CFPB Publishes Credit Score Study
This post was written by Roberta G. Torian.
On September 25, 2012, the Consumer Financial Protection Bureau published a study on credit scores titled "Analysis of Differences between Consumer-and-Creditor Purchased Credit Scores." This report is a follow-up to the July 19, 2011 CFPB report on "The Impact on Differences between Consumer-and-Creditor Purchased Credit Scores."
Section 1078 of the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the CFPB to conduct a study comparing credit scores sold to creditors with those sold to consumers by nationwide credit bureaus, and to determine whether differences in those scores result in harm to consumers.
This study analyzed credit scores from three leading credit bureaus – Transunion, Equifax, and Experian – and reviewed 200,000 credit files. The findings of the study were the following:
- 20 percent of consumers would likely receive a meaningfully different score than the creditor receives. "Meaningfully different" means that the consumers would likely qualify for different credit offers, better or worse, than they would expect to get based on the score that they purchased.
- Score discrepancies may generate consumer harm. If consumers believe that their score is higher than that which the creditor has, the consumers may waste time and effort applying for loans that they are not qualified for or may accept offers for credit that are on worse terms than they actually could qualify for.
- Consumers are unlikely to know that the scores they have purchased are different from the scores that are provided to creditors.
Consequently, the CFPB is of the opinion that consumers cannot exclusively rely on the credit score that they purchase in order to understand how lenders will evaluate their credit-worthiness. The report makes the following recommendations to consumers for evaluating credit scores that they receive:
- Shop around for credit. Even if scores purchased or received by consumers differ from those that lenders use, the lenders may offer different loan terms based on different risk models or as a result of competitive pressures. In addition, consumers should not rule out seeking lower-priced credit simply because of assumptions they make about the credit score they have received.
- Consumers should check the credit reports for accuracy and dispute any errors in the reports. Inaccurate information in a consumer’s file may be the difference between a consumer being approved or denied a loan.
Effective September 30, 2012, the CFPB will begin supervising consumer reporting agencies. The CFPB supervisory authority will cover 30 companies that account for 94 percent of the market’s annual receipts. The focus of the CFPB examiners will be to verify that consumer reporting agencies are complying with federal consumer financial law, including whether the companies are using and providing accurate information, properly handling consumer disputes, making disclosures available as required by law, and preventing fraud and identity theft.
Roberta G. Torian is a partner in the Financial Services Regulatory Group, resident in the Philadelphia office. Roberta is formerly general counsel of Advanta Bank and senior counsel of PNC Bank, N.A., and has held numerous leadership roles in the American Bar Association, including Chairperson of the International Subcommittee of the Consumer Financial Services Committee.