The Consumer Financial Protection Bureau signaled it may soon crack down on the big three credit bureaus for "inconsistent or impossible" data on credit reports that hurt consumers' ability to secure loans, housing, and employment.
Impossible or inconsistent data can range from a notation on a consumer's credit report that the person is dead despite the fact their other accounts are marked as current and paid off, or a report that they opened a line of credit before they turned 18 or even before they were born.
The CFPB calls such errors "junk data," much like the "junk fee" moniker it has for overdraft fees and insufficient fund penalties. Errors on credit reports are the single most common cause for complaint when consumers contact the CFPB, according to
But it's not just that the errors are common. The credit bureaus should easily be able to flag such impossible or inconsistent information without the consumer needing to take action, according to the CFPB.
Equifax, TransUnion and Experian responded to the Thursday CFPB action through the Consumer Data Industry Association, a trade group that represents the three.
"The credit reporting industry is committed to helping consumers resolve potential discrepancies on their credit reports and we are working diligently across the financial ecosystem to make sure data on consumer credit reports is reliable and comprehensive," an association spokesman said. "We recommend consumers proactively monitor their credit reports so that they are more aware of what lenders may see and so that they can detect any potentially inaccurate or incomplete information provided to the credit bureaus."
The spokesman referred consumers to the online dispute forms for
According to the National Consumer Law Center, a consumer advocacy group, consumers who do what the credit bureaus suggest — file disputes when they spot an error — often just face a bureaucratic nightmare that leads nowhere, so they have to resort to lawsuits. And, according to the center, this has long been the case.
In its 2009 Automated Injustice Report, the NCLC outlined what it called a "sham system" that the credit bureaus implemented for investigating consumer complaints about false information on their credit reports. According to the report, the credit bureaus were not doing real investigations.
"As of January 2009, this sham system meant that no one was really investigating the merits or substance of disputes," according to
Indeed, one such lawsuit predating the 2009 report has become a staple of the case law concerning how the credit bureaus handle impossible and inconsistent data on consumer credit reports.
In November 2000, as Richard L. Sheffer reviewed a copy of his credit report from Equifax to see why he had been denied an increase to a line of credit on one of his accounts, he found mystifying errors.
Equifax published a notation on one of his accounts that he was deceased — despite the fact he had two dozen other accounts on the same report showing he was still alive. Not only that; the report claimed Sheffer had opened the account four years before he was born.
Sheffer filed a report with Equifax and followed up with the company multiple times after the error remained, according to court documents. Eventually, he gave up and sued.
A court ruled in favor of Equifax and against the retailer Sears, which had provided the false data on the credit report, but courts now cite the case as an example of a credit bureau failing to implement reasonable procedures to ensure data on consumer credit reports is accurate.
According to Chi Chi Wu, a staff attorney at the NCLC focusing on consumer credit issues and an author on the coalition's 2019 report on credit report errors, credit bureaus constantly mark a consumer as deceased when they actually are not.
"It will often happen when there's a co-borrower on an account, and the co-borrower is deceased," Wu said. "The creditor will mark the account, and the living person will get marked as deceased. It's a problem because it shuts down the file; creditors, when they try to pull a report or score, get a message that the consumer is deceased, and the consumer can't get new credit."
The CFPB also cites Sheffer's case as an example of a problem that the credit bureaus need to fix. It labeled such plainly inconsistent or impossible information "junk data" and said credit bureaus need to start taking the errors seriously, or they could face a crackdown by the regulator.
"When a credit report accuses someone of defaulting on a loan before they were born, this is nonsensical, junk data that should have never shown up in the first place," said CFPB Director Rohit Chopra. "Consumer reporting companies have a clear obligation to use better procedures to screen for and eliminate conflicting information, or information that cannot be true."
While incorrect or impossible information on credit reports affects millions of Americans, according to the CFPB, foster children are at particular risk of fraud schemes negatively impacting their future reputation with creditors. In these cases, the false data tends to stem from fraud and abuse rather than negligence or carelessness.
"Foster children often lack permanent addresses, and their personal information is frequently shared among numerous adults and agency databases," the CFPB statement said. "When bad actors take advantage of children passing through their care and use their personal information to take out loans, children in foster care may enter adulthood saddled with negative and clearly inaccurate credit histories that can hinder their progress toward financial independence."
