Credit discrepancies increase during pandemic
Blacks, Latinos dispute credit at far higher rate than do whites
Although credit accounts enable widely accepted alternatives to cash transactions, the convenience of both debit and credit cards can also become costly when patterns of errors and inaccuracies emerge in credit reports. In just one year — 2020 — over 300,000 complaints were filed with federal financial regulators concerning credit or consumer reporting.
New research from the Consumer Financial Protection Bureau (CFPB) finds that consumers residing in majority-minority neighborhoods that are either Black or Latino were more than twice as likely to have disputes appear on their credit reports compared to consumers residing in majority-white areas. This finding held true in nearly every credit category reviewed — auto loans, student loans, credit cards and retail cards — between January 2012 and December 2019.
Among these credit categories, auto loans were the most problematic. Consumers in majority-Black areas were more than three times as likely to have disputes appear on their credit reports.
“Families living in majority Black and Hispanic neighborhoods are far more likely to have disputes of inaccurate information appear on their credit reports,” said CFPB Director Rohit Chopra. “Error-ridden credit reports are far too prevalent and may be undermining an equitable recovery.”
CFPB also documented the effects of the COVID-19 pandemic in credit reporting.
“Since the start of the COVID-19 pandemic, complaints to the CFPB about credit reporting issues have spiked, with credit reporting complaints increasing year-to-year by 129% in 2020, and is the most common complaint topic,” states the report. “Consumers who have disputes reported were also more likely to reside in census tracts that were majority Black or majority Hispanic … We find that outcomes for accounts with reported disputes vary substantially across types of credit, with student loan accounts relatively more likely to be deleted from consumers’ credit records, while auto loans are more likely to be marked closed and paid in full.”
When credit reporting is rife with errors, these and other failures can restrict consumer access to fair, equitable and affordable credit products. Additionally, as a growing number of employers add credit report reviews to their screening of applicants, erroneous and outdated items can be an obstacle to securing a job, or a reason why access to the most affordable credit is denied.
Federal agencies like CFPB and the Federal Trade Commission (FTC) accept consumer complaints and enforce protections granted through the Fair Credit Reporting Act (FCRA). Enacted in 1970, FCRA requires consumer reporting companies to process and investigate the disputes in a timely manner, and correct any inaccuracies uncovered by the investigation. Documented FCRA violations can be grounds for related lawsuits that not only correct the misinformation, but also provide restitution for resulting harms.
Beyond or before lawsuits, other consumer-initiated actions can lead to important financial protections.
A “credit freeze” can be requested by consumers to only allow access to credit report information with an explicit consumer authorization. While it is designed to prevent credit, loans and services from being approved in a consumer’s name without consent, the Federal Trade Commission warns that its use can also cause delays in consumers gaining approval for new credit transactions like new accounts. Nor does a credit freeze prevent credit report information by either an existing creditor or their collection agents.
Another consumer protection is known as a “fraud alert” on credit report files. Initially, this provision offers an initial one-year period in which new credit accounts at businesses are required to verify the consumer’s identity before opening new credit. Additionally, consumers who have been victims of identity theft are entitled to an extended seven-year fraud alert.
Beyond fraud alerts and credit freezes, under FCRA consumers also have the following rights:
• One free disclosure every 12 months, upon request, from each nationwide credit bureau and from nationwide specialty consumer reporting agencies
• Notification if information in credit files has been used against you. Anyone who uses a credit report or another type of consumer report to deny your application for credit, insurance, or employment — or to take another adverse action against you — must tell you, and must give you the name, address and phone number of the agency that provided the information.
• A 30-day window for consumer reporting agencies to correct or delete inaccurate, incomplete or unverifiable information. However, a consumer reporting agency may continue to report information it has verified as accurate.
A full summary of these and other FCRA protections is available at https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf.
States can and do offer additional consumer protections through the offices of state attorneys general. As a rule, like CFPB, these state offices accept online complaints that can be investigated, and when warranted, prosecuted. In some instances, joint and collaborative prosecutions connect federal and state offices in the pursuit of consumer enforcement actions.
For example, on Oct. 14, North Carolina’s attorney general joined with CFPB and the FTC in filing a friend of the court brief in support of the FCRA in protecting consumers from a technology company that claimed immunity from inaccurate, misleading and false consumer reporting found on the internet to assemble and sell personal information for a profit.
In part, the brief argued, “[T]he need to ensure that such companies ‘exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer’s right to privacy’ — by enforcing the procedures and limitations that Congress mandated in the FCRA — is greater than ever.”
Now, as the holiday season brings increased spending, consumers would be wise to remain alert to credit usage and inaccuracies.
Charlene Crowell is a senior fellow with the Center for Responsible Lending.