Educate that Fair Credit Reporting Act violations by Santander led to material financial repercussions.
My name is Steve Hart, and I am a contributing journalist for Compliance Mitigation. I am a Partner at Conformity 360, a compliance consulting firm, serving as the resident subject matter-expert in buy-side Compliance. Prior to joining Conformity360, I was Chief Compliance Officer (“CCO”) for the prestigious firm Allen & Company, and prior to that, served as the Global Chief Administrative Officer for Compliance at BlackRock, the world’s largest asset management company. I hold an Investment Adviser Core Certification, an M.S. in Banking and Financial Services from Boston University and a B.A. in Political Science from the University of Pennsylvania.
Having worked as the CCO for Registered Investment Advisers (“RIAs”) with the Securities and Exchange Commission (“SEC”), I have been through numerous regulatory audits and examinations. Experience gives me insight into how the regulatory bodies conduct investigations and attempts to obtain enforcement actions, often including jail and prison sentences.
After completing this case study, the participants will be able to:
- Define the Fair Credit Reporting Act (“FCRA”).
- Understand what the Consumer Financial Protection Bureau does.
- Define the Consumer Financial Protection Act.
- Understand what prompts the Bureau to bring enforcement actions against retail businesses.
- Identify one’s rights under the Fair Credit Reporting and the Consumer Financial Protection Act.
FCRA, Consumer Financial Protection Bureau (“the Bureau”), Consumer Financial Protection Act (the “Act”), Consumer Reporting Agency (“CRA”), Regulation V
FCRA is a federal law that regulates the collection of consumers’ credit information and access to their credit reports. It addresses the fairness, accuracy, and privacy of the personal information contained in the files of the CRA’s.
FCRA is the primary federal law that governs the collection and reporting of credit information about consumers. Its rules cover how a consumer’s credit information is obtained, how long it is kept, and how it is shared with others, including consumers themselves.
The Federal Trade Commission (“FTC”) and the Bureau are the two federal agencies charged with overseeing and enforcing the provisions of FCRA. Many states also have their own laws relating to credit reporting.
The three major credit reporting bureaus, Equifax, Experian, and TransUnion, as well as other, more specialized companies, collect and sell information on individual consumers’ financial history. The information in their reports is also used to compute consumers’ credit scores, which can affect, for example, the interest rate they’ll have to pay to borrow money.
FCRA describes the kind of data that the bureaus are allowed to collect. That includes the person’s bill payment history, past loans, and current debts. It may also include employment information, present and previous addresses, whether they have ever filed for bankruptcy or owe child support, and any arrest record.
New studies show FCRA also will limit who is now allowed to see a credit report and under what circumstances. For example, lenders may request a report when someone applies for a mortgage, car loan, or another type of credit. Insurance companies may also view consumers’ credit reports when they apply for a policy. The government may request it in response to a court order or federal grand jury subpoena, or if the person is applying for certain types of government-issued licenses. In some, but not all, instances, consumers must have initiated a transaction or agreed in writing before the credit bureau can release their report.
For example, employers can request a job applicant’s credit report, but only with the applicant’s permission. The Bureau is also playing a larger part in enforcement actions. The Bureau is a regulatory agency charged with overseeing financial products and services that are offered to consumers. It is divided into several units: research, community affairs, consumer complaints, the Office of Fair Lending, and the Office of Financial Opportunity. These units work together to protect and educate consumers about the various types of financial products and services that are available.
The Bureau was created by the Act. Specifically, the Bureau helps consumer finance markets work more efficiently by providing rules, enforcing those rules, and empowering consumers to take control of their personal financial lives. The Bureau works to educate and inform consumers against abusive financial practices, to supervise banks and other financial institutions, and to study data to better understand consumers and the financial markets in which they participate.
The Bureau facilitates the development of the consumer finance marketplace. Through this facilitation, consumers have access to transparent financial prices and risk and can become aware of deceptive and abusive financial practices. The Bureau utilizes four very specific strategic goals.
- The first goal is to prevent financial harm to consumers while promoting good financial practices.
- The second goal is to empower consumers to live better economic lives.
- The third goal is to inform the public and policymakers with data-driven analytical insights.
- The fourth and final goal is to further advance the CFPB’s overall impact by maximizing resource productivity.
The Bureau issues a consent order against Santander Consumer USA Inc. (“Santander”). Santander is a leading originator and servicer of non-prime auto loans and leases. Santander furnishes credit information on the auto loans it services by sending monthly data files to CRAs. The Bureau finds that for three years Santander violates FCRA by furnishing consumer loan information to CRAs that it knows or reasonably should have known is inaccurate.
Santander fails to promptly update and correct information; it furnishes information to CRA that it later determines is incomplete. Santander fails to provide the date of first delinquency on certain delinquent or charged-off accounts and fails to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs.
The Bureau finds that Santander furnishes consumer loan information to CRAs, including failing to furnish accurate information regarding whether accounts are open or closed and whether consumers are carrying a balance or obligated to make future payments.
The Bureau finds that Santander fails to promptly update and correct information it furnishes to CRAs that it later determines is incomplete and fails to provide the date of first delinquency on certain delinquent or charged-off accounts. The Bureau further finds that Santander fails to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs.
Santander’s conduct violates FCRA and its implementing regulation, Regulation V. Further, these violations of the FCRA and Regulation V constitute violations of the Consumer Financial Protection Act.
Under the terms of the consent order, Santander must correct all inaccuracies and errors that the Bureau identifies and take certain steps to improve and ensure the accuracy of the consumer information it provides to CRAs. These steps include conducting monthly reviews of account information to assess the accuracy and integrity of information Santander furnishes. Santander must also establish and implement reasonable policies and procedures regarding the accuracy and integrity of information it furnishes to CRAs.
The consent order requires Santander to take other certain steps to prevent future violations and imposes a $4,750,000 civil money penalty.
In at least 9,730 instances for 3 years, Santander fails to report a “date of filing delinquency,” leaving this field blank, when it reports other information indicating that several of its accounts are more than 120 days delinquent or have been charged off. This error causes incorrect delinquency information to remain on a consumer’s credit report for longer than it should, and, in turn, this results in another credit report user charging a higher cost of credit or denying credit to an affected consumer.
Santander fails to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers that it furnishes to CRAs. The company’s policies and procedures do not require employees to add information required in the account file after Santander sells accounts to another company. When furnishers like Santander sell accounts, they are required to identify the purchaser.
Santander now must create and retain the following business records:
- all documents and records necessary to demonstrate full compliance with each provision of the Bureau’s consent order, including all submissions to the Bureau.
- all consumer complaints relating to furnishing consumer credit information (whether received directly or indirectly, such as through a third party), and any responses to those complaints or requests.
- All records showing, for each employee providing services related to Santander’s furnishing practices, that person’s name, telephone number, email, physical, and postal address, job title or position, dates of service, and, if applicable, the reason for termination.
Santander must notify the Bureau of any development that may affect compliance obligations arising under the consent order, including but not limited to a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company. Santander must provide this notice, if practicable, at least 30 days before the development, but in any case, no later than 14 days after the development.
Under FCRA, consumers are entitled to at least one free credit report per year from each of the three major credit bureaus. By checking on one’s credit report regularly, a consumer will be able to see what potential lenders see. Consumers can also look for errors or outdated information that could be hurting his or her credit scores.
Although one’s credit can be checked in many situations, when a consumer applies for credit, a job, utilities, student loans, etc., it typically requires the consumer’s consent. One’s credit report cannot be distributed to a third party unless it is related to a credit transaction, employment or court order.
Employers receive a modified credit report. They must also get written permission and notify the consumer in writing if they use the information against the consumer.
If one is turned down for credit, the entity that checked your credit history will send an adverse action notice. The notice will explain what report was checked, the reasons the application was denied and further actions the consumer can take.
Collections are only supposed to stay on a consumer’s credit report for seven years, but even if the collections pass their statute of limitations, debt buyers might still try to collect on the debt. Some debt buyers might re-age the debt, or change the date of delinquency on the account, in order to extend the statute of limitations. This practice violates FCRA.
If one’s debts have been re-aged illegally, the consumer can set the record straight by writing to the credit reporting company and the credit bureaus and attaching copies of supporting documents. If collectors do not withdraw a wrongful re-aging, the FTC can fine them $2,500 per incident.