Purpose and Executive
Summary
This paper describes the credit reporting infrastructure at the three largest nationwide consumer reporting
agencies (NCRAs) – Equifax Information Services LLC (Equifax), TransUnion LLC (TransUnion), and
Experian Information Solutions Inc. (Experian) – with a special focus on the infrastructure and processes
currently used by the NCRAs to collect, compile, and report information about consumers in the form of
credit reports.
Credit reports play an increasingly important role in the lives of American consumers.
Most decisions to
grant credit – including mortgage loans, auto loans, credit cards, and private student loans – include
information contained in credit reports as part of the lending decision. These reports are also used in other
spheres of decision-making, including eligibility for rental housing, setting premiums for auto and
homeowners insurance in some states, or determining whether to hire an applicant for a job.
As the range and frequency of decisions that rely on credit reports have increased, so has the
importance of assuring the accuracy of these reports. These three NCRAs occupy the hub of
what can best be described as a national credit reporting system. They, the entities who report
information about borrowers to them (furnishers), providers of public records information, and
consumers all play roles which affect the accuracy of the information reported in consumer
credit reports.
In its supervision of large banks,
the Consumer Financial Protection Bureau (CFPB) has already begun
examining the processes institutions use to assure accuracy when furnishing information to the NCRAs and
when responding to consumer disputes about information contained in their credit reports. On July 20,
2012 the CFPB published its larger participant rule permitting it to supervise companies with annual receipts
from “consumer reporting,” as defined in the rule, of over $7 million. Prior to the rule’s effective date, the
CFPB’s Office of Deposits, Cash,
Collections and Reporting Markets (DCCR) consulted existing reports,
industry, and public sources in order to be able to depict key dimensions of, and processes in, the reporting
and disputing of information in the U.S. credit reporting system.
This paper summarizes learnings from DCCR’s research and analysis. It is intended as a public service to
provide basic descriptions of, and statistics regarding, the underlying processes by which consumer data is
reported, matched to consumer files, and reviewed when consumers dispute its accuracy.
The CFPB has
not sought to verify information contained in this paper through its supervisory authorities. Nor does the
paper represent any learnings or conclusions about whether any specific market participants are in
compliance with particular statutes or policies pertaining to consumer reporting.
This paper depicts the types of information movements and processes that are most essential to
the compiling of credit reports and to the management of credit report accuracy. The Fair
Credit Reporting Act (FCRA) and its implementing regulations impose legal duties both on NCRAs and on data furnishers relating to the accuracy of credit report information.1 All parties
to the credit reporting system have a vital interest in achieving accuracy in credit reports.
Those
who use these reports to make decisions rely upon the accuracy of the information they receive.
To the extent the information is inaccurate, that can lead to incorrect decisions to the detriment
of decision makers and consumers alike.
Key Learnings
• The U.S. credit reporting system encompasses a vast flow and store of
information. The NCRAs each maintain credit files on over 200,000,000 adults and
receive information from approximately 10,000 furnishers of data. On a monthly basis,
these furnishers provide information on over 1.3 billion consumer credit accounts or
other “trade lines.”
• Furnishing credit information to the NCRAs is a highly concentrated activity,
both by institution and by product. The 10 largest institutions furnishing credit
information to each of the NCRAs account for more than half of all accounts reflected
in consumers’ credit files. Likewise, retail and network-branded revolving credit cards
account for nearly 60% of all trade lines.
• The NCRAs have designed a number of processes to standardize, automate, and
perform quality controls on incoming data. The NCRAs report that before
accepting information from data furnishers, they perform certain background and
quality control checks on would-be-furnishers. Most furnishers – and all new furnishers
– provide consumer credit information electronically to one or more NCRAs using a
standardized format called Metro 2 that the Consumer Data Industry Association
(CDIA) developed and refined over time.
When data files are received, the NCRAs also
perform quality checks prior to adding the data to credit files.
• The “matching” process by which the NCRAs assign incoming trade line data to
consumer-specific credit files represents the central step in the organization of
credit data to permit the creation of credit reports on individual consumers. The
NCRAs manage this process through unique data architectures each has developed and
which vary from each other. The challenge of accurately matching trade line
information to the correct consumer is made complex by the absence of any objective,
third party source of information, by similarities in consumers’ names and addresses
(particularly among family members), and by limitations, colloquial variations, and
inaccuracies in the personally identifying information provided by consumers and
furnishers that occur when consumers first apply for credit products.
•
Inaccuracies can enter into credit reports in a number of ways. Inaccuracies can
occur if consumers provide inaccurate data when applying for a loan or if the creditor
who furnishes data to the credit bureau inputs consumer information to its systems
inaccurately. Inaccuracies can occur when the bureaus match information about a
consumer from a particular data furnisher to the wrong individual consumer’s file.
Inaccuracies can also come from errors or the lack of identifying information in
government records. Inaccuracies can occur when consumers have become victims of
identity fraud or identity theft.
•
The extent to which credit reports contain material inaccuracies is uncertain.
There have been conflicting reports on this issue. The Federal Trade Commission
4 CONSUMER FINANCIAL PROTECTION BUREAU, DECEMBER 2012
(FTC) is expected to release results from its decade-long study on credit report accuracy
• Consumers’ right to dispute information contained in their credit reports under
the FCRA – and furnishers’ and the NCRAs’ obligation to respond – provide
important checks on inaccurate credit reports. Among other protections,
consumers also have the right to obtain a copy of their credit file and to receive notice
of adverse actions involving credit reports with a resultant right to a free disclosure.
These disclosures are one way for consumers to dispute information in their file they
believe is not accurate or complete. The CFPB estimates that at least 40,000,000
consumers obtain a copy of their credit file from one or more of the NCRAs annually.
•
The NCRAs received approximately 8 million contacts from consumers in 2011 to
initiate disputes about the accuracy of one or more items on their credit files. In
total, these 8 million contacts resulted in 32 – 38 million disputed items on consumers’
credit files. The rate at which the credit account information depicted in credit files is
disputed varies widely based upon the type of data furnished.
• Collections items are a major source of disputes.
Items reported by collection
agencies reportedly have the highest dispute rates, averaging 1.1% of the trade lines they
furnish in a given year. Almost 40% of disputes handled by the NCRAs on average can
be linked to collections items.
•
The NCRAs have created an automated system for handling consumer disputes
and forwarding them to data furnishers. Through this automated system – called eOSCAR – the NCRAs provide furnishers with one or two numeric codes indicating the
nature of the consumer’s dispute and in a minority of cases (26%), explanatory text. At
present, the NCRAs generally do not forward documentation that consumers submit
with mailed disputes or provide a mechanism for consumers to forward supporting
documents when filing disputes online or via phone. The NCRAs resolve an average of
15% of trade line disputes internally (without furnisher involvement) and refer the
remaining 85% of the disputes they receive from consumers concerning trade lines to
data furnishers through e-OSCAR. The furnisher of the disputed data is then required
by the FCRA to investigate the dispute and report back to the NCRA.
•
The NCRAs’ reliance on furnisher responses as the principal means of resolving
disputes is a source of controversy. The NCRAs report that in seeking to maximize
accuracy and in resolving disputes, they rely on furnishers meeting their obligations
under the FCRA to report information accurately and to respond to disputes
appropriately. Consumer advocates have argued that the NCRAs have an obligation to
monitor and manage furnisher practices as part of their broader obligation to achieve
credit report accuracy.
• While the measurement of credit report accuracy and the level and causes of
inaccuracies present challenges, periodic measurement of credit report accuracy
holds promise for establishing baseline accuracy levels and measuring
improvements over time.
