A new CFPB advisory opinion drills down on what consumer reporting agencies must do to address discrepancies in consumers’ credit reports, in order to protect consumers and remove obstacles to them getting credit. And while the Bureau gives specific examples of items requiring correction, the opinion emerges in the bigger context of a heightened interest in expanding the categories of businesses that could constitute a consumer credit company and clarifies the work required of such companies vis-à-vis other actors in the consumer credit ecosystem such as furnishers or users of consumer data reports.

On Oct. 20, 2022, the Consumer Financial Protection Bureau issued a substantial Advisory Opinion interpreting Section 607(b) of the Fair Credit Reporting Act (FCRA). Section 607(b) is one of many technical provisions imposing specific compliance obligations on consumer reporting agencies (CRAs). The Advisory Opinion indicates that if a CRA or a company engaged in consumer reporting activities neglects to remove logical inconsistencies from consumers’ credit reports, such a company will be deemed to have violated the FCRA’s mandate to build and carry out “reasonable procedures to assure maximum possible accuracy” of information pertaining to consumers whose credit information or personal attributes are being reported.

What is a “logical inconsistency”? The Bureau sets forth several examples, including: (1) data reflecting consumer status or account status that simply can’t be true, i.e., a status label of “paid in full” while also reflecting a balance due; (2) impossible information about consumers’ profile information, i.e., an account existence or opening date that predates when the consumer was born; (3) inaccuracies regarding a consumer that are readily apparent on the face of the document, i.e., certain tradelines showing the consumer is engaged in payment activity but another tradeline showing the consumer is deceased; or (4) an original loan amount that increases over time, which is by definition impossible.

The fundamental purpose of the Advisory Opinion appears to be that the Bureau expects industry participants to screen for and undertake other vetting work to ensure that facially false data is not found in consumer reports. The policy underlying this requirement is the need for protection from downstream, negative impacts of erroneous consumer credit information, such as denials of credit or other applications or more expensive credit once applications are approved. The Advisory Opinion notes that the very purpose of FCRA itself was to prevent consumers from being “unjustly damaged because of inaccurate or arbitrary information in a credit report.” It states, “FCRA was designed to ensure that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the … accuracy … of such information.”

In releasing the Advisory Opinion, the Bureau also emphasized that Section 607(b) “include[s] as an integral component that consumer reporting agencies implement and maintain reasonable screening procedures, such as business rules, designed to identify and prevent the inclusion of facially false data, such as logical inconsistencies relating to consumer or account information, in the consumer reports they prepare.” Courts throughout the country have also upheld principles resonant with the Bureau’s Advisory Opinion. See Wright v. Experian Info. Sols., Inc., 805 F.3d 1232, 1239 (10th Cir. 2015) (Courts have held [consumer reporting agencies] must look beyond information furnished to them when it is inconsistent with the [consumer reporting agencies’] own records, contains a facial inaccuracy, or comes from an unreliable source.).

Below we discuss four Q&A’s relevant to the Bureau’s approach and the Advisory Opinion.

What is the backdrop for this regulatory guidance from the Bureau? How could this possibly be a new issue?

It’s not a new issue, but the Bureau is placing renewed emphasis on it in significant ways. FCRA has long required that “[w]henever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” Further, by issuing the Advisory Opinion, the Bureau echoes the guidance issued in 2011 by the Federal Trade Commission, which asserted that a CRA “must maintain procedures to avoid reporting information with obvious logical inconsistencies.” In this regard, the Bureau is revisiting the underlying issue, based on more recent market developments with which the Bureau has become concerned. The Bureau is also clarifying its expectations in future enforcement or supervisory proceedings, by explicitly announcing the importance of eliminating “junk data,” the term Director Rohit Chopra uses to describe logical inconsistencies.

With respect to “logical inconsistencies,” does the Advisory Opinion specify how prevalent this problem is in the industry?

The Advisory Opinion sets out several examples from distinct consent orders. In these instances, the Bureau illustrates how often such logical inconsistencies may occur at a specific company. However, the Advisory Opinion does not necessarily provide a market-wide view of how prevalent such facially false pieces of information appear across creditors, product types, or CRAs (whether national CRAs or not).

Does the issuance of the Advisory Opinion signify a greater reliance on providing prophylactic guidance and less “regulation by enforcement”

The Advisory Opinion follows enforcement actions in 2020 and 2022, during which the Bureau already designated facially false data as a grounds for finding a violation of Section 607(b). Nevertheless, it is notable that the Bureau is more amenable to using its authority to issue Advisory Opinions in the current administration than in previous ones, and that this is at least the second Advisory Opinion issued this year that deals with FCRA.

When it comes to inaccuracies, is the driving concern behind the Advisory Opinion the (a) consumers’ ability to access affordable credit or (b) accuracy and soundness of the credit ecosystem?

Based on the Advisory Opinion, the press release, and the Bureau’s overall FCRA priorities, it appears that it’s more the former rather than the latter. Ironically, the purpose of FCRA is not just to protect consumers in the form of credit pricing and underwriting outcomes, but to establish a reasonable give-and-take between CRAs, furnishers of data, and users of consumer reports to ultimately make the credit ecosystem work in a safe manner for consumers overall.

In this regard, what is perhaps more provocative about the Advisory Opinion is what it omits. It does not say what the Bureau will ask CRAs to do, or how the business rules will be written, if the correction of inaccurate information of a consumer leads to higher interest rates or less favorable outcomes for consumers. A separate debate in Washington, D.C., and state assemblies is currently underway, which is how to balance the need for consumer benefits from the need to ensure accuracy in the reporting system? Solving for both needs ultimately enhance consumer protection.

In the October 2022 Advisory Opinion, the Bureau is not explicitly clear about whether accuracy is paramount even in situations where it could lead to more expensive outcomes for consumers, or whether a violation will be deemed to exist even if the facially false data were harmless errors. Further, by elevating consumer protection on a transaction-by-transaction basis at the possible risk of subordinating health and wellness of the consumer credit system, the Bureau is moving forward in a manner that is consistent with its previous rulemaking and supervisory or enforcement approaches these last eleven years.

Nonetheless, the Bureau’s Advisory Opinion, especially when considered against the context of the Bureau’s Summer 2021 Supervisory Highlights report, is helpful in revealing how intensely focused the Bureau’s oversight of consumer credit, data, and privacy issues will be in coming years. This Advisory Opinion is also notable because it provides concrete examples of what will fail to pass muster as the Bureau decides whether a CRA has used reasonable procedures. Prior to this opinion, the standard under Section 607(b) had not been articulated in a centralized way, and was mostly interpreted through common law decisions on case-by-case basis.

Conclusion

As noted above, the Advisory Opinion notes that data accuracy is the chief concern underlying the need for FCRA in the first place. The Bureau’s Advisory Opinion signals a heightened focus on consumer reporting agencies’ role as the gatekeepers of maintaining accurate consumer credit report information. Notwithstanding the duties imposed by FCRA on furnishers (e.g., lenders) to convey accurate information to CRAs to begin with, the Advisory Opinion’s issuance signifies that the Bureau believes that consumer reporting agencies occupy a unique position and ought to be held responsible “to identify certain obvious inaccuracies and implement policies, procedures, and systems to keep them off of consumer reports.”

The Bureau’s focus on increasing safeguards for consumer credit report information will continue in coming years, and this Advisory Opinion comes at a time when the Bureau is taking an increasingly expansive view of what constitutes a CRA. As new technologies and data companies innovate and potentially fall within the ambit of the definition of a CRA, it will be crucial for such innovators, as well as traditional consumer credit companies, to be well versed in the Bureau’s expectations regarding the handling and use of consumer data.