CFPB and The Credit Bureaus

Will the Consumer Financial Protection Bureau be watching Fico as well as the bureaus?

The CFPB recently disclosed to the public that it would be watching over the credit bureaus, analyzing and researching their processes prior to defining what changes, if any, would be in order starting this September. As of late, the effective date was moved from the beginning of September to the 30th. Having the CFPB involved may be a welcome aid to help voice the frustration and needs of consumers who have limited success, ability, and knowledge when coming up against issues with their credit. A poor mark on credit can have a powerful effect, limiting choices and incurring great costs on behalf of the consumer. It is therefore a priority for more consumer protection and education.

One question that is at the forefront of most credit, mortgage, and real estate professionals is will this include FICO and other score providers who use bureau information to create credit scores? Since FICO is the most popular credit score used by lenders to evaluate consumers risk it will likely be the first to be analyzed, if scoring companies are a part of the CFPB watch.

Although the CFPB did not disclose yet whether FICO will be included with the bureaus under their review they did have this to say in their final rule:

The Proposal stated that the term “consumer reporting” means collecting, analyzing, maintaining, or providing consumer report information or other account information, used or expected to be used in any decision by another person regarding the offering or provision of any consumer financial product or service. The Bureau stated that the proposed definition would cover different types of consumer reporting entities such as credit bureaus, consumer report resellers, analyzers, and specialty consumer reporting agencies like those specializing in consumer check verification and reporting of payday lending transactions.56

56 This definition might also include entities such as credit scoring companies. Whether such an entity is covered under this definition would depend upon its particular activities. To the extent that a credit scoring company is engaged in collecting, analyzing, maintaining, or providing consumer report or other account information for the purposes described above, it would be covered by the proposed definition. Several consumer groups suggested that the Bureau should explicitly state in the text of the regulation that credit scoring providers or developers are service providers. Assessing whether a particular entity is a service provider to a larger participant under the Dodd-Frank Act requires an evaluation of the person’s activities. The Bureau declines to identify specific activities that might make a person a service provider to a larger participant, or to provide an exhaustive list of such activities.

From my interpretation of these statements they may very well be knocking on FICO’s door in the near future! What this will mean for consumers and the industries related to mortgage lending only time will tell. As new information is revealed I will keep you posted.