The three credit reporting agencies (Equifax, TransUnion and Experian) are making significant changes in response to a recent report from the Consumer Finance Protection Bureau (CFPB). These changes may impact the way a lender searches for information in order to accurately assess an individual applicant’s credit-worthiness.
The CFPB has focused on the credit reporting function due to historical difficulties with duplicative or mixed file reporting, dispute handling, and accuracy in reporting on public records data such as judgments and tax liens. Because inaccuracies can impact access to credit for consumers, and may also impact how much the consumer will pay for the credit they do obtain, the CFPB prioritized a review of the reporting/amalgamating process done by the credit reporting agencies.
Following the CFPB report, as of July 1, public records data will be excluded from consumer credit reports provided by the big 3 unless they meet certain criteria, including a minimum of personal identifying information, and courthouse visits of not less than every 90 days to update the records. It is expected that the vast majority of the existing records will not meet the new tests and will be deleted from existing reports.
What does this mean for lenders? Additional diligence may be required in cases where the existence of a lien or judgment would be critical to the credit decision. Of course, the value of such diligence must be weighed against the cost and time involved in obtaining it. The loan size, type, and other information known about the applicant will no doubt be factors to consider. A lender will be well advised to revisit its written policies and take steps to ensure consistency in this, as in all aspects of the provision of credit.