CRA Updates Pose Risks to Lenders

The top three credit-reporting firms are set to remove certain civil-judgment and tax-lien data from reports.

What happens to lenders when Equifax, Experian, and TransUnion make a reporting change that improves the credit scores of over 10 million U.S. consumers? We’re about to find out.

Credit reporting agencies (CRAs) collect a wide variety of credit information, including a borrower’s debt load, credit limits, names of current creditors, payment history, and other financial data. Then, they use this data to generate credit reports and scores.

Starting July 1, the three top CRAs will stop using incomplete and unchecked data about civil judgments and tax liens.

According to the Wall Street Journal, FICO projects that because of the update roughly 11 million consumers will see a credit score increase of about 20 points, and about 700,000 people will see a boost of over 40 points.

This could put lenders at risk.


The Update

How the update will work is if a CRA’s tax-lien or civil-judgment data doesn’t include the consumer’s name, social security number, address, and date of birth, then the data will be removed from the report.

These changes will affect existing data, as well as data collected going forward.

Also, CRAs will remove data accumulated from any public court records that aren’t checked for updates at least every 90 days.


Altering Your Risk Assessment Model

A profitable risk assessment model is the lifeblood of a credit institution. It’s how lenders avoid an unsustainable amount of defaults. To function properly in an ever-changing market, a risk assessment model must adapt.

If you need help accounting for market changes, contact your dot818 account manager. We can help you tweak your filters to help improve ROI.


CRAs and the CFPB

Our guess is that the CFPB has a hand in this update. Here’s our reasoning.

February’s CFPB Monthly Complaint Report shows Equifax, TransUnion, and Experian at spots two, three, and four (respectively) on the “Top 10 Most-Complained-About Companies” chart.

This is nothing new. Since the CFPB started publishing its Monthly Complaint Report in July of 2015, these three CRAs have consistently been the most complained about financial companies in the U.S, taking the top three spots most months.

According to the CFPB, here are the three biggest problems consumers have with CRAs:

  • Difficulty disputing credit report complaints
  • Inaccurate information showing up on credit reports
  • Confusion about credit scoring, particularly how scores vary between agencies

In January, the CFPB ordered TransUnion and Equifax to pay $17.6 million in restitution to customers for misstating the cost and usefulness of the products they sold, and for luring customers into recurring payments.

The CFPB has had its sights set on CRAs since the beginning. Last week, the CFPB released a report detailing “the problems in the credit reporting industry that the Bureau has uncovered and corrected through its oversight work.”

The report claimed that the CFPB has helped fix data accuracy issues, repair the dispute process, and clean up incorrect information from furnishers.

So, it’s probably safe to guess that the CFPB had something to do with the CRAs removing certain civil judgment and tax-lien data from credit reports. More changes are likely coming soon.


What Now?

The CFPB is operating on borrowed time. It can be hard to keep up with a Bureau that doles out its punishments and orders at an almost frantic rate.

But it’s important to keep tabs on these changes so you can respond to them correctly. We’ll do our best to help. Please reach out to your account manager if you have any questions.