Dealing with federal law is not easy, especially these days. It certainly seems like the number of federal consumer protection regulations is increasing, and they are getting longer and more difficult to implement. Just over the last few years, companies have had to learn about Red Flags, Risk-Based Pricing, Direct Disputes and others. We expect that this trend will only escalate with the CFPB exercising its regulatory muscle.
In this post, we are highlighting a recent CFPB order that illustrates that companies cannot ignore new regulations. In 2009 (in the pre-CFPB days), the federal banking agencies and the FTC adopted the Furnisher Rule under the Fair Credit Reporting Act. This Rule requires companies that furnish information to consumer reporting agencies (i.e., “furnishers”) to adopt a written policy regarding the accuracy and integrity of information reported. Some companies complied. Many others did not.
Fast forward to August 2014. The CFPB ordered Texas-based First Investors Financial Services Group to pay $2,750,000 for failing to comply with the Furnisher Rule, and knowingly reporting inaccurate information about consumers to consumer reporting agencies. The incorrect reporting resulted from a faulty computer program. When First Investors discovered the issue, they alerted the software vendor but continued to use the software program. In addition to the fine, the CFPB also ordered First Investors to engage in remedial action, including correcting all consumer files that were subject to errors.
There are a few key takeaways.
The CFPB does not look favorably on companies that ignore federal regulations. First Investors violated federal law by failing to maintain a policy and report to the consumer reporting agencies with accuracy and integrity.
In Director Cordray’s remarks on the First Investors order, he noted that the harm was magnified because the affected customers were generally subprime borrowers. Director Cordray concluded his remarks by warning, “Any furnisher not currently meeting these requirements should take immediate steps to abide by the law. We will continue to monitor this market carefully, and we will not hesitate to take further enforcement actions as they are needed.” Finance companies, take note.
Additionally, this emphasizes the ongoing theme that the CFPB holds a company responsible for its service providers and vendors. First Investors could not simply hide behind its software provider. The CFPB expects that a company will adequately supervise its vendors.
In other words, federal rules aren’t made to be broken.