Looking Ahead to 2024
The CFPB’s announcement of a proposed rulemaking to remove medical bills from consumers’ credit reports, as well as the special focus placed on medical debt in its annual report, indicates that reporting medical debt will continue to be a priority.
The continued federal agency scrutiny directed toward credit-reporting agencies (CRAs) by both the CFPB and the FTC, the prevalence of consumer complaints regarding issues related to CRAs, and the large-scale interagency cooperative action taken against TransUnion indicate that administrative oversight of CRAs may continue to be a significant focus.
Key Trends From 2023
In 2023, Goodwin tracked three public-enforcement actions related to credit reporting or credit repair services, representing half of the six actions tracked in 2022 but consistent overall with the average of four actions per year from 2017 to 2021.
In the News
Federal agencies appeared to be less focused on credit repair and reporting this year than last, with the CFPB and the FTC each issuing only limited guidance this year concerning credit denials by lenders using AI and information for landlords using consumer reports for tenant decisions, respectively.
CFPB Circular on AI Models and Adverse Action Notification Requirements
In September, the CFPB issued a circular on adverse action notification requirements, in which it explained that creditors using AI models to make credit decisions may not rely on CFPB sample forms of adverse action notices to satisfy their obligations under ECOA if those forms do not specifically and accurately indicate the principal reason for a credit denial. The CFPB explained that under ECOA and its implementing Regulation B, when a creditor takes an adverse action against an applicant, the creditor must provide the applicant with a statement of the “specific” reasons for the adverse action, and these reasons must “relate to and accurately describe the factors actually considered or scored by a creditor.” Accordingly, if a creditor relies on an algorithm that takes into account data not typically found in a consumer’s credit file or credit application, the creditor must describe the data considered with specificity and may not rely on overly broad or vague descriptions.
CFPB Proposes Rule to Remove Medical Debts From Credit Reports
In September, the CFPB announced a proposed rule that would require the removal of medical debts from credit reports. In announcing the proposed rule alongside Vice President Harris, CFPB Director Chopra stated that the rulemaking was intended to address concerns regarding consumers’ lack of choice in the selection of a healthcare provider and lack of complete advance information about the cost of treatment. The proposed rule is the culmination of a multiyear effort, with several reports released on the issue of medical-debt reporting in 2022 and 2023.
For example, in February, the CFPB issued a report indicating that although medical debt constitutes the majority of all collections on credit reports, medical-billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations. The CFPB also held a public hearing in July 2023 to learn about the impact of medical billing and credit reports on patients and families. Medical debt was also emphasized in the CFPB Annual Report, released in November 2023. This report explains that debt collectors may violate the FDCPA and the CFPA when they attempt to collect debts that are not actually owed because a consumer was charged for services that were never received or billed for more expensive versions of services than the services that were provided. The report also notes that states generally have the authority to enact and enforce their own debt-collection laws in addition to the FDCPA and Fair Credit Reporting Act (FCRA).
The CFPB’s proposed rulemaking also follows actions taken by the three largest national consumer reporting agencies — Equifax, Experian, and TransUnion — to reduce the impact of medical debt in credit reporting, including by doubling the time before unpaid medical collections can appear on a consumer report from six months to one year and committing to refuse to report medical debt when the amount owed is less than $500. CFPB Director Chopra has stated that the “planned rulemaking would not stop creditors from getting the legitimate information they need to make credit decisions – for instance, when it is necessary to process a medical forbearance.” Rather, Chopra believes that the rulemaking will “increase the validity of the data creditors are accessing and stop them from using information that says more about someone’s unexpected medical emergencies than their risk of late payments.”
CFPB Issues Annual Report of Credit and Consumer Reporting Complaints
The CFPB and FTC also continued to closely scrutinize CRAs in 2023. For example, the CFPB’s January 2023 annual report of consumer and credit reporting complaints detailed improvements and deficiencies in responses to consumer complaints made against the three largest CRAs. Notably, the CFPB noted that the CRAs improved in several key metrics related to consumer complaints, including providing more substantive responses, more tailored responses, and greater rates of relief in response to complaints. However, the CFPB flagged various areas as needing improvement, including the CRAs’ response time to complaints, which has increased from the past few years; their inadequate response in correcting consumer reports of inaccurate information; and their inconsistent handling of the same disputes.
2023 Enforcement Highlights
CFPB and FTC Reach Joint $15 Million Settlement With Credit Reporting Agency to Resolve Allegations of Inaccurate Tenant Background Screening Reports
In October, the CFPB and the FTC announced a joint-agency “record-breaking order” pursuant to which TransUnion agreed to pay $11 million in consumer relief and a $4 million civil money penalty that, if approved, will be the largest amount ever recovered in an FTC tenant-screening matter. The settlement resolves allegations that the credit reporting agency violated the FCRA by failing to ensure the accuracy of information in tenant background screening reports. When announcing the settlement, CFPB Enforcement Director Eric Halperin reemphasized that “credit reporting agencies have a responsibility to ensure that consumers’ personal data is accurate and secure. Credit reporting agencies function as gatekeepers, and no one should be barred from housing or be at risk of identity theft because a company fails to follow the law.”
CFPB Enters $8 Million Consent Order With Credit Reporting Agency for Alleged Failures to Timely Place or Remove Security Freezes and Locks
In October, the CFPB also entered into a consent order and stipulation with TransUnion over allegations that it failed to timely implement security freezes and locks on consumer credit reports upon request and falsely informed customers that these requests had been granted, despite knowing that this was not the case. Pursuant to the consent order, TransUnion agreed to identify and solve the issues with the business practices that are the basis of the alleged violations, and to pay both a $5 million penalty and $3 million in consumer redress.
CFPB Settles With Credit Repair Corporations to Resolve Advance Fee Allegations
In August, the CFPB entered into a settlement with several corporate entities that operate some of the nation’s largest credit repair organizations.. This settlement concludes a four-year lawsuit after a March 2023 partial summary judgment ruling that held that all of the companies collected illegal advance fees for credit repair services in violation of the TSR. Pursuant to the settlement, the companies agree to refrain from telemarketing credit repair services for 10 years and to pay $2.7 billion in consumer redress and $64 million in civil penalties.
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