CFPB Issues Semi-Annual Report to Congress

The CFPB has issued its semi-annual report to Congress.  The Report, which covers April through September of 2019, is mandated by Dodd-Frank and was released in conjunction with Director Kraninger’s testimony to the House Financial Services Committee.  Here are a few of our key take-aways.

Credit Reporting is a Focus of the Bureau.  The Report identifies credit scoring and credit reporting as a source of major concern for consumers.  Specifically, the report notes that the reporting of collections and bankruptcies have a significant impact on consumer credit scores and upon consumer lending. The Report also confirms what litigation trends are showing - credit reporting has surpassed debt collection as the most complained of consumer product.  In the twelve-month period ending September 30, 2019, credit reporting accounted for 43% of all consumer complaints.

Debt Collection Rule – Mum is the Word.  The Report is silent as to when a final debt collection rule will be forthcoming.  The Report simply indicates that the proposed rule was published and that the Bureau is reviewing the submitted comments with no indication as to when the final rule will be forthcoming.  Keeping in mind that the reporting period covered ended in September, perhaps that is not unusual except for the fact that the Report includes footnoted updates as to other issues addressed in the report.  Moreover, debt collection complaints no longer are the most complained of consumer product, having been surpassed by credit reporting.  For the year ending September 30, 2019, debt collection only accounted for 24% of all consumer complaints.

CFPB Issues Semi Annual Report to Congress

The CFPB has issued its Semi-Annual Report to Congress for the time period beginning April 1, 2018 and ending September 30, 2018. The Report is the first issued by newly confirmed Director Kathy Kraninger and outlines the actions taken by her predecessor in the April-September 2018 time period.

Significant Problems Facing Consumers.

The Report identifies two “significant problems” facing consumers shopping for or obtaining consumer financial service products: (a) credit invisibility and (b) mortgage shopping. “Credit invisibility” is not a new concern and was identified as an issue during Cordray’s tenure. The Report highlights a study released by the CFPB which examines the relationship of geography to credit invisibility. It is significant that there appears to be consensus from CFPB leaders (both liberal and conservative) that credit invisibility is an issue. The Report also identified “mortgage shopping” as an issue, pointing to studies indicating that consumers do not shop for the lowest interest rates when applying for a mortgage.

Consumer Complaints Reflect a Status Quo.

The Report also summarizes the consumer complaints received by the Bureau from consumers for the past year. There were no surprises here – the three front runners for complaints filed with the CFPB were credit reporting, debt collection and mortgage. 

Debt Collection Rules Are Coming!

Perhaps the most significant news in the Report was confirmation that debt collection rules are coming. For those that have followed the rulemaking, an advanced notice of proposed rulemaking was issued in late 2013. In the summer of 2016, the CFPB issued an Outline of Proposals for Third Party Rules and indicated that “[a]s part of its overhaul of the debt collection marketplace, the CFPB plans to address consumer protection issues involving first-party debt collectors and creditors on a separate track.” Later that summer, a third party SBREFA was held.

For two years, there was no further action. In October, however, the CFPB announced that it anticipated a Notice of Public Rulemaking in March of 2019. The Report confirms that a proposed rule is coming, but that it is likely to be a more narrowed version that what was suggested by Cordray’s CFPB in 2016. According to the Report, “the Bureau will work towards releasing a proposed rules concerning FDCPA collectors’ communications practices and consumer disclosures.”

What's Next?

Kraninger is expected to testify before the House Financial Services Committee on March 7th and the hearing is highly anticipated as it will be the first opportunity to see her interactions with the Democratic led committee. No doubt, the committee will have a number of questions concerning the Bureau’s decision to walk back the Payday Lending Rules.

CFPB Report Reveals Impact Removal of Public Records Has on Credit Reporting: Did it Make a Difference?

The CFPB recently issued its second Quarterly Consumer Credit Trends Report which examines the impact of changes to credit reporting regarding the reporting of civil public records.  In 2015, the three major credit reporting agencies (“CRAs”) entered into settlements with over thirty states.  The settlements required the three CRAs to implement minimum personal identifying information (“PII”) standards and data collection frequency requirements for civil public records appearing on consumer reports.  The settlements also resulted in the CRAs discontinuing their reporting of civil judgments.

The Report breaks civil public records into three broad categories: bankruptcies, judgments and tax liens. 

Bankruptcies:  The Report spends little, if any, time discussing bankruptcies because the number of bankruptcies being reported remained virtually unchanged after the new standards took effect.  The Report concludes this is an indication that bankruptcies were being reported with sufficient PII prior to July 1, 2017. 

Tax Liens and Civil Judgments:  The Report notes that the number of tax liens being reported dropped off significantly after July 1, 2017 with the reporting of state tax liens declining more than federal tax liens.  The reporting of judgment liens disappeared altogether in July 2017.  The Report then looked at the impact the reporting of tax liens and judgments had on credit scoring.  It should come as no surprise that with the new PII standards and removal of judgment liens, affected consumers’ credit scores increased.  The amount of increase, however, does not appear to be significant (0-15 points) and may be attributable to the fact that many of the consumers in those categories also had other derogatory tradelines.  What is interesting, however, is that the increase in scores did impact a fairly significant number of consumers (17%) and their placement into higher credit bands (for instance, movement from deep subprime to subprime).

As noted by the Report, there remains insufficient data to draw any conclusion as to whether the removal of public records will affect the predictability and accuracy of commercial credit scoring models.