reporting. Sorry. What credit repair does is the tracks significantly from the credit bureaus ability to serve consumers who really need help, and also it impacts the data. Users are the data furniture's who are the data users who are really just trying to serve real consumers with real disputes. Unfortunately, credit repair outfits by enlarge exist for the purpose of pounding the credit bureaus attempting to crown the. Two pound the credit bureaus into submission by not responding in the Sierra statutory time window in the hope that accurate adverse information falls off the credit file. We hate them data, users hate them financial institutions the FTC is not too fond of them either and and the bottom line is one of the things that Andrew said is that they are trying to find ways to build bigger cases against credit repair organizations, and they Andrew Essentially issued an open ended invitation to credit bureaus into financial institutions that if they are aware of one or more credit repair outfits that are particularly problematic. Pose a a pattern and practice of abuse of credit reporting system. Then we should share that information with the Federal Trade Commission and the FTC is open to take into taking to taking action against these outfits. They Andrew Essentially said they're looking for cases to bring in this area and I hope that they do because our estimates are. That about a third to forty percent of all disputes by consumers into credit bureaus are as a result of credit repair activity. meaning that as we know a its credit repair company is charging consumer money to do something for a consumer that they can do themselves for free or often more likely is that they are encouraging consumers to dispute accurate adverse information and to do it repeatedly in the hope that it falls off the file. Sounds like a great opportunity for our listeners to engage with the FTC? Is there an approach that you would recommend for companies that want to call out some of these credit repair organizations or practices? Yeah. I again, I would suggest that to the extent that the financial institution listeners have again a canes with the FTC or certainly members of trade associations have regular contact with the FTC. Those would be of course, groups like asthma in the ABA and others If there's a way that you could figure out internally through your dispute teams dispute resolution teams. If you could help find those patterns and practices of of of credit repair and you could identify the sources, the FTC would be. Really interested in seeing that now, certainly, on the credit bureau side it's a little easier perhaps for us to spot some of these sort of cereal credit repair organizations because they tend to come in primarily by paper, and it's it tends to be the same spelling error that repeats itself in two thousand or two thousand different consumers. oftentimes, the postmarks are similar return addresses can sometimes be similar. So there are ways that we can identify to some degree that what's coming from credit repair based upon these patterns The trickier part though for the credit bureaus and the harder part I it is for financial institutions is to identify the organization that's driving behind the scenes these credit repair. These credit repair request. Thanks Eric. Turning now to another area, FTC focus I, know Andrew spoke about abuses of the FTC's identity theft complaint database. How does that DC plan to tackle that challenge? Yeah. That's an interesting question we have been working with the FTC for I. Don't know a year ash. Let me give you a little bit of A. let me. Let me back up a little bit starting in about October Twenty Sixteen I. Think it was or twenty seventeen. The Federal Trade Commission changed their identity theft practices such that if a consumer was alleging identity theft, they had been previously had to get an FTC affidavit which requires. Some hurdles to consumers to essentially verify that the information is true sign and swear under penalty of perjury drew. and. To get some law enforcement support as well. The FTC recognized that it was getting harder and harder for consumers to get police reports to allege. Identity theft. So they changed their FTC affidavit to what is really more of an FTC report which comes with a lower standard of barrier lower standard of proof for consumers. Now, the intent is noble. The intent is there are consumers out there who are legitimate victims of legitimate identity theft and we should make it as easy as possible for them to file an identity theft dispute hundred percent on board with that concept in execution though what happened is that the lower the barrier that the FTC made. It the easier. It is for consumers to dispute illegitimately meaning that there are plenty of consumers you have accurate adverse information on there filed just like credit repair that WANNA get that accurate information off of their file. So what are they do they go to the FTC dot Gov they download a report they decide which information they want to stop having reported on their file they completed they send it to a financial institution and the way the law is constructed is that the financial institution? Has I think four days to to remove that from the file and it makes it much easier to get data off of the file we call this to the attention to the FTC it took a little while. Months and months of working with the FTC. But we finally got some really encouraging news if I could just find some of the quotes that Andrew Smith had mentioned on in his presentation that he had noted, their own internal data at the FTC, and he showed a slide which suggests kind of like from October two, thousand sixteen, October two, thousand, seventeen, a hockey stick spike in the use of identity theft reports, which we which correlates quite elegantly with when the FTC flipped their their report, their FTC report system. And he noticed a significant pattern. This is a quote from him The FTC analysis of the data shows quote a significant pattern. That suggest fraudulent use of identity theft dot Gov, and he indicated that it again quoting not acceptable for the FTC subsidized identity thieves and it's a very high priority of the Bureau of Consumer Protection at the FTC to reverse this course. Not fully clear what they have in mind to to change to T to attempt this to to prevent the FTC report from being used as a tool for fraud Andrew Smith again mentioned and some technological changes that they are making like Ip analysis. So One IP ADDRESS PER FTC complaint. He mentioned that there may have been some other things that he said were in the works, but without saying what those are now the law is the law. So there are certain things that you can't get around but I think the FTC can make certain changes on the front end of trying to reduce. Or Mitigate against these ID theft reports from being used to perpetuate identity fraud So we're really encouraged by what he said. I love to I can't wait to see how this actually translates into real world changes I. suspect there will be changes for the better coming. But we'll just have to wait and see and keep working with our colleagues at the Federal Trade Commission and our colleagues elsewhere across government to make sure that there's some real change that that can be and and the point here is to separate the wheat from the chaff. So we are working really hard. To make sure. That credit repair is as low as possible because the higher the credit repair that means the more resources we all have to devote. To take away from dealing with real consumers with real problems, and there's a finite amount of resources as we know. And reducing identity theft I'm sorry reducing credit repair will help us focus on consumers where real victims of identity theft. I certainly agree it's very encouraging that the FTC is mindful of the fact that external factors could be impacting the accuracy of their internal data. So it's great to hear that they're they're being very mindful about that, and the steps that they can take to help mitigate some of those issues. Now you've mentioned you know the FTC's focus on looking for cases the to pursue credit repair I. UNDERSTAND IT Andrew also mentioned they're actively looking for cases under the FCC FC are. As Red flags program mandate have any thoughts for our listeners about how they should be enhancing their own programs to avoid. FTC. Scrutiny. Yeah. Good. Good question. I was hoping Kim that you would answer that question because you're the you're the red flags you're the red flags expert I. Only, I'm only here to report the news. You're here to advise I. Really don't have a lot of good good guidance here I, suspect that that you and Chris and the talented team at Ballard. Will be able to to provide a great council in that regard. But one of the things he did mention at when he spoke to us about red flags, he sort of took us on a grand tour of all of the things that that the. FBI. Was Working on relative to consumer reporting in one of those was the red flags. And he said a couple of things that are I think of interest one is he noted that a lot of SSN's are leaked his term from data breaches. No surprise there probably and he did criticize financial institutions to some degree when he said that he felt like there's not enough underwriting review on the back end for red flags. Violations. And he used to he used the term. He used the term that the red flags rule is kind of a back end of the data breach and the FTC is actively looking into red flag violations. But beyond that. Kim It's probably you know my thinking is that you would you and your folks would be in the best position to help advise your clients out to manage what the FTC is concerned with and where they're actively seeking for for violations. He the FCC is course is very active in bringing data-breach cases. When there with those a car interested, they would look at potential red flags violations associated with those same breach cases. So it'll be interesting development watch. Yeah. For sure I guess we'll just have to see in practice what what he's talking about. Let's shift away from the regulators for a little bit and take a look at some of the the broader credit reporting activity that's happening in the world especially in the wake of Covid with the Cares Act and the specific provisions that cares. Act that address credit reporting I'm sure that was discussed quite a bit during the conference and how the credit reporting industry is adapting to the required changes as companies approach what makes the most sense for their customers during cove it at in the wake of cares act the issue of whether or not to offer customers accommodation or simply suppress trade lines for customers that are impacted negatively by Cova de at of many of the the recent activity in the world what do you think about those two approaches an, how would you advise financial institutions to move forward? Yeah good good question, and this is I. Think one of the issues of the day this whole concept of suppression versus reporting with accommodation it's been it was talked about a lot in Congress, leading up to the passage of the cares act. It's being talked about right now as part of the Heroes Act which is being debated in Congress and it will continue to be I think part of our. Lexicon as we enter the new session of Congress, next year whatever that will look like and I would have to imagine that if the Democrats retake the Senate and the Democrats recapture the White House the the the issue of suppression is our reporting with accommodation will continue to will continue to feed into the policy debate. So the issue is there's a couple of things here at play As, a result of the cares I'm sorry as a result of the covert one, thousand, nine, hundred pandemic with which we are still living in will apparently be living with for a little while longer at least. Consumers who have adverse information as a result of COVID because they've lost a job etc that that the concept of suppression is that adverse information should not be reported to the credit bureaus that we think In fact that we know is significantly worse out from consumers while Noble and intent to protect consumers. The outcome is far worse for consumers for a number of reasons if data's reporting is being suppressed, there's a few things happening or not happening number one consumers accounts are not being updated, and if they're not being updated for a significant length of time, they will ultimately be dropped off entirely from credit report. If a consumer is making positive payments even if it's smaller than typical or even if it's under accommodation that's not going to be reported. So if you'll pardon the PUN, a consumer is not getting credit for their good credit behavior. and. There's a number of other reasons why supression as bad for example, it's hard to dispute or perhaps even impossible to dispute. A tray line if it's being suppressed from the file, lots of other damage, and of course, there's a significant risk management issue. A lot of people who are listening to this our. Work, for financial institutions, and if you are forced to make a lending or credit extending decision based upon a significant lack of information than how can you possibly make a valid risk management decision and the answer is it's difficult if not impossible. One of the lessons from that we learned from the great recession of twenty eight is that a lender needs to take a credit extension accompany lending credit extending etcetera has to take a full complete view of consumer credit file. So the great benefit of the cares act which really codifies longstanding industry practices is that when a consumer is in an accommodation, that consumer must be reported as current. So it really It really creates statutory mandate around what's long been a system established by the credit bureaus in concert with the data furniture's that are providing data to to the consumer reporting agencies. So I think this will be part of the public policy debate for a while but I think. Sound financial lending economic practices. And good consumer assistance demands that. Consumers be reported in accommodation as opposed to data suppression. Well that's certainly an eloquent. Arguments for combination over suppression but of course, many financial institutions are facing. Remote work forces that have been pushed out of the office are facing lots of challenges with their obligation of the F. Sierra to report not only accurate information but. Information to the credit bureaus ed the see if you be I, know has issued a policy statement that would take into account. Some of those challenges that financial institutions are facing right now with regard to their F- Cra obligations but the the National Consumer Law, center also issued a statement in clear opposition to the CFO vs willingness to consider these challenges by face by financial institutions. What are your thoughts on that? You know the be approached. The right one is NC L. C. on the on the right side on this. Please share yes, sure. Obviously when the whole world fell apart in the middle of March or so and there are plenty of days like that feel like March, the two hundred and eighty third at this point but. Obviously everybody and I mean everybody had to do business in a different way and for credit bureaus and for financial institutions, it meant like for a lot of other people sending people home having people work out of their homes the extra challenge for credit bureaus and a financial institutions that there's a lot of sensitive financial information that can't be sent home and there's a lot of things that can't happen when when consumer assistance people. are working out of their living rooms as opposed working into into their into their call centers. Call centers is another big problem because obviously, you need to take in response to consumers are very timely way. And you can't do that as as well as as was done before. So the FTC, I'm sorry the PB. Issued this policy statement at the towards the beginning of the crisis which allowed for flexibility on the part of consumer reporting agencies and financial institutions in dealing with consumers. There was some sharp criticism from that by some consumers special interest groups some sharp criticism by Some. attorneys-general primarily democratic attorneys general and then just recently some consumer or special interest groups sent yet another letter to the CFP I guess in the last week or two calling for a repeal of that of that policy statement because people are now coming back to work. I still think flexibility is the order of the day we are still. And I mean kind of the collective we hear of consumer reporting agencies, data, users, data, furniture's that we are still living in deeply uncertain times, and I am not I don't have a complete view into consumer assistant centers or into call centers. So I don't exactly know but I have to assume that even if people are coming back in, they're still being spaced further apart, which means that you can't populate a consumer assistance facility with staff like you had before So I still think flexibility is the order of. The day and I hope that this policy statement sticks around at least for a little while longer until we have a better understanding of where if how, when this pandemic ends, when can we get people back to the office back to the call centers back to the consumer assistant centers, and as we all know work is probably not going to look the same in next July September December as it did in February January twenty twenty. So I still think that flexibility is necessary for a little while longer. Sure and another policy area there have been proposals calls for the creation of a new public credit bureau for vice. President Joe Biden has spoke in favor of this. What's CDI's position on that? Yeah, as you might imagine, we're not terribly enthusiastic with public, credit bureau and not just because and it's not because we don't mind the competition competition is is ultimately good for everybody but what is a public credit bureau trying to solve for and? There are. Two things that are pretty well covered already one Let's. Let's break down. The chew stated reasons why a public credit bureau some feel is necessary. One because credit reports are inaccurate and the government could have credit file stir more accurate than the private sector. To. A public credit bureau will be a better deal a better job at expanding the pool of financial inclusion in this country. So let's break these down into accuracy. We talked a few minutes ago that credit reports are extremely accurate. We say the perk study says Ninety, seven, Ninety, eight percent the FTC's study says ninety, five percent. That's that's pretty good and I think it's even better as I said before when they were last measured a decade ago or so. So the accuracy box is checked and a credit credit bureau it. If you're if you're trying to stand up a credit bureau to make credit reports more accurate than a public credit bureau is not going to accomplish that objective because credit reports are already highly accurate. So now let's look at financial inclusion. There are tens of millions of consumers that are that are not part of the financial mainstream, and that is a huge problem that is tens of millions of problem. CDI and our members are deeply passionate about expanding financial inclusion and getting more people into the financial mainstream as possible, and that means using alternative data like. Rental Information Rental Payment Information Utility Information Telecommunications Telecom. Information things like that. We are one hundred percent on board in bringing more alternative data into the private credit reporting system to bring more consumers into the financial mainstream. Public Credit Bureau is not going to magically be able to do that. What has to change to get landlords to report to get telecoms to report to get utilities to report is changes in loss. It is a huge barrier. The era stands as a huge barrier to get people partic- particularly alternative data providers to report to the credit bureaus and utility context. In fact, there are laws that actively prohibit utilities from reporting data to the credit bureaus. So if in fact, it is a goal of the potential Biden Administration which I which I believe it is which they say it is and it is. A goal of ours, our shared goal to expand the pool of financial inclusion. A public credit bureau is not going to solve that what has to happen is we have to encourage more voluntary pry reporting, and most importantly is we have to change the laws to reduce the barriers to entry to allow these alternative data providers to provide data to the credit bureaus to consumer reporting agencies, thanks, Eric and I've asked you a lot of questions today and I wanted to make sure that you have the opportunity. Is there anything else from the recent conference? You WanNa. Make sure to highlight today for our audience. I guess maybe a couple of things One of the things that we are particularly proud of at CDI the Consumer Data Industry Association is the kind of information and training. Is Kind of information we provide generally to financial institutions but more particularly we provide some really helpful information on the data reporting. As you know we work with our members to maintain the metro data reporting format. So for financial institutions who are listening that want additional information about the metro two format and some webinars and some training that we do around around Metro reporting hop on our website at C. D. I online dot Org C. D. I A. Online Oh, and we're dot Org I. Hope I'm allowed to give this commercial by the way Kim I hope you're not going to charge me for this So. So from our website, you can get information about metro to data reporting the webinars that we run the trading sessions that we do. And also we run during the course of of the any given year a number of webinars on hot topics in consumer reporting, and you can probably find some additional information about that a- At our website as well. Thanks Eric Chris. I. WanNa. Thank both you Kim for moderating and you eric for being on our program today and of course, thanks most of all to our listeners for tuning in today Be Sure to visit our website at Ballard Spahr dot com where you can subscribe to our show at Apple, podcast Google play spotify or your favorite podcasts platform, and don't forget to check out our blog consumer finance monitor dot com for daily insights about the financial services industry and our biweekly mortgage banking update. If you have any questions or suggestions for the show, please email us at podcast at Ballard, SPAHR DOT COM, and stay tuned each Thursday for a great new episode. Thank you all for listening.

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