An airtight credit dispute management process is key to avoiding scrutiny and hefty fines from the CFPB, but that’s not the only reason it’s critical.
“[A]ccurate data is at the heart of the credit reporting ecosystem, which is a key part of lending,” says Michelle Macartney, Managing Partner at Bridgeforce. And not all furnishers are doing a good job of managing their disputes.
According to Macartney, there are four major (and avoidable) mistakes furnishers make when it comes to dispute management:
Insufficient documentation of the dispute review. Most furnishers perform a decent dispute investigation, but they can't prove it. Without documentation of your dispute review, it didn’t happen, no matter how thorough it was. Furnishers must “retain enough information to evidence that they really did take the appropriate steps and performed a searching inquiry as part of the investigation,” says Macartney.
Inadequate procedural documentation. “Honestly, through a regulatory examiner's eyes, if it's not documented, it doesn't exist,” explains Macartney. Your process could be robust and meet all of the expectations of the regulators, but, just like documenting the dispute review, if the process isn’t clearly written and mapped out, it might as well not exist.
Inconsistent dispute handling. Some furnishers are “handling direct disputes in a manner that's slightly different than how they handle indirect disputes, or perhaps differences and how they handle disputes across multiple product types,” adds Macartney. This isn’t just bad practice, it can cause potential consumer harm, especially if the consumer has multiple accounts with the same lender.
Inability to integrate controls. Maybe your organization has done a great job of documenting your dispute review policy & procedure. Is it performing as expected? “Furnishers are sometimes challenged to implement appropriate controls, including those needed to ensure that they're meeting the regulatory SLAs for completing the investigations, and also to ensure that they are appropriately monitoring effectiveness and quality of investigations,” according to Macartney. She encourages furnishers to perform a root cause analysis when they've had to make a furnishing correction in order to determine whether the process is working as intended, and if not, where a change could be made.
Read or listen to all of Macartney’s insight into how furnishers can ensure their dispute process is operating at the level it needs to be to protect them from regulatory action or consumer complaints in our full interview below:
Below is the full text of our interview with Michelle Macartney:
[Erin Kerr]: Hi everyone, and thank you for joining me for this session of Solve It Strategically. I'm Erin Kerr, the director of Operations for The iA Institute, and I'm here today with Michelle Macartney, Managing Partner at Bridgeforce. Michelle, why don't you introduce yourself for the folks who don't know you
[Michelle Macartney]: Well, thank you Erin. And thank you for having me. I'm one of the managing partners at Bridgeforce, as you noted. We're a management consulting firm that supports our clients in consumer and small business lending payments and deposits across the whole lifecycle. At Bridgeforce, I jointly oversee our US consulting practice and lead our consumer reporting compliance practice. I've done something with consumer reporting data for over 30 years now and have worked on the compliance side of consumer reporting for a little over 10 years.
[EK]: Great. Well thank you for that introduction, Michelle. Today we're going to talk about credit dispute management and how you can solve that challenge strategically. Why don't we start by explaining why we're talking about the credit dispute management process now. Can you explain why it's such a pressing topic?
[MM]: Sure. Credit reporting and disputes has really been a pressing topic, I think, for about over 10 years for several reasons. One is that accurate data is at the heart of the credit reporting ecosystem, which is a key part of lending. So appropriate handling of consumer disputes related to data accuracy can alert a furnisher such as a bank or a collection agency to potential inaccuracies. Dispute volumes are continuing to grow. If you think about the current economic environment, we've seen an explosion in the Buy Now, Pay Later types of products, combined with consumers who are increasingly struggling to make their debt payments. All of this puts pressure on the consumer reporting process and the accuracy of information.
Add to that, the CFPB is taking a very pro-consumer view toward enforcement of the Fair Credit Reporting Act and continues to shine a really big spotlight on FCRA’s reporting and disputes practices. Anyone who reads industry news knows that they are not shy about issuing directives and consent orders when they examine a furnisher and identify data inaccuracies and inappropriate data handling or dispute handling. Furnishers are in a position where they need to figure out how to handle increased dispute volume during a time when there's also a lot of pressure to reduce operating expenses, while continuing to meet compliance expectations. All of these factors are contributing to a lot of activity in this area right now.
[EK]: Thanks so much for explaining why we need to talk about credit dispute management right now, Michelle. I want to talk a little bit about some of the trends that you're seeing. What kind of trends are you seeing with respect to the FCRA?
[MM]: One [trend] is that medical collections have received a lot of press because of complexities involved with the multiple billings and insurance questions that sometimes result in collections appearing in a credit report erroneously. The CFPB has received a tremendous number of complaints about that process along with other consumer reporting concerns. Those complaints and their observations from previous examinations makes this a very aggressive consumer protection issue for the CFPB. I’d say they are laser focused on ensuring that furnishers provide accurate data, and that consumer reporting agencies also take appropriate measures to produce accurate consumer reports.
With all of that furnishing comes disputes, and the CFPB wants to ensure that all parties that are involved in furnishing [data], are investigating disputes in a sufficiently comprehensive manner and acting upon the outcomes of the investigation when those indicate that the trade line correction is warranted. So lots of focus in this space.
[EK]: Excellent. Thanks for breaking that down. What are some of the biggest risks that you've identified with regulatory examinations?
[MM]: When we're talking about disputes, we see that most furnishers perform a decent disputes investigation, but they can't prove it. So one of the biggest challenges that we see is that furnishers don't retain enough information to evidence that they really did take the appropriate steps and performed a searching inquiry as part of the investigation.
For example, if a consumer has filed a dispute of a 30 day late payment, they see on their credit report and they think they paid that their bill that month, a dispute specialist may go through the process and find every step of the way that their records are correct and the consumer really didn't make a payment. But when a regulatory examiner, or even an external auditor, comes in and looks at that dispute and says, can you tell me what steps you took to arrive at that conclusion?
Our clients will describe what they did and perhaps point to comments that they even made about their investigation in a system of record. But they often cannot show the data used as the basis for how they adjudicated the dispute. I really think that's one of the biggest areas of exposure for most of the organizations we work with.
A related area is inadequate procedural documentation. I see a lot of furnishers who truly are doing an excellent job of handling disputes, but their procedures don't illustrate the nature of the ‘reasonable’ investigation. Honestly, through a regulatory examiner's eyes, if it's not documented, it doesn't exist.
One other area where we see risk is handling direct disputes in a manner that's slightly different than how they handle indirect disputes, or perhaps differences and how they handle disputes across multiple product types. Not only is that a regulatory risk, but it can lead to a less than satisfactory experience for a consumer who may have multiple accounts with the same lender.
Finally, the other risk that we see is furnishers are sometimes challenged to implement appropriate controls, including those needed to ensure that they're meeting the regulatory SLAs for completing the investigations, and also to ensure that they are appropriately monitoring effectiveness and quality of investigations. Performing sufficient root cause analysis when they've had to make a furnishing correction is also another gap that we sometimes see.
[EK]: It sounds like the biggest risks from your perspective are a lack of documentation, lack of controls or insufficient controls, and a lack of root cause analysis, and then also some inconsistency with how some of these disputes are handled. Is that accurate?
[MM]: Yes, I think those are the ones that we see most often that are a regulatory point of exposure.
[EK]: All right. Well thank you so much for explaining those. I know one of the other hot topics around credit reporting is credit hygiene. The CFPB has released multiple advisory opinions recently, basically saying to clean up your act when it comes to data hygiene and credit reporting. What are the industry trends that you're seeing around credit hygiene right now?
[MM]: We've been seeing furnishers really take heed of the CFPB’s public expectations, and they're being more proactive to establish controls around data accuracy. When we look at that, we consider it in three different pillars.
One is to proactively self-identify issues in the Metro2 file, such as missing and illogical data, preferably with an automated tool that can examine all the trade lines in the file versus only doing a sample and examine not only individual monthly files, but also do some evaluation of how data progresses month over month. By doing this, furnishers can identify and correct potentially serious issues.
The second is to take a deep dive into the systems that generate the Metro2 files to review and document the logic and data used to produce the file. We refer to this as detailed Metro2 data mapping and conversion documentation. By going through the process to generate that documentation, the furnisher can identify any potential inaccuracies with the technical generation of the furnishing file.
Third, we're seeing more awareness of how the upstream operational processes affect consumer reporting accuracy. For example, a change in collections treatment options could affect the data that ends up in a Metro2 file. I often advise our clients that the furnishing owners must always have a seat at the table when we're talking about change management, and that applies to both technology and operational changes.
[EK]: Well, thank you for outlining those trends, Michelle, and for answering all of my questions about credit dispute management. Do you have any closing thoughts for this session of Solve It Strategically?
[MM]: I’d say establishing appropriate procedures and controls, ensuring consistent and comprehensive investigations, and having the ability to evidence reasonable investigations really equates to your ‘get out of jail free card’.
When we're talking about regulatory examinations, being able to prove that you're doing what you say you do is really critical for furnishing. It's critically important that furnishers are investing time and using technology to ensure that the data they're sending to the consumer reporting agencies is as accurate as possible. The logic to generate Metro2 files can become complex and it's easy to see how errors can creep into the process. So investing time upfront, along with taking a holistic view of the end-to-end furnishing process, should save some time on the backend that would otherwise be needed to fix issues. And a bonus is fewer furnishing inaccuracies should help drive down dispute volume.
That's an excellent point, Michelle. Thank you so much for breaking that down. And thank you so much for joining me today, Michelle.
Folks, if you're interested, you can download a demo for a solution that Bridgeforce together with PMG can offer to you to solve this challenge strategically in a similar way that Michelle just outlined. It's called Case Central and you can get a demo following this video.
Thanks a lot, Michelle, for your time today, and thanks everyone for watching.
Thank you, Erin.