Keeping credit bureau data accurate is a massive task the industry has toiled with since credit cards became a mass-market business, dating back to the 1960s. You can learn more about the historical development of federal legislation and requirements at this link maintained by the Federal Trade Commission. Still, the short story is that furnishers (the financial institutions that update credit bureau records) send more than a billion records a month to credit bureaus to update statuses.
And with that volume comes errors. Even if the process were “purer than Ivory Snow,” the process would be 99.44% accurate. Those 56 basis points would be 5.6 million errors on a billion updated transactions.
While 5.6 million errors sounds small when measured against one billion, it can indeed matter if you are applying for an auto loan, credit card, or mortgage. It might not hurt you if you are in the market for a BNPL, but this could make a difference if you want credit with an insured financial institution.
What is important to note is that the Federal Trade Commission and the Consumer Financial Protection Bureau watch credit bureau reporting like a hawk. So it is an appropriate and worthy subject when you consider the importance of credit bureau reporting and its impact on consumers and lenders. As a matter of fact, the November 2020 report on Payment Amount Furnishing & Consumer Reporting indicated that in March 2020, there were 1,011 million tradeline updates, 453 million coming from credit cards, 212 million coming from retail revolving (aka private label) credit cards, 112 million from student loans, 94 million from auto finance, 70 million from mortgages, and 60 million from other categories. That’s a lot of data.
CFPB also issues an Annual Report on Credit and Consumer Reporting Complaints, the most recent version published on January 5, 2022. The report indicates that the reporting process is far from perfect, but know that this is a hot regulatory topic that will not go away. In one of the bullets, the Executive Summary describes the current environment:
From January 2020 to September 2021, the CFPB received more than 800,000 credit or consumer reporting complaints. Of these complaints, more than 700,000 were submitted about Equifax, Experian, or TransUnion. Complaints submitted about the NCRAs accounted for more than 50% of all complaints received by the CFPB in 2020 and more than 60% in 2021. In addition, the CFPB’s analysis shows that consumers are submitting more complaints in each complaint session and are increasingly returning to the CFPB’s complaint process.
According to CFPB, consumer harms have these three root problems:
Consumers are caught in an automated system where they are unable to have their issues addressed
Consumers waste time, energy, and money to try to correct their reports
Consumers are caught between furnishers and the NCRAs
Mercator covered the bureau reporting issue in 2018 in a document titled Credit Card Dispute Management: Transactions in the Billions Bring Exceptions in the Millions. We noted advances made by both Mastercard and Visa to streamline complaint reporting and accelerate dispositioning through automation. As a result, we estimated the resolution cost for credit card disputes exceeds $500 million annually. Still, it is a small price to pay when considering the impact on consumers, industry fraud losses, and the requirement for irrefutability in payments.
For now, know that credit bureau accuracy is a hot button for regulators, and there is a good reason. Reporting has to be purer than Ivory Snow. It needs to carry the importance of airline safety.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
