The Consumer Financial Protection Bureau took action Thursday against nationwide credit reporting company, Clarity Services Inc., and its owner, Tim Ranney, for allegedly illegally obtaining consumer credit reports.
Clarity Services is a Florida-based credit reporting company that focuses on the subprime market. Ranney is also the president and CEO. The company compiles and sells credit reports to financial service providers such as payday lenders.
The company allegedly violated the law by failing to appropriately investigate consumer disputes. The CFPB is ordering the company and Ranney to halt the alleged illegal practices and improve the way they investigate consumer disputes and obtain, sell and resell consumer credit reports. The company and Ranney also pay an $8 million penalty to the CFPB.
"Credit reporting plays a critical role in consumers’ financial lives," said CFPB Director Richard Cordray. "Clarity and its owner mishandled important consumer information and failed to take appropriate action to investigate consumer disputes. Today, we are holding them accountable for cleaning up the way they do business."
Clarity purchases credit reports from other credit reporting companies and supplements the reports with alternative data. It resells the repackaged reports to be used in underwriting decisions. Companies that buy Clarity’s consumer reports are often lenders making small-dollar loans to consumers who have thin credit files.
The Fair Credit Reporting Act requires that access to consumer reports be limited to those with a “permissible purpose" such as a lender making an underwriting decision about a consumer. Among other things, that protection is designed to help ensure consumer reports are obtained and used appropriately and that consumer privacy rights are protected. When a lender requests to pull a credit report for a permissible use, the inquiry often appears on the consumer’s credit file.
The CFPB found that Clarity and Ranney allegedly violated the FCRA Act by illegally obtaining the consumer reports of tens of thousands of consumers - without a permissible purpose - for use in marketing materials for potential clients. The company also allegedly failed to investigate consumer disputes, including consumer disputes about unauthorized credit inquiries.
The specific violations as outlined by the CFPB include:
- Illegally obtaining consumer reports without permission: Clarity and Ranney generated marketing materials for prospective clients by illegally obtaining tens of thousands of consumer reports from other credit reporting companies without a permissible purpose. Clarity and Ranney used personal consumer information from these reports to help market its products. For example, in one instance, although members of Clarity’s own staff objected to the illegal conduct, Clarity and Ranney illegally obtained over 190,000 consumer reports from another credit reporting company. As a result, consumers’ credit files wrongly reflected a permissible inquiry by a lender. When the lender learned of this and raised it with Clarity, Clarity and Ranney requested that the credit reporting companies delete evidence of the unauthorized pulls of information from the consumers’ reports.
- Failing to investigate consumer credit reporting disputes: Clarity failed to investigate consumer disputes, including disputes relating to credit inquiries, even though it was aware that some consumer files were populated with information from unreliable sources. Specifically, the company would not investigate a dispute if a consumer did not supply supporting documents. Even when a consumer identified specific tradelines and the reason why the consumer thought the item was inaccurate or incomplete, Clarity would not reinvestigate unless the consumer provided specific documentation. Clarity also failed to investigate disputes related to identity theft and routinely failed to provide information to furnishers about consumer disputes.
Under the terms of the CFPB order, Clarity and Ranney are required to:
- End illegal credit reporting practices: Clarity and Ranney must cease their illegal business practices. These illegal practices include pulling consumer reports and selling or reselling consumer reports to users who lack a legal purpose, such as lead generators and those companies that are considering purchasing any service from Clarity or Ranney.
- Improve consumer safeguards: Clarity and Ranney must implement policies and procedures to ensure that users have a permissible purpose to obtain consumer reports and are appropriately credentialed. It must also require consumer data furnishers to provide accurate data and correct data inaccuracies.
- Fully investigate consumer disputes: Among other things, Clarity and Ranney must improve the way the company investigates consumer disputes. As part of this, the company is required to have strong policies and procedures in place to ensure investigations are conducted when Clarity is informed of a consumer dispute, including disputes about unauthorized credit inquiries. The policies and procedures must also not impose any impermissible precondition to investigation, such as a requirement that a consumer must complete a specific form or provide documentation or other evidence of the dispute before Clarity will conduct an investigation.
- Pay a civil monetary penalty of $8 million: Clarity and Ranney will pay an $8 million fine for the illegal actions.