Senate Banking Panel Questions CFPB on Credit Score Study

WASHINGTON — Lawmakers pressed a Consumer Financial Protection Bureau official Wednesday on problems with the credit reporting system raised in a major study released by the agency last week.

The CFPB found that consumers disputed up to 38 million items on their credit reports last year, as part of its report examining the practices of the big three credit reporting companies, Equifax, Experian and TransUnion.

Sen. Sherrod Brown, D-Ohio, expressed concern about credit report inaccuracies during a hearing on the issue, warning that the industry is often profitable for lenders and the credit reporting agencies, but difficult for consumers to navigate.

"Under the law, credit bureaus and creditors have some general commands but few concrete obligations," said Brown, who chairs the Senate Banking Subcommittee on Financial Institutions. "Too often the burden is on the consumers, who don't know enough about their credit reports, or who don't have time to navigate the arcane and confusing system."

The Ohio Democrat questioned Corey Stone, assistant director for deposits, cash, collections and reporting markets at the CFPB, about how those complaints are addressed.

The report found that while the majority of complaints are referred from the credit bureaus back to the companies that provided the information, some supporting documentation mailed in by consumers may not get passed along with the complaint. Automated complaint forms sent back to the data suppliers contain dispute codes and up to 255 characters of supplement text from the consumer complaint.

"Is it a fair statement to say that consumers must provide evidence when they challenge a credit score, but that creditors are taken at their word?" Brown asked Stone during the hearing.

Stone said he thought that description was "accurate."

"You're saying that the consumer can provide information that's not going to get to the furnisher in necessarily the form they provided," he said. "It does get converted into codes, it can be put into this limited text field …or may not be passed on."

But Stone declined to comment on whether such actions violate the law, noting the report was intended to be "descriptive, rather than prescriptive."

He said the agency is still investigating what to do next.

"We have many tools with which we can make determinations about whether the law is being violated and in this case that is what's going to happen," he said.

Sen. Jeff Merkley also asked Stone about the role of medical debt collection in credit scoring, an issue the Oregon Democrat has worked on previously. He reintroduced legislation in March that would prohibit companies from using paid off or settled medical debt in assessing consumer credit scores.

"I'm only arguing that when people have settled this, and gone through the complex process of determining which insurance company should have paid what — but by that time it's already been reported and it's on their credit report for seven years," Merkley said. "Between the fact that one, the industry doesn't consider it predictive, and the fact that there's so much damage, it seems that ought to come out."

Stone told lawmakers that the agency recently obtained anonymous data from one of the credit bureaus so that it can assess how predictive different types of behavior, like failing to pay a medical bill, can be on future consumer activity.

"We actually have purchased a panel of anonymized consumer data from one of the credit reporting agencies that will have this medical data, so we will make a determination about the predictiveness of this data," he said.

Stone said the agency is also in the middle of analyzing data about whether remittance payments, electronic transfers often sent to friends and family abroad, should be used in the credit score system, in response to a question from retiring Democratic Sen. Daniel Akaka of Hawaii.

The CFPB produced an initial report on the issue last year that discussed the potential for possibly using remittance data to help those with little or no credit history bolster their credit scores. Now the agency is in the process of analyzing anonymous data it collected from one of the largest remittance providers, with a report due out in the second half of 2013, according to Stone.

"That information has been matched with those consumers' credit histories — so that we have remittance history and how those consumers performed on their credit obligations subsequent to that remittance history," he said. "Right now we're doing an analysis to determine how useful the remittance transactions are in predicting credit performance history of those consumers."

Meanwhile, Sen. Bob Corker, R-Tenn., emphasized the overall value of credit scores for helping lenders make decisions, despite the flaws laid out in the CFPB report.

"Obviously they have some value and have been good predictors. Hopefully when we're through this process we'll end up in a place where they're still a useful tool, but at the same time people who have been maligned can appropriately have the ability to rectify that," he said.

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