Consumer and Credit Reporting: Key Regulations for Banks and Credit Unions Today

According to several publications, consumers complain about credit reporting more than anything else. And the biggest complaint has been around information inaccuracies, such as personal information belonging to somebody else or an identity theft. Consequently, it comes as no surprise that there is an increased focus and scrutiny on credit reporting from regulators. According to the latest reports, the most common mistakes found on credit reports include, but are not limited to:

• Incorrect address
• Incorrect name
• Wrong middle initial or name
• Incorrect spelling of name
• Incorrect phone number
• Closed accounts reported as opened

Outcomes from Credit Report Inaccuracies

Credit reporting plays a critical role in informing key life decisions of consumers, such as employment, insurance, housing, making even simple inaccuracies can be detrimental.

But if accuracy, fairness, and privacy of information in the files of consumer reporting agencies are so important, why are there so many errors?

‍A common response may be that, with information coming from so many sources, errors are inevitable. The reality is, however, incorrect data in a consumer’s credit file will make the person look “risky” and can result in less favorable credit terms – or even denying credit. Imagine interviewing for that perfect job, where the employer requires a credit screening, or finding the right apartment, only to be passed-over due to an error in your credit report. Additionally, there is a significant cost for non-compliance.

According to the Consumer Financial Protection Bureau (CFPB) report for 2021 (the most current), there were $13.5 billion ordered as a result of enforcement actions in compensation, principal reductions, canceled debts, and other consumer reliefs – and $1.8 billion in penalties. States also have authority to pursue violations of federal consumer protection laws. Congress has enhanced states’ enforcement abilities to enforce the Consumer Financial Protection Act’s consumer protection provisions. Some of the states’ actions are brought in coordination with the CFPB. Furthermore, CFPB enforcement actions do not halt state actions.

With large-scale enforcement of consumer protection federal laws, banks and credit unions that report consumer data need to be up-to-date with laws and regulations. The lack thereof can result in hefty monetary fines.        

Reporting Cadence for Banks and Credit Unions

Banks and credit unions are not obligated to report consumer credit information; but, in general, major banks report consumer information to all three credit bureaus, while credit unions report information to one or two credit bureaus. Every effort should be made by banks and credit unions to ensure the information provided is correct, timely, and following applicable laws and regulations. Banks and credit unions typically report to the credit bureaus once a month – or at least every 45 days. Some lenders may update information more frequently. The actual day to report credit information is at the discretion of each credit lender. Typically, it takes place at the end of the month. For credit cards, it is usually the day they issue charges for the most recent billing cycle (e.g. statement date). Some credit cards report consumer information in the middle of the month, while others at the end of the month.  

Credit Reporting Regulations to Follow

The major federal laws that regulate consumer credit are:

• Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.) - Primarily guides how third-party collection agencies contact consumers, but also prevents collectors from reporting unverified debts. 12 CFR Part 1022

• Fair Debt Collection Practices Act (15 U.S.C. § 1692d)  - Establishes legal protection from abusive (i.e. harass, oppress, threat, obscene or profane language) debt collecting practices. 12 CFR Part 1006.14
• Truth in Lending Act (15 U.S.C. § 1601 et seq.) - Establishes legal protection and ensures consumers are treated fairly and are informed about the cost of financial products.   14 CFR Part 374.3  

• Equal Credit Opportunity Act (15 U.S.C. § 1691 et seq.) - Ensures consumers have equal access to credit and restricts lenders and credit cards issuers from using certain information to qualify (i.e. loans) a consumer, which includes race, color, religion, marital status, age, and whether you receive public assistance.   12 CFR Part 1002

The Bottom Line

Although there is no obligation for banks and credit unions to report consumer credit information, most do and, as such, there is a big spillover effect. Since credit information is part of consumer livelihood when it comes to procuring loans, housing, employment or insurance, it means that financial institutions, alongside credit report providers, are responsible for ensuring the personal information is not only correct but up-to-date.

Failing to comply with the latest consumer protection laws and regulations can result in enforcement actions and hefty penalties reaching billions of dollars.

If your financial institution would like to have an automated way to track and update regulatory requirements across all topics, including consumer protection laws, make sure to take a look at Regology’s regulatory change management solution page or download our free brochure.