On February 12, 2019, the Consumer Financial Protection Bureau (CFPB or Bureau) published its Fall 2018 Semi-Annual Report to Congress. This is the first Semi-Annual Report released under Director Kathy Kraninger. The report covers the Bureau’s activities from April 1, 2018 through September 30, 2018, which is before Director Kraninger began her tenure as the Bureau’s leader in December 2019.
Credit Invisibility and Access to Credit
The report starts off by discussing the impact that credit invisibility has on consumers and their access to credit. Credit invisibility refers to consumers without credit records from the three major national credit reporting bureaus and consumers who have too little or too old information on their credit reports, resulting in the inability to calculate an accurate score.
To pinpoint the problem, the Bureau narrowed down the individuals most at risk of credit invisibility. Roughly 90% of consumers find their way out of credit invisibility – whether it be through a credit card or some other point of credit entry – by their mid-to-late twenties. Due to this, the report focuses on adults over the age of twenty-five to determine areas where credit invisibility is prevalent and what factors impact whether or not consumers make their way out of credit invisibility.
This issue appears to be rooted in geography as well as internet accessibility. Geographically, credit invisibility appears to be concentrated in rural and highly urban areas. Credit invisible consumers make up a large percentage of the population in rural areas. However, as a whole, more than two-thirds of credit invisible consumers reside in metropolitan areas, likely due to the higher population in urban areas. However, the report notes that access to a bank branch is not the only issue – internet access plays a large role as well. This is because many credit options today originate through online means.
The report also points out that most consumers do not shop around for mortgages, leading them to miss out on savings. Over 30% of consumers did not comparison shop for their mortgage, and over 75% applied for a mortgage with only one lender. Some reasons for this include constantly varrying interest rates, the belief that there is not much difference between what different lenders offer, and a reluctance to provide their personal financial information to multiple lenders, which is usually required to receive an accurate quote.
Consumer Complaint Analysis
According to the report, the Bureau received 329,000 complaints between October 1, 2017 and September 30, 2018. “The Bureau does not verify all the facts alleged in complaints,” says the report, “but gives companies the opportunity to confirm a commercial relationship with the consumer before providing a substantive response.” Of the complaints that passed this threshold, companies responded to 93%.
The report drills into the volume of complaints by credit product type. Credit or consumer reporting led the pack, accounting for 37% of the complaints, with debt collection next at 25%.
Editor’s Note: The credit products listed are not mutually exclusive. The remaining items were different loan or credit product types (e.g., credit card, mortgage, student loan, vehicle loan). For example, a complaint can be related to both a credit card and credit reporting, or a student loan and debt collection. This overlap creates risk of inaccurate data. Also, these are consumer selected categories and the report provides no indication that the process includes a check to ensure consumers selected the correct option.
The report offers a laundry list of Bureau enforcement actions in the same period. Some actions relevant to the ARM industry include:
- Triton Management Group, Inc., where a consent order was entered for allegedly deceiving consumers and violating TILA disclosures related to Annual Percentage Rates.
- National Credit Adjusters, LLC, where a consent order was entered for allegedly engaging in unfair and deceptive acts in the collection and sale of consumer debt.
- Citibank, N.A., where a consent order was entered for allegedly misleading borrowers into believing they had not paid their student loan interest that as eligible for tax deductions and incorrectly terminating borrower’s school deferments, resulting in late fees and additional interest.
- Security Group, Inc., where a consent order was entered in regards to in-person collection visits and collection calls to consumers’ workplaces and references as well as improper credit furnishing practices.
- Freedom Debt Relief, which is an ongoing action alleging that Freedom misled consumers about its ability to negotiate settlements with all creditors and about the circumstances under which it charges fees.
The report also discusses two widely-reported court cases filed by the CFPB. The first was against Weltman, Weinberg & Reis Co., LPA, a case which the court ruled against the CFPB and found that the law firm had sufficient attorney involvement in its collection case. The second was against RD Legal Funding, which counterclaimed the Bureau’s complaint alleging that the Bureau’s structure is unconstitutional. This case is currently on appeal in the Second Circuit.