What the CFPB's Advisory Opinion on Credit Reporting Facially False Data Means for BHPH Dealers

If you are a buy-here, pay-here dealer who reports to the credit bureaus, you should pay careful attention to the Consumer Financial Protection Bureau's recent advisory opinion on reporting "facially false data." You might be thinking that you would never report something that was false. You might be wondering what makes this advisory opinion different from other CFPB statements on accurate credit reporting. You also might be asking why you need to worry about this opinion that focuses on credit bureaus.

Well, here's why this advisory opinion is important to BHPH dealers—the opinion includes specific examples about what the CFPB views as "facially false." Most of these examples come directly from information that is furnished on the Metro 2® file. If the credit bureaus need to worry about these examples of false data, so should those who are furnishing to the bureaus.

If you've never looked under the hood to see how your data appears in the Metro 2® file, now would be a good time to start. If you do review the information, now might be the time to refresh the way you evaluate your Metro 2 file.

The advisory opinion includes a list of examples of logical inconsistencies or illogical information that the CFPB believes should be removed from consumer reports. If you are sending the bureaus this type of information, you should consider whether the information needs to be updated or whether what the CFPB thinks is illogical is actually correct. Below are the CFPB's examples along with helpful tips or things to consider for each:

1. Accounts with a paid in full status with a balance due.

Helpful Tip: If the account is paid, the balance is $0; if the balance isn't $0, the status shouldn't be "paid in full."

2. Accounts with an "original loan amount" that increases over time.

Helpful Tip: Furnishers are in the best position to know this information. Compare the amount to what's in your contract. The "original loan amount" should not change (except in limited cases like modifications with a balloon payment, but this usually applies to mortgages).

3. A date of first delinquency that post-dates a charge-off date.

Helpful Tip: The consumer had to be late or surrender the vehicle before you could charge off the account. If the consumer was current but filed for bankruptcy, then you should report the petition date because the petition had to be filed before the charge-off.

4. Impossible information about consumers (for example, a tradeline that includes a date of account opening, account closing, last payment, or first delinquency that is in the future—an obvious impossibility—or, for an individual account, that either predates that consumer's listed date of birth or that is so far in the past (e.g., January 1, 1800) that it must predate every living consumer's date of birth, as individuals cannot open accounts before they are born).

Helpful Tip: For auto tradelines, the consumer's date of birth should always be earlier than the origination date. This might not be true for other joint credit products.

5. A date of first delinquency or last payment that predates the account open date.

Helpful Tip: The consumer can't be late or surrender the vehicle before the origination date.

6. Derogatory information being reported on an account, although that derogatory information predates an earlier report that did not include the derogatory information.

Something to Consider: This reporting could be accurate. For example, a consumer may have been reported as current, but then a payment was reversed due to insufficient funds, so the delinquency is reported retroactively. Alternatively, you might detect that a consumer was reported as current in error, and you are updating the information to make it accurate (and possibly make sure the date of first delinquency isn't too recent). You might have to do some research to confirm the information or figure out if something went wrong.

7. A date of first delinquency reported for an account whose records reflect no delinquency, such as through activity reflecting a current account (complete history of timely payments, $0 amount overdue) or through a current account status code.

Something to Consider: As a general rule, this is probably illogical. However, there is case law that expresses the opposite view, so make sure you know your business rules on retaining the date of first delinquency.

8. Information about consumer accounts that is plainly inconsistent with other reported information, such that one piece of information must be inaccurate (for example, if every other tradeline is reporting ongoing payment activity, while one tradeline contains a "deceased" indicator, reasonable policies and procedures should identify the inconsistency, and the credit bureau should prevent the inclusion of the inaccurate information in consumer reports it generates).

Something to Consider: Although the credit bureaus will know whether other furnishers have reported a consumer as deceased and could remove this information, furnishers should make sure they have a process to verify a consumer as "deceased" before changing the code on the Metro 2® file and/or to confirm that the code is placed at the consumer level and not the account level when only one consumer is deceased on a joint account.

9. A credit bureau's policies, procedures, and internal controls should further identify and prevent reporting of illegitimate credit transactions for minors. Because minors cannot legally enter into contracts for credit, except in certain limited circumstances, it is logically inconsistent when a credit transaction is reported for a person who lacks capacity to enter into a contract. Furnishers should confirm that the party is at least the age for contracting under state law.

Something to Consider: Generally, the age of majority is 18, but different states have different rules, and the rules might vary by different credit products. If you see a date of birth indicating that the party is under 18, research your records to figure out if there is a problem.

The CFPB issued the advisory opinion to remind credit bureaus that the failure to maintain reasonable procedures to screen for and eliminate logical inconsistencies in order to prevent the inclusion of facially false data in consumer reports is a violation of their Fair Credit Reporting Act obligation to "follow reasonable procedures to assure maximum possible accuracy." For furnishers, the test is whether you are meeting the obligation to report accurately. You might not know if information is inaccurate until you review and test. Now would be a good time to refresh your testing to address the items flagged by the CFPB and expand from there as needed. 

*Lisa C. DeLessio is a partner in the Maryland office of Hudson Cook, LLP. 

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