This week, New York Governor Andrew Cuomo issued a press release directing the New York Department of State to issue a new regulation impacting consumer reporting agencies.  The new regulation was adopted on an emergency basis and went into immediate effect in order to protect consumers from identity theft and other potential economic harms that may arise following a data breach.

The regulation requires consumer reporting agencies to:

  • Identify dedicated points of contact for the Division of Consumer Protection to obtain information to assist New York consumers in the event of a data breach;
  • Respond within 10 days to information requests made on behalf of consumers by the Division of Consumer Protection;
  • File a form with certain information to the Division of Consumer Protection, including all fees associated with the purchase or use of products and services marketed as identity theft protection products as well as a listing and description of all business affiliations and contractual relationships with any other entities relating to the provision of any identity theft prevention or mitigation products or services; and
  • In any advertisements or other promotional materials, disclose any and all fees associated with the purchase or use of proprietary products offered to consumers for the prevention of identity theft, including, if offered on a trial basis, any and all fees charged for its purchase or use after the trial period and the requisites of cancellation of such continued use.

The protections appear targeted to address alleged abuses by the consumer reporting industry following the recent Equifax data breach.  Cuomo also announced that the Division of Consumer Protection will be issuing a demand letter to Equifax for information to assess the damage and risk of identity theft to New York State consumers resulting from the data breach.

Cuomo did not address the status of previously announced proposed regulations of the consumer credit reporting agencies by the New York Department of Financial Services.

 

Last week, New York Governor Andrew Cuomo issued a press release directing the New York Department of Financial Services (“NYDFS”) to impose new rules on consumer reporting agencies (“CRAs”).  The proposed regulation would subject CRAs that issue consumer reports (as defined in a manner similar to the federal Fair Credit Reporting Act) about consumers located in New York to new requirements, including:

  • Annual registration with NYDFS – such registration must identify officers and/or directors that are responsible for the CRAs’ compliance with the new regulation;
  • Annual, and in some cases quarterly, information reporting requirements to NYDFS;
  • NYDFS examinations to be conducted as often as NYDFS considers “necessary”;
  • Prohibitions against various activities, such as including inaccurate information in a consumer report or engaging in any unfair, deceptive, abusive, and/or predatory acts or practices;
  • Communicating with consumers’ authorized representatives; and
  • Compliance with the newly issued NYDFS cybersecurity regulation (see Ballard alert).

Except for requiring CRAs to comply with the NYDFS cybersecurity regulation, it is unclear how the other requirements would address the risks posed by the recent Equifax breach, which was the purported reason for Governor Cuomo’s announcement.

Importantly, by requiring CRAs to register on an annual basis, the proposed regulation would empower NYDFS to suspend or revoke such registration based not only on the bad acts of a CRA itself, but also based on the bad acts of individual members, principals, officers, directors, or controlling persons at the CRA.  Without a valid registration, a CRA would be prohibited from providing any consumer reports about consumers located in New York, any companies licensed by NYDFS would be prohibiting from purchasing consumer reports from the CRA, and any companies licensed by NYDFS would be prohibited from furnishing information about consumers located in New York to the CRA.

Although a version of the proposed regulation was released with Governor Cuomo’s announcement, NYDFS is expected to release an official version for public comment in the coming weeks.  CRAs and companies that rely on CRAs to provide information about consumers located in New York should strongly consider participating in this rulemaking process.

The CFPB recently released a “Special Edition” of its Supervisory Highlights that focuses exclusively on data accuracy issues in consumer credit reporting and the handling and resolution of consumer disputes. The report describes the observations of CFPB examiners during examinations of both consumer reporting agencies and the creditors and other companies that furnish information to consumer reporting agencies.

The CFPB acknowledges that consumer reporting agencies have made significant advances in promoting the accuracy of data reported to them by overseeing data furnishers and enhancing the dispute resolution process, but the CFPB believes that continued improvements are still necessary in these areas. In their examinations of furnishers, the CFPB examiners found “CMS weaknesses and numerous violations of the FCRA and Regulation V that required corrective action by furnisher(s).”

The CFPB’s “supervisory observations” include the following:

  • Data governance. CFPB examiners found that one or more consumer reporting agencies had decentralized data governance functions and undefined data governance responsibilities, a lack of quality control policies and procedures, and inconsistent practices for vetting furnishers and providing data quality feedback to them. CFPB examiners also found that one or more furnishers had weaknesses in its compliance management system, including weak oversight by management over data furnishing practices and no formal data governance program.
  • Reinvestigation of disputes. CFPB examiners found that one or more consumer reporting agencies did not comply with its obligation to conduct a reasonable reinvestigation when consumers dispute the completeness or accuracy of items in their consumer files. CFPB examiners also found that one or more consumer reporting agencies did not review and consider certain categories of documentary evidence in support of a dispute submitted by consumers. Furthermore, CFPB examiners found that one or more furnishers’ policies and procedures failed to promote reasonable investigations of disputes.
  • Required dispute notices. One or more consumer reporting agencies examined by the CFPB failed to provide notification of a consumer dispute within five business days to the furnisher who provided the information because the furnishers’ contact information was no longer valid at the time of the consumer’s dispute. CFPB examiners also found that one or more consumer reporting agencies sent dispute notices to consumers that failed to clearly articulate the results of the dispute investigation as required by the FCRA. In cases where furnishers decided to not investigate disputed information, the CFPB found that one or more furnishers failed to provide consumers with proper notice of a reasonable determination that a dispute was frivolous or irrelevant.
  • Quality control. One or more furnishers examined by the CFPB failed to perform quality checks on the data furnished to consumer reporting agencies, failed to conduct ongoing periodic evaluations or audits of furnishing practices, and failed to conduct audits of disputed information to identify and correct root causes of any inaccurate furnishing.
  • Data accuracy requirements. CFPB examiners found that one or more furnishers provided consumer information to consumer reporting agencies while knowing or having reasonable cause to believe that the information was inaccurate, including information that consumers were delinquent, had no payment history, or had an unpaid charged-off balance when they had settled the account in full.

The report indicates that the consumer reporting market is a “high priority” for the CFPB. Notably, the report states that the CFPB has “targeted substantial resources” to improving the accuracy of consumer information and will continue to do so.

The CFPB recently released a “Special Edition” of its Supervisory Highlights that focuses exclusively on data accuracy issues in consumer credit reporting and the handling and resolution of consumer disputes. The report describes the observations of CFPB examiners during examinations of both consumer reporting agencies and the creditors and other companies that furnish information to consumer reporting agencies.

The CFPB acknowledges that consumer reporting agencies have made significant advances in promoting the accuracy of data reported to them by overseeing data furnishers and enhancing the dispute resolution process, but the CFPB believes that continued improvements are still necessary in these areas. In their examinations of furnishers, the CFPB examiners found “CMS weaknesses and numerous violations of the FCRA and Regulation V that required corrective action by furnisher(s).”

The CFPB’s “supervisory observations” include the following:

  • Data governance. CFPB examiners found that one or more consumer reporting agencies had decentralized data governance functions and undefined data governance responsibilities, a lack of quality control policies and procedures, and inconsistent practices for vetting furnishers and providing data quality feedback to them. CFPB examiners also found that one or more furnishers had weaknesses in its compliance management system, including weak oversight by management over data furnishing practices and no formal data governance program.
  • Reinvestigation of disputes. CFPB examiners found that one or more consumer reporting agencies did not comply with its obligation to conduct a reasonable reinvestigation when consumers dispute the completeness or accuracy of items in their consumer files. CFPB examiners also found that one or more consumer reporting agencies did not review and consider certain categories of documentary evidence in support of a dispute submitted by consumers. Furthermore, CFPB examiners found that one or more furnishers’ policies and procedures failed to promote reasonable investigations of disputes.
  • Required dispute notices. One or more consumer reporting agencies examined by the CFPB failed to provide notification of a consumer dispute within five business days to the furnisher who provided the information because the furnishers’ contact information was no longer valid at the time of the consumer’s dispute. CFPB examiners also found that one or more consumer reporting agencies sent dispute notices to consumers that failed to clearly articulate the results of the dispute investigation as required by the FCRA. In cases where furnishers decided to not investigate disputed information, the CFPB found that one or more furnishers failed to provide consumers with proper notice of a reasonable determination that a dispute was frivolous or irrelevant.
  • Quality control. One or more furnishers examined by the CFPB failed to perform quality checks on the data furnished to consumer reporting agencies, failed to conduct ongoing periodic evaluations or audits of furnishing practices, and failed to conduct audits of disputed information to identify and correct root causes of any inaccurate furnishing.
  • Data accuracy requirements. CFPB examiners found that one or more furnishers provided consumer information to consumer reporting agencies while knowing or having reasonable cause to believe that the information was inaccurate, including information that consumers were delinquent, had no payment history, or had an unpaid charged-off balance when they had settled the account in full.

The report indicates that the consumer reporting market is a “high priority” for the CFPB. Notably, the report states that the CFPB has “targeted substantial resources” to improving the accuracy of consumer information and will continue to do so.

The CFPB has issued its February 2017 complaint report that highlights credit reporting complaints.  The report also highlights complaints from consumers in Louisiana and the New Orleans metro areas.

General findings include the following:

  • As of February 1, 2017, the CFPB handled approximately 1,110,100 complaints nationally, including approximately 29,700 complaints in January 2017.
  • Debt collection continued to be the most-complained-about financial product or service in December 2016, representing about 26 percent of complaints submitted.
  • For the first time, student loans replaced mortgages in the “top three” complaint categories with debt collection complaints, together with complaints about credit reporting and student loans, collectively representing about 60 percent of the complaints submitted in January 2017.  This likely reflects the increase in the number of student loan complaints received in January 2017 as compared with December 2016. Complaints about student loans showed the greatest month-over-month increase, increasing 537 percent from December 2016.  Student loans also had the greatest percentage increase based on a three-month average, increasing about 388 percent from the same time last year (November 2015 to January 2016 compared with November 2016 to January 2017).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  As we have noted in blog posts about prior CFPB monthly complaint reports issued beginning in April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increasing percentages represented by student loan complaints received by the CFPB most likely reflects the change in where such complaints are sent.
  • Payday loans showed the greatest percentage decrease based on a three-month average, decreasing about 26 percent from the same time last year (November 2015 to January 2016 compared with November 2016 to January 2017).  Complaints during those periods decreased from 408 complaints in 2015/2016 to 302 complaints in 2016/2017.
  • Georgia, South Dakota, and Mississippi experienced the greatest complaint volume increases from the same time last year  (November 2015 to January 2016 compared with November 2016 to January 2017) with increases of, respectively, 59, 43, and 34 percent.
  • Delaware, New Hampshire, and Hawaii experienced the greatest complaint volume decreases from the same time last year (November 2015 to January 2016 compared with November 2016 to January 2017) with decreases of, respectively, 8, 8, and 4 percent.

Findings regarding credit reporting complaints include the following:

  • The CFPB has handled approximately 185,700 credit reporting complaints.
  • The most common issues identified in complaints involved problems with incorrect information on credit reports and investigations by credit reporting companies.  Consumers complained about the process for disputing information on credit reports, such as difficulties in submitting disputes through phone and mail channels, authentication questions or other barriers to submitting disputes, and problems receiving results of investigations.
  • Consumers complained about the process for blocking and removing information resulting from identity theft and credit inquiries claimed not to have been initiated by the consumer.
  • Many consumer complaints about credit scoring reflect confusion over the variety of scores, scoring factors that  accompany credit score information, and receipt of varying scores from different reporting agencies.

Findings regarding complaints from Louisiana consumers include the following:

  • As of February 1, 2017, approximately 12,400 complaints were submitted by Louisiana consumers of which approximately 4,500 were from New Orleans consumers.
  • Debt collection was the most-complained-about product, representing 34 percent of all complaints submitted by Louisiana consumers, which was higher than the national average rate of 27 percent of all complaints submitted by consumers.
  • Average monthly complaints received from Louisiana consumers increased 31 percent from the same time last year (November 2015 to January 2016 compared with November 2016 to January 2017), higher than the increase of 21 percent nationally.

 

On October 5th, the CFPB published a notice announcing the CFPB Office of Financial Education’s intent to compile a list of companies offering existing customers free access to their credit score.  The CFPB’s stated intent in compiling this list is to educate consumers and help them make better informed financial decisions.  Comments must be submitted to the CFPB by November 4, 2016.

The initial list will cover only credit card issuers.  However, the CFPB may consider expanding the list or creating a separate future list to include non-credit card issuers in other markets.  To be included in this list, these companies must meet certain specified criteria, including offering existing customers (at least some, but not necessarily all) the ability to obtain a free credit score that the company or other lenders use for account origination, portfolio management, or for other business purposes.  The free credit score must be offered to existing customers on a continuous basis, as opposed to a time-limited or promotional basis.  The free credit score made available to existing customers must also periodically be updated.

Financial institutions should carefully assess whether they wish to voluntarily seek inclusion on this list.  The CFPB clearly states that inclusion on the list is not an endorsement, but the CFPB has noted in the past that making free credit scores available to customers is a best practice.  Companies must consider the potential impact of being excluded from the list and what that choice may communicate to the CFPB and customers.  On the other hand, the CFPB suggests that it “could” leverage this list to bring consumer attention to the topic of credit scores, and follow up with content to educate, inform, and empower consumers on the availability of credit scores and credit reports and how consumers can use this information.  However, nothing in the notice limits the ability of the CFPB to use the information submitted by companies seeking inclusion on the list for other purposes.  For example, the CFPB states that inclusion on this list will have no impact on the CFPB’s supervisory activity, but the CFPB reserves the right to conduct due diligence on a company’s assertions about free credit scores.

The CFPB has issued its May 2016 complaint report which highlights complaints about credit reporting  and complaints from consumers in New Mexico and the Albuquerque metro area.  The CFPB began taking complaints about credit reporting in October 2012.  Credit reporting complaints were also the subject of the CFPB’s August 2015 monthly report.

General findings include the following:

  • As of May 1, 2016, the CFPB handled approximately 882,800 complaints nationally, including approximately 23,900 complaints in April 2016.  As of May 1, 2016, debt collection continued to be the most-complained-about financial product or service, representing about 27 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 68 percent of the complaints submitted in April 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 48 percent from the same time last year (February to April 2015 compared with February to April 2016).  As we noted in our blog post about the April 2016 complaint report, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects that in February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.
  • Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 14 percent from the same time last year (February to April 2015 compared with February to April 2016).  Complaints during those periods decreased from 498 complaints in 2015 to 406 complaints in 2016.  In the March and April 2016 complaint reports, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
  • New Mexico, Minnesota, and Indiana experienced the greatest complaint volume increases from the same time last year (February to April  2015 compared with February to April 2016) with increases of, respectively, 41, 33, and 26 percent.
  • Vermont, Hawaii, and Maine experienced the greatest complaint volume decreases from the same time last year (February to April 2015 compared with February to April 2016) with decreases of, respectively, 20, 19, and 14 percent.

Findings regarding credit reporting complaints include the following:

  • The CFPB has handled approximately 143,700 credit reporting complaints, representing about 16 percent of total complaints.  Credit reporting is the third most-complained-about product or service after debt collection and mortgages.
  • The most-complained-about issue involved incorrect information on credit reports, such as a debt appearing on the report that has been paid or is too old to be enforced in court (which the CFPB suggests “may reflect confusion about the fact that information on past overdue debt, even when paid, or no longer enforceable as a result of limitations often can remain on a credit report.”)  Other complaints involved a debt belonging to another consumer, a debt that is not recognized by the consumer, delays and problems in updating and correcting inaccurate records, and public records being incorrectly matched to a consumer’s credit report.
  • Problems accessing credit reports because of the consumer’s inability to answer identity authentication questions were also raised in complaints.
  • In addition to complaints about the “big three” credit reporting companies, consumer submitted more than 2,000 complaints about specialty consumer reporting companies.  Problems raised by consumers submitting complaints about specialty consumer reporting companies included difficulty resolving inaccuracies, information about other consumers appearing on reports, unfair or inaccurate information in reports used for rental screening, inaccurate reporting of criminal charges or convictions on reports used for background and employment screening, and identity theft.

Findings regarding complaints from New Mexico consumers include the following:

  • As of May 1, 2016, approximately 4,700 complaints were submitted by New Mexico consumers of which approximately 48 percent (2,200) were from consumers in the Albuquerque metro area.
  • Debt collection is the most-complained-about product, representing 31 percent of the complaints submitted by New Mexico consumers and 27 percent of complaints submitted by consumers nationally.
  • The percentage of mortgage complaints submitted by New Mexico consumers was lower than the national average.

Last week, the CFPB announced that it had issued a Request for Information seeking comment on a set of prototype disclosures (the “Payback Playbook”) to assist federal student loan borrowers in selecting between alternative repayment plans.  The CFPB’s announcement was accompanied by an announcement by the Department of Education of two new student loan-related initiatives, one directed at credit reports and the other directed at servicing.  The ED’s initiatives were undertaken with the Treasury Department, in consultation with the CFPB.

Credit reporting.  The ED’s fact sheet indicates that the initiative’s goal is “to modernize the way student loans appear on borrowers’ credit reports.”  It states that the ED is “working collaboratively with the credit reporting industry to develop guidance for servicers, lenders, and others who furnish data to credit bureaus to determine how best to report student loan data to ensure that credit reporting for student loans fairly, consistently, and accurately reflects repayment activity.  In the coming months, the [ED] will implement this effort as part of its new vision for serving student loans.”

The fact sheet describes the elements of an updated credit reporting system.  Such elements include:

  • Credit reporting will reflect changes in the way federal loans are made, such as using common reporting standards for common features of Direct Loans and guaranteed loans and having servicers provide information that clearly indicates programmatic differences between such loans.
  • Credit histories will be reported in the same way for each borrower so similarly-situated individuals are treated similarly, such as by having servicers use the same basic reporting framework that standardizes reporting of loan details and establishing clear requirements for servicers to follow when providing additional information about a borrower’s credit history.
  • Credit histories will accurately reflect the unique characteristics and terms of federal loans, such as having the expected duration of a loan reflect the repayment terms for both fixed-amortization and income-driven repayment plans, ensuring the reporting of accurate information about servicing transfers, and distinguishing borrowers experiencing financial distress from borrowers who invoke their right under federal law to reduce or postpone monthly payments.

Servicing.  The ED’s fact sheet lists borrower “rights and expectations” concerning student loan repayment rights which include the following:

  • The borrower’s right to receive “personalized, actionable, and effective information about alternative repayment plans,” access to “knowledgeable, well-trained staff who can evaluate borrowers’ specific circumstances to help them stay on track,” access to staff trained to assist borrowers at risk for default and military borrowers, and appropriate information and assistance with income-driven repayment plans.
  • Consistency in common servicing functions such as in maintaining affordable payments under an income-driven repayment plan, honoring of directions  for processing payments, easy access to payment histories and basic loan information, instructions for requesting payoff statements and making payoffs, and consistent service when servicers change.
  • Accountability of servicers for errors, such as through the ED’s monitoring of complaints submitted to the online complaint system being developed by the ED, a servicer escalation process in which borrower disputes are reevaluated by senior personnel, and servicer monitoring of third-party contractors
  • Transparency in information about the performance of private and federal student loans and practices of individual student loan lenders and servicers through portfolio performance data, including data at the individual servicer level, such as information on aggregate student loan outcomes, and enhanced reporting and robust information about the Federal Student Loan Portfolio.

In its Winter 2016 Supervisory Highlights, which covers supervision work generally completed between September and December 2015, the CFPB highlights violations found by CFPB examiners involving consumer reporting, debt collection, mortgage origination, remittances, and student loan servicing.

The report states that recent non-public supervisory actions have resulted in restitution of approximately $14.3 million to more than 228,000 consumers.  It  indicates that these non-public supervisory actions generally have resulted from CFPB ongoing supervision and/or targeted examinations.  The non-public resolutions involved deposits, debt collection, and mortgage origination.  The report also indicates that the CFPB’s supervisory activities “have either led to or supported” three recent public enforcement actions described in the report that resulted in $52.75 million in consumer remediation and $8.5 million in civil money penalties.

The CFPB’s “supervisory observations” include the following:

  • Credit reporting.  CFPB reviews of compliance with FCRA furnisher obligations focused on furnishers of information to nationwide specialty consumer reporting agencies (NSCRA) that specialize in reporting in connection with deposit accounts and the NSCRAs themselves.  CFPB examiners found that while one or more furnishers generally had policies and procedures regarding FCRA furnishing requirements, they did not have policies and procedures for furnishing deposit account information.  Deficiencies involving deposit account information found at one or more furnishers involved a lack of processes for verifying data furnished to NSCRAs through automated internal systems, the failure to correct and update information furnished to NSCRAs, or the failure to institute reasonable policies and procedures regarding accuracy, including prompt updating of outdated information.  Specifically, CFPB examiners found that although such furnishers would update their records to reflect a consumer’s payment in full of a charged off account, they would not send an update of the change in status from “charged-off” to “paid-in-full” to NSCRAs.  The report also describes various deficiencies found at NSCRAs such as weaknesses in their systems for credentialing of furnishers before accepting deposit account information from a furnisher.
  • Debt collection.  The CFPB observed that the use of exception reports by consumer reporting agencies (CRA) had led to greater accuracy in the information furnished to CRAs.  CFPB examiners found that one or more debt collectors had failed to comply with the general FDCPA requirement to stop contacting a consumer after receiving written notice from the consumer that he or she refuses to pay a debt or wants the collector to stop contacting him or her.  One or more debt collectors were also found to have made false, deceptive, or misleading representations regarding administrative wage garnishment when collecting defaulted student loans for the Department of Education.  Specifically, collectors were found to have threatened garnishment against borrowers who were not eligible for garnishment or to have given borrowers inaccurate information about when garnishment would begin, creating a false sense of urgency.
  • Student loan servicing.  The CFPB describes supervising the student loan servicing market as “a priority” for its supervision program. The CFPB noted that its examiners found improved practices regarding payment allocation and modification practices at some servicers.  CFPB examiners found that one or more student loan servicers had used “auto-default” clauses to place loans into default when a co-borrower filed for bankruptcy, regardless of whether the borrower was current on all payments, or to disclose the potential impact of forbearance on the availability of cosigner release.  Examiners also found that one or more servicers, in connection with “converting” an account to reflect a new loan owner, had incorrectly updated the account by using an interest rate that was higher than the rate for which the borrower was contractually liable.  Such servicers were directed to implement a plan to reimburse all affected borrowers.
  • Mortgage origination.  Deficiencies found by CFPB examiners involved failing to maintain written policies and procedures required by the loan originator rule and weak compliance management systems.
  • Remittances.  The CFPB’s press release notes that the Winter 2016 report is the first Supervisory Highlights to cover exams of banks and nonbanks in the remittance market.  Deficiencies found by CFPB examiners at one or more remittance providers included giving incomplete and/or inaccurate disclosures to consumers, failing to refund cancelled transactions within the required timeframe, and failing to promptly credit consumers’ accounts when errors occurred.

The CFPB recently announced that it has entered into a consent order with two affiliated companies that generate and provide employment background screening reports.  The consent order settles charges that the companies, which the CFPB’s press release describes as “two of the largest background screening report providers in the United States,” violated FCRA requirements for consumer reporting agencies.  It requires the companies to pay a $2.5 million civil penalty and $10.5 million in redress to consumers.

The settlement also serves as a reminder to employers that the use of background checks when making personnel decisions can create compliance obligations under the FCRA.

For more on the consent order, see our legal alert.