Texas-based subprime auto lender First Investors Financial Services Group must pay a nearly $2.8 million fine on charges it reported inaccurate customer credit information to the credit bureaus.
The order issued Wednesday by the Consumer Financial Protection Bureau alleges the company was aware of a flaw with its computer system that led to incorrect credit profiles being reported to the credit reporting agencies, but failed to correct the problem.
The CFPB said First Investors provided wrong data on how much customers were paying toward their loans, misreported delinquency dates and total amounts of delinquencies and mischaracterized whether a vehicle was repossessed or "voluntarily surrendered" by the consumer. The errors attributed to software purchased by a vendor included inaccurate credit score data and defaults rates, among others.
First Investors discovered the reporting problem in April 2011 and notified its vendor, according to the CFPB. But, the bureau said, the company "did nothing more," such as replacing the system.
The fine put lenders on notice that blaming a software vendor for serious technical errors simply won't cut it. The CFPB claims the reporting errors potentially harmed "tens of thousands" of consumers.
"First Investors showed careless disregard for its customers' financial lives by knowingly distorting their credit profiles for years," CFPB Director Richard Cordray said in a press release. "Companies cannot pass the buck by blaming a computer system or vendor for their mistakes. [The enforcement] action sends a signal that the CFPB will hold companies accountable for sending inaccurate information to credit reporting agencies."
First Investors, along with the fine, agreed to fix the problem and change its business practices, the CFPB said.
Sarah J. Auchterlonie, an enforcement attorney at the CFPB, said in a conference call with reporters that the agency will be taking a close look at how vendor relationships affect other furnishers and consumers.
Officials on the CFPB conference call essentially held up the First Investors case as a warning about the need for financial institutions to monitor vendor relationships. Other recent CFPB actions also have stressed the importance of scrutinizing third-party affiliations. Notably, Capital One Financial and Discover Financial Services were both penalized by the agency in 2012 for credit card add-on products largely provided through vendor channels. American Express and ACE Cash Express, a payday lender, also have faced allegations of vendor-related problems that led to consumer harm.
Companies that report consumers' credit data "should make sure that any products or vendors they use to perform these duties are doing so accurately and legally," Cordray said during the call. "Some are doing this better than others, and some are not doing what they promise or what federal law requires We will continue to monitor this market carefully, and we will not hesitate to take further enforcement actions as they are needed."
In a statement issued by First Investors, the company said it already had begun reporting issues to the CFPB and had nearly corrected all of the problems cited in the order.
"To resolve the matter and to avoid the expense and business disruption associated with defending any lawsuit, First Investors elected to settle the CFPB's claims rather than dispute them in court. First Investors has not admitted any wrong doing," the company said in a written statement. "When issues were identified, First Investors worked with its service provider to correct them. All of the issues described in the Consent Order were reported by First Investors to the CFPB and were either corrected or in the process of being corrected when reported."
The company also said that the issues identified in the consent order affected between 1% and 12% of its accounts.
"The CFPB's consent order acknowledges that First Investors timely responded to any consumer dispute and corrected the furnished information when necessary," the company said. "First Investors takes its federal and state law compliance obligations very seriously."