Consumer Financial Protection Bureau Issues Report to Congress on Differences Between Credit Scores Provided to Consumers and Used by Creditors
On July 19, 2011, the Consumer Financial Protection Bureau (“CFPB”), released its report to Congress concerning the differences between credit scores obtained by consumers and scores used by creditors. The report examines the various reasons why credit scores available to consumers sometimes vary from the score used by a creditor, including:
- Use of different scoring models;
- Lenders and consumers may not use the same CRA;
- Data in the consumer’s credit reports change between the time the consumer purchases a score and the time the lender obtains the score; and
- A consumer and a lender could possibly access different reports from the CRA, if they were to use different identifying information about the consumer.
The report describes the credit industry as a whole, the credit scoring process, how credit scores are obtained and used, as well as how the differences between credit scores obtained by consumers and those provided to creditors “could disadvantage consumers.”
The CFPB’s report to Congress – mandated by Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – comes two days before the CFPB assumes its role on July 21, 2011, as the independent bureau within the Federal Reserve System that is charged with primary responsibility for rulemaking and enforcement of consumer protection statutes covering the activities of banks, credit unions, debt collectors, payday lenders and other financial services companies. Also, on July 21, 2011, the final rules to implement credit score and other disclosure obligations in connection with adverse action and risk-based pricing notices provided to consumers become effective, that previously were discussed here.
This report is by no means the end of the CFPB’s study of credit scoring. The CFPB is undertaking “a substantial data collection and analysis project” to create a “database” in order to further analyze and understand the differences between credit scores obtained by consumers and provided to creditors. In consultation with the CFPB staff, the nationwide consumer reporting agencies (“CRAs”) - Trans Union, Equifax, and Experian – have agreed to construct a random sampling of 200,000 consumer reports. Also, the CFPB is obtaining credit scores from the CRAs and Fair Isaac Corporation. The CFPB then will engage in an examination of the differences between credit scores sold to consumers and scores sold to creditors to compare these variations between credit scores.
A copy of the report to Congress is available here.
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation Group has successfully litigated a wide individual and class action litigation involving the Fair Credit Reporting Act, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.
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