The Perfect Storm is on The Horizon
It’s Time to Get Your Credit Reporting House in Order
By Richard Hudson, Chief Optimization Officer, Ignite Consulting Partners
Steve Levine, Chief Legal and Compliance Officer, Ignite Consulting Partners
We fear there is a storm brewing which will involve a potentially massive collision between class action lawsuits and credit reporting. If the CFPB arbitration rule gets enacted and arbitration clauses can no longer contain provisions that prohibit the consumer from bringing or joining in a class action lawsuit, it will create a scary climate for the industry as Plaintiffs’ lawyers will flock to put together cases. One of the critical factors they search for are business practices that are likely to have repetitive errors. Such characteristics create a similarly situated class of consumers to make up the “class”.
Credit Reporting is one such business process that leaps out as likely to attract their attention. It is systematic and often automatic, meaning a small misinterpretation or deviation can result in repetitive errors that are duplicated with each reporting cycle. This will be attractive to the Plaintiffs’ lawyers that will no longer be shackled by class action waivers.
A great many creditors that report credit experience with consumers have no idea whether or not they are in compliance with the myriad of regulatory requirements that data furnishers must obey. Data furnishers must report accurate information. This sounds simple enough, but the numerous permutations that exist throughout life of an account create massive potential for errors. Coupled with the fact that creditors often rely upon third party service providers to carry out the reporting function, the climate is quite scary.
If you can’t say with confidence, “Yes, I am in Compliance”, and have the data to back it up, it’s prudent to take a closer look at what you are doing. Depending on your business, simply figuring out current practices can be a daunting task. Take a deep breath. By following a few general guidelines, you can be more confident in your role as a data furnisher.
Understanding Where You Are
Understand what is happening today. Honestly evaluate your practices and staffing. Investigate and document every area of your business that could impact the data you furnish. Which people in which area could potentially impact you as a data furnisher? What is their level of training and expertise? Very often, we find that the people that are depended upon the most have little if no training, and are simply asked to carry on practices that have developed over time. “We’ve always done it that way” is not a good defense. Make an investment in your staff and give them the training and tools they need to do their job.
Consider the adequacy of your staffing. In the Drive Time Consent Decree, the Bureau took great lengths to emphasize the size of the staff should be commensurate with the number of customer credit reporting disputes being handled. Is the business large enough to have staff dedicated to this function, or is this just one of many that they are asked to perform on a daily basis? What are the backgrounds of the staff? Do they have expertise or have they been thrown into the deep water?
It is critical to adequately educate the staff. There are many different resources that can help. There is an industry organization called the CDIA that offers online certification for data furnishers in addition to two day workshops held several times a year. In addition, there are firms like ours, Ignite Consulting Partners, with industry specific expertise that can help with education, best practices and audits.
Next, take a close look at existing written policies and procedures, or better yet, get a qualified compliance or legal expert to do so. Does the level of detail and coverage match the size and complexity of your business, and do the actual practices measure up to the aspirations of your policies? The policies and procedures set the expectation for everything else that occurs after, so take the time to make sure they are sufficient.
Create a Roadmap
Formulate a plan based on the size and complexity of your business. The practices of a business with 500 accounts won’t be the same as one with 10,000. Creditors of every size, though, should have a fully documented review for how monthly processes are performed, as well as an audit process where data is checked and compared so that there is comfort that data is both accurately reported and reflected in the report. Next, there should be procedures for both direct and indirect customer disputes. There should also be a thorough understanding of what is an appropriate versus inappropriate use of consumer information.
Pay Attention to Third Party Service Providers
As much as anything else, the First Investors CFPB Consent Decree stands for the proposition that a creditor can’t just pass off liability on a third party service provider. Creditors are ultimately responsible for the actions of those providers. On something as complex as credit reporting, that means its critical to understand what the provider is doing and making sure it is properly executing. Check their work, review their employee training practices, and hold them accountable for missteps. A strong vendor management program is especially important when it comes to this function.
There should be one person responsible for the implementation all facets of the program. This is important because you have to ensure that things are completed, not delegated and forgotten. Again, start with training on the processes and procedures. Ensure everyone on the team knows their responsibilities and how to carry them out.
Just like your home and vehicle need upkeep, so does your credit reporting infrastructure. Laws, staffing, and your business are constantly changing and you need to ensure that your processes keep up. Depending on the size and complexity of your business, I recommend a documented systematic review of your entire process at least once a year. I also recommend ongoing training for each employee involved in the process. This ensures that everyone involved adheres to the plan consistently.
While there is always going to be an inherent risk in reporting credit, there is ample opportunity to mitigate it. Reporting accurately isn’t automatic, it takes a thoughtful approach. By using the pointers provided you’ll be well on your way to creating an infrastructure that will ensure accuracy. One of the things I always ask my clients is why they started reporting credit in the first place. Without exception, they started reporting credit to provide a benefit to their customers. With that in mind, I always try to remind them to keep focused on the fact that it is about the customer. They work hard every day to pay their bills on time and it’s great to be able to reward positive behavior. Compliance means doing things right, not just for the sake of compliance but for the sake of your customers. They’re why we’re here.
Steve Levine and Richard are with Ignite Consulting Partners, which offers compliance, technology, process improvement and cyber security guidance to car dealers and finance companies. The combined experience of the Ignite team across several disciplines allows them to develop strategy, overcome internal obstacles and implement meaningful change. Please contact sales@IgniteCP.com to learn more.