The credit bureaus, which will have to start providing free annual credit reports to all U.S. consumers over the next year, are already passing the costs along to their lender customers.
Equifax Inc. of Atlanta and TransUnion LLC of Chicago have begun charging lenders a flat “regulatory recovery fee” of 11 cents for each credit report ordered, in addition to the previous fee. (The bureaus would not say how much that fee is, but experts estimated that it started at 35 cents.)
The third major bureau, Experian Inc. of Costa Mesa, Calif., said it is charging a sliding supplemental fee of at least 8 cents per report to its commercial customers. To ease some of the pain, it started by charging half as much in October and will begin charging the full fee next month.
“None of … [the banks] were pleased, but many of them understand the circumstances,” said David Rubinger, a spokesman for Equifax.
The free reports for consumers are mandated by the Fair and Accurate Credit Transactions Act, which will take effect in phases. The free reports became available to consumers in the West last week and will be available nationwide by Sept. 1.
The bureaus are also marketing various products to consumers, such as credit trackers, to offset the costs of compliance.
“Obviously, this is going to cost us money,” said Donald Girard, a spokesman for Experian, a unit of the British company GUS PLC. “Thankfully, the FACT Act does allow the bureaus to do some marketing with the free reports.”
In an April speech, Equifax’s chairman and chief executive officer, Thomas Chapman, called the FACT Act provision on free credit reports “the first time a business has been required by Congress to provide its products and services without any compensation whatsoever.”
On top of the new credit report fees, lenders are facing additional costs, both in terms of time and money, because of a number of FACT Act requirements.
A provision of the law that went into effect Dec. 1 requires lenders to tell customers their credit score, and four reasons for that score, when they apply for credit.
Lenders can provide this information themselves by acquiring it from one of the credit bureaus. Christine McKenna, the vice president of operations at MidAmerica Bancorp Inc., said the credit bureaus have offered to provide scores (and the reasons for them) directly to consumers on the lenders’ behalf, for a fee.
Ms. McKenna said the fee would probably be $2 to $3 per report, but she is waiting for confirmation from the bureaus. “So far we have taken the onus on ourselves to provide this information, but it is time-consuming,” she said.
MidAmerica, of Clarendon Hills, Ill., is considering paying the bureaus to supply the reports, because doing so would ensure that certain compliance matters are taken care of without the bank’s involvement, Ms. McKenna said.
“In terms of compliance, it might make more sense to outsource this portion of the process,” she said.
The new disclosure requirement could increase costs for lenders, which will have to incorporate the rule into their loan origination systems, according to Ms. McKenna.
“LOS systems are not currently able to handle the disclosure needed,” she said. “Lenders will have to adjust their software so that this additional information comes out of the system and doesn’t have to be manually added.”
A number of FACT Act regulations that could further affect banks and lenders have not yet been finalized.
These include provisions on affiliate sharing, risk-based pricing, and the procedures for identifying identity theft.
Kim Sears, a spokeswoman for the Financial Services Roundtable, said lenders have not dedicated additional systems and personnel to comply with all the new regulations, because they have not been fully defined.
“We will not know the full effect on lenders until the regulations are final,” she said.
While lenders struggle to meet the new requirements, credit bureaus have had difficulties of their own over the past week.
In the past week the three credit bureaus have received “many tens of thousands” of requests for credit reports, Mr. Rubinger of Equifax said.
Equifax did not experience any technical difficulties during this first crucial week, he said. But Mr. Girard said Experian did encounter some glitches with its Web site.
On the morning of Dec. 1, some customers received error messages saying the system was temporarily unavailable, he said. “The problem was due to volume and was addressed by midday.”
The credit bureaus worked in close cooperation to provide a Web site, www.annualcreditreport.com, where customers can order credit reports.
“It was basically like building a company from scratch in one year,” Mr. Rubinger said.
The bureaus are also preparing for the next phase of FACT Act compliance. Free credit reports will become available to midwestern consumers in March.
The bureaus are still unsure how the nationwide rollout will affect their business, Mr. Rubinger said. “There are too many variables to determine what the impact is going to be.”
