Today's Trends in Credit Regulation

No Harm Required - Glitches in Furnishing Credit Information Prove Costly
By L. Jean Noonan

The Consumer Financial Protection Bureau is continuing its focus on auto finance creditors, and First Investors Financial Services Group is one of the latest companies to sign a consent agreement with the Bureau. This agreement has a lot to tell us about the CFPB's enforcement philosophy.

First Investors, primarily a subprime creditor based in Texas, makes direct loans and takes assignment of retail contracts from dealers. The sole issue addressed in the First Investors consent agreement involved compliance with the Fair Credit Reporting Act's Furnisher Rule. First Investors experienced several furnishing system discrepancies during the period covered by the consent agreement. The CFPB alleged that First Investors did not act quickly enough to address the furnishing discrepancies and, as a result, continued to furnish incorrect account information after it learned of the furnishing discrepancies and before it fixed them. To resolve these allegations, First Investors agreed to take corrective action and pay a civil penalty of $2.75 million.

Here's what this settlement teaches us:

1. Many creditors have faced the problem of how to address a glitch in their furnishing of account information to consumer reporting agencies. Depending on the cause, the creditor may need anywhere from a few days to many months to identify the cause, implement corrective action, test the results of the corrective action, and furnish corrected information to the consumer reporting agencies. What should the furnisher do until the problem is fixed? The answer from the CFPB is clear - cease furnishing the information. But taking this step can cause other problems for the creditor and for its customers. Many consumers count on their creditors to regularly furnish information to build - or rebuild - a credit history. If the inaccuracy seems immaterial to the furnisher, it might seem like a reasonable option to continue furnishing while working to correct the furnishing discrepancy. But, judging from this new consent agreement, that would be a bad idea. The CFPB order requires First Investors to stop furnishing information to the consumer reporting agencies on any account the furnisher knows is "potentially affected" by a systemic inaccuracy until the problem is fixed.

2. If you tell consumers that you furnish information to the consumer reporting agencies, you'd better never have a furnishing glitch. If you do have a problem, you'll be faced with the options of either: (a) violating the Furnisher Rule by continuing to furnish information you know is not completely correct, or (b) breaking your promise to customers to report their credit history. Choose your poison. In either case, the CFPB is waiting to find a violation and seek a civil penalty.

3. You don't have to injure consumers to be forced to pay a whopping civil penalty. Notably absent in the First Investors consent agreement is any allegation that the inaccuracies actually harmed any consumer. For example, one of the four glitches was an inaccurate date of first delinquency. If left unresolved, this error could cause adverse information to remain on a consumer's credit report longer than the seven years permitted by the FCRA. But as long as the date is corrected before the end of the 7-year period, the adverse information would come off at the correct time, and the technical inaccuracy would not hurt the consumer.

4. Finally, this settlement tells us that if you want to understand what a CFPB case is about, you need to read the consent agreement carefully and not just the press release. The press release and Director Richard Cordray's prepared remarks imply that the company's mistakes were intentional "distortions" of consumers' credit histories, which prevented them from getting loans, renting housing, and getting jobs. Even a cursory review of the consent agreement paints a very different picture: a company that relied on a vendor's system to furnish credit information to consumer reporting agencies; that diligently and promptly responded to consumer disputes; and whose monitoring caught several systemic glitches in its vendor system that, for the most part, affected only a small fraction of its total customer accounts. The consent agreement does not claim that a single consumer was actually harmed.

Perhaps the most important lesson from this settlement is the importance the CFPB places on strict compliance with the Furnisher Rule. Director Cordray signaled that more enforcement actions under the Furnisher Rule were coming. The First Investors settlement offers a sober warning that continuing to report inaccurate information, even while working on a systemic fix, can be a costly mistake.

L. Jean Noonan is a partner in the Washington, D.C., office of Hudson Cook, LLP. Jean can be reached at 202-327-9700 or by email at

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