States can play hardball with credit reporting bureaus, CFPB says

The Consumer Financial Protection Bureau on Tuesday gave states permission to enforce their own credit reporting laws that may be broader or tougher than federal ones. 

The approval comes as the bureau's director, Rohit Chopra, is expected to take on Facebook for its consumer data collection practices and the agency's new policies on anti-discrimination provoked backlash this week from bank trade groups.  

In a press release, the agency said this latest interpretive rule was prompted by a pending lawsuit filed against the state of New Jersey for allegedly passing a law on credit reporting that went beyond what the federal regulations require. 

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States should retain "substantial flexibility to pass laws involving consumer reporting to reflect emerging problems affecting their local economies and citizens," the CFPB said in the 16-page filing, where it noted that Congress had empowered it to lead the enforcement of the 1970 Fair Credit Reporting Act. 

The FCRA is supposed to limit what can go into consumers' credit reports, protect consumers' privacy and right to see the reports and ensure the reports' accuracy. 

"With limited preemption exceptions, states have the flexibility to preserve fair and competitive credit reporting markets by enacting state-level laws that are stricter than the federal Fair Credit Reporting Act (FCRA)," the CFPB said in a statement. 

States requiring credit reporting bureaus to provide materials in native languages other than English, for instance, or states that asked companies to leave "medical debt, evictions, arrest records, or rental arrears" off a credit report, would be well within their rights, the CFPB said in the filing, noting that it had found such forms of debt sometimes did not accurately reflect credit history or was inaccurately reported to agencies, which harmed consumers. 

“Given the intrusive surveillance that Americans face every day, it is critical that states can protect their citizens from abuse and misuse of data,” Chopra said in a statement. “Federal law does not automatically hit delete on state data protections.”

The move comes in notable contrast to comments issued by the Office of the Comptroller of the Currency, which some states said tied their hands when they tried to pass restrictive lending laws on banks that led to the subprime mortgage crisis of 2008. 

"As federal regulators learned from the 2007-2008 mortgage crisis and ensuing Great Recession, federal preemption of state laws can stop state regulators from identifying dangerous patterns and mitigating market risks," the CFPB said in its release. 

The announcement was met warmly by consumer advocacy groups. The National Association of Consumer Advocates, a nonprofit trade group for consumer attorneys and activists, thanked the bureau in a statement on Twitter for “clarifying that states can pass laws stronger than the FCRA to protect their residents."