The CFPB has issued its “Annual report of credit and consumer reporting complaints” that reports on consumer complaints submitted to the CFPB regarding the three largest nationwide consumer reporting agencies (NCRAs)—Equifax, Experian, and TransUnion.  The annual report is required by the Fair Credit Reporting Act. 

The CFPB’s press release about the report includes a statement from Director Chopra indicating that the CFPB “will be exploring new rules to ensure that the [NCRAs] are following the law, rather than cutting corners to fuel their profit model.”  In its Fall 2023 rulemaking agenda, the CFPB has included “Fair Credit Reporting Act Rulemaking” as a prerule stage item with an estimated date of November 2023 for prerule activity.

The new report is based on the approximately 488,000 consumer complaints that the CFPB transmitted to the NCRAs from October 2021 through September 2022 and analyzes how the NCRAs responded to those complaints.  In its January 2022 report, the CFPB had cited certain failures by the NCRAs in responding to consumer complaints and reporting outcomes to the CFPB.  For example, the CFPB found that the NCRAs failed to review most complaints based on unsubstantiated conclusions of suspected third-party involvement.  In the new report, the CFPB finds that the NCRAs have taken steps to remedy some of these failures.  Such steps include:

  • Less frequent use of non-substantive complaint responses (i.e. responses indicating that the NCRA was referring the complaint to its dispute channel or would not respond to the complaint because third-party involvement was suspected).  Most complaints now receive responses that are more substantive and tailored.
  • Greater rates of monetary or non-monetary relief in response to complaints.

Despite the report’s focus on the NCRAs, the CFPB uses the report’s discussion section “to discuss consumer reporting more broadly.”  Also, while noting that the NCRAs handling of consumer disputes is outside the report’s scope, the CFPB suggests that because there are similarities between the handling of complaints and the handling of disputes, “market participants and policymakers should consider the extent to which the [report’s discussion section] applies to consumer experiences with credit reporting more broadly, including consumer attempts to have problems with their credit reports resolved.”

A substantial portion of the CFPB’s discussion is devoted to the use of automation by the NCRAs, particularly the use of third-party screens.  In the report, the CFPB uses the term “third-party screen” to refer to the NCRAs’ practice of using the absence or presence of certain characteristics in the complaint submission to identify complaints that they suspect-but do not confirm-were submitted by a third party and then using this identification as the basis for not responding to the merits of the complaints.  The CFPB found that in 2022, the NCRAs significantly decreased their use of third-party screens.  After analyzing complaint data, the CFPB also found that the changes in screening policies were responsible for greater rates of consumer relief.  In addition to concluding that the screening policies harmed consumers by decreasing relief rates, the CFPB concluded that consumers were harmed because, by failing to review and substantively respond to complaints, inaccurate information may have stayed on consumers’ reports longer.

While observing that automated decision-making processes can improve customer experiences and reduce burdens for consumers and companies, the CFPB cites the NCRAs’ screening process as an example of how automation “can decrease burden for companies at the expense of increasing burden to consumers who attempt to invoke substantive rights.”  It cautions market participants to consider what burden, if any, they are creating for consumers before introducing automated mechanisms into processes that affect consumers, particularly those that relate to legal rights.  The CFPB notes that one such burden is undue demands on consumers’ time.

The CFPB also advises market participants to consider how current processes will need to evolve in light of new technologies.  The CFPB cautions that “[t]o the extent that market participants have optimized systems based on a certain view of human behavior, as new technologies emerge, they will need to reevaluate their systems to ensure that consumers are afforded their rights protected by law.”  As an example, the CFPB points to third-party screens that block complaints because of their similarity to other complaint narratives.  The CFPB observes that it is becoming increasingly difficult to discern whether a human or machine is the author of a text because advances in communications technologies can generate letters for consumers and may create similar-sounding complaints that are, in fact, from discrete individuals.  As a result, the assumption that similar-sounding letters are from third parties will increasingly be wrong.

The report concludes with a recommendation that market participants consider how best to give consumers control over their data so that the market can transition “from control and surveillance to consumer participation.”  According to the CFPB, the increasing number of consumer complaints over the past several years coupled with an apparent increase in the number of consumer disputes suggests that the credit reporting system is not serving consumers.  It states that there are alternatives to the current system, such as systems that allow consumers to initiate the flow of payment history data to credit bureaus or individual lenders.  The Bureau also notes that “[c]ompetitive pressures from startups using alternative data is challenging the status quo” and “[s]ome financial firms are considering ways of lending without credit scores.”  The CFPB suggests that increased consumer participation on the data side of consumer reporting has the potential to create a fairer market and states that “[p]olicymakers and market participants can shape the future of collecting, using, and sharing consumer data in a manner that navigates successfully from surveillance to participation.”