When 31 state attorneys general and three of the largest U.S. credit reporting agencies (CRAs)—TransUnion, Experian, and Equifax—settled an investigation in 2015 that looked into consumer complaints, the spotlight focus went far beyond just the CRAs involved and included furnishers, those entities which provide information relating to consumers to one or more consumer reporting agencies for inclusion in a consumer report. The settlement will likely require furnishers to make extensive changes in their policies, procedures, and processes to significantly enhance data accuracy and integrity.
Collecting and reporting accurate data has frequently been one of the biggest challenges for furnishers when reporting credit information. In fact, according to a recent analysis of U.S. Consumer Financial Protection Bureau data, 70 percent of all credit reporting complaints filed by customers are related to incorrect information. Examples of incorrect information include failing to report a debt that was discharged in bankruptcy, reporting a debt as charged off when it was settled or paid in full, reporting old debts as new or re-aged, failing to stop reporting on disputed items, and inaccurately listing a debtor who is not a debtor (such as an authorized user). Another common complaint not to be overlooked is that consumers feel furnishers are not effectively monitoring and investigating disputes.
For some organizations, becoming compliant may be a massive undertaking, while others may only need to make simple adjustments. However, nearly every organization will have some work to do for more accurate reporting.
To address these and other concerns, furnishers must carefully evaluate processes from source systems through CRA reporting to verify that the information that is being sent to the CRAs is accurate. Further, many furnishers utilize third-party vendors to support their core processes and Fair Credit Reporting Act (FCRA) reporting, adding an additional layer of complexity. As the furnisher is ultimately responsible for the data the third party reports, furnishers need to work with their vendors to confirm that the vendors’ systems are compliant with current regulatory expectations for capturing, controlling, and reporting complete data. For some organizations, becoming compliant may be a massive undertaking, while others may only need to make simple adjustments. However, nearly every organization will have some work to do for more accurate reporting.
At a minimum, furnishers should look to improve the quality and accuracy of data reporting by following these six steps:
Institute data quality standards and programs for capturing customer data. Implementing data quality standards to determine the validity of customer identification information as customer information is first entered into a system helps safeguard the accuracy of information as it is passed downstream to other systems. Examples of data quality programs can include practices as simple as filtering out inaccurate information such as invalid addresses, birth dates, and Social Security Numbers at the very beginning.
Identify key data entry and process controls that support complete, accurate, and timely data. It is important to be able to easily monitor and verify data through all stages of the reporting process, as information usually goes through multiple processes that may transform, summarize, augment, and perform calculations on it. The establishment of monitoring controls is best accomplished through preventative controls, emphasizing the first line of defense. Utilizing complaints and CRA rejects as feedback mechanisms to tune controls and processes helps maintain a healthy control environment.
Establish ownership of data sources. Identify, assign, and document business line and technology ownership of data sources. Clearly establishing ownership of data sources makes reviewing, verifying and managing updates related to key components such as customer disputes, CRA rejects, and self-identified issues easier. Many consumer disputes involve outdated information, so it is critical for furnishers to know who owns customer data and where it resides in the respective line-of-business processes.
Manage end-to-end change. Implement a change control process to review the impact of data entry and process changes on Metro 2 reports (data specification created by the Consumer Data Industry Association for credit reporting data to report consumers’ credit history information to major credit bureaus electronically and in a standardized format).
Upstream system changes can impact many downstream reporting processes, whether it be a field that is simply reformatted or something as complex as a change to a derived or calculated field. Further, changes to procedural-related items can impact reporting, such as when processes are updated to accommodate federal loan modification programs. Having a change control process with a committee to review and manage the implementation of these types of changes can increase the likelihood of knowing the effect on the Metro 2 report well before the report has been produced and sent to the CRAs.
Monitor and test. Regularly monitoring and testing Metro 2 reports validates the accuracy and integrity of the reported data. On a regular basis, consider testing a sample of trade lines in the Metro 2 reports against system of record data and Metro 2 specific logic used for reporting. Annually, consider independently replicating the Metro 2 data to verify the accuracy and integrity of the report and that current CDIA guidelines have been effectively incorporated and addressed. Testing should extend beyond formatting and logical errors and should include evaluating for internal inconsistencies, anomalies, and scenarios of product lifecycle behavior including complex scenarios such as bankruptcies, foreclosures, short sales, and collections.
Centralize processes. Centralizing the reporting process across products and systems is another way to support the proper control environment for reporting and testing consistently across different lines of business. Doing so helps to provide a common structure, align roles and responsibilities, and define and execute in a consistent manner across different lines of business. A centralized process also provides a more comprehensive avenue to identify and consistently handle complaints and identify root cause issues.
Collecting and reporting accurate data for the credit reporting process requires a thorough understanding of internal business and technology processes, from customer onboarding through Metro 2 reporting. With the enhanced guidelines, the emphasis on getting the reporting process right will be more complex than ever, with some organizations finding that they have to make significant upgrades to testing and controls.
The settlement agreement will create additional challenges not only for CRAs but also for any organization that gathers and furnishes consumer credit information. Being proactive in addressing some of the new standards will yield benefits beyond FCRA compliance. Through establishing a well-managed credit reporting environment, organizations can help to improve their understanding of systems and processes around complex scenarios such as bankruptcies, foreclosures, short sales, charge-offs, and deposits. Furthermore, following these six steps can make responding and adapting to future regulatory changes easier.
Amy Gennarini is a principal with Ernst & Young LLP.
Stephanie White Booker is an executive director with Ernst & Young LLP.
Marc Gagnon is a manager with Ernst & Young LLP.