Earlier this year, the Consumer Financial Protection Bureau published some “supervisory observations” based on its vision of the implementation of the Fair Credit Reporting Act. One area with respect to which the CFPB expressed concern was “data accuracy.” Specifically, the CFPB observed that, generally, credit reporting companies (CRCs) had less-than-ideal data governance policies, procedures, and practices.
One data accuracy issue involves the level of certainty that one requires regarding identification of a consumer before including information on that consumer’s report. The CRCs aggregate information from myriad sources, and those sources have varying standards and formats for the information they provide. The CRCs sought to screen the information they received to identify consumers, but instances did occur where inaccurate information was included on some consumer reports.
Consider a credit report concerning John Q. Publik. Imagine that the state where Mr. Publik resides provides civil judgment information, but the state does not report middle initials. What should a CRC do with data that identifies “John Publik” and otherwise appears consistent with other known information about John Q. Publik – include it or not? Imagine that the tax authorities provide tax lien information, but there are 50 John Q. Publiks in the database. Again, what should a CRC do with data that identifies “John Q. Publik” and otherwise appears consistent with other known information about a particular John Q. Publik – include it or not?
The bar is being raised for the level of certainty that CRCs will be expected to have before they include information on consumer reports. One near-term effect of this change is that CRCs will remove information currently being reported, including civil judgment and tax liens, that does not satisfy enhanced standards for positive identification of the debtor. Likewise, going forward, CRCs will not include new information that does not satisfy enhanced standards for positive identification of the debtor. On one hand, the accuracy of some credit reports could be improved because there will be fewer “false positives”: liens or judgments reported as affecting a consumer other than the consumer to which they really apply. On the other hand, the completeness of credit reports will be diminished because there may be more “false negatives”: liens or judgments that do affect a consumer but which are nonetheless not reported because the identifying information was not robust enough for the CRC confidently to include the information.
Creditors and other users of credit reports should consider augmenting their due diligence by obtaining judgment and tax lien searches from a trusted source – understanding that the CRCs may leave a gap.
When looking to uncover civil judgments, request searches at the court database in the county [or counties] indicated as the consumer’s recent and previous residences. Also, if you are concerned about any liens filed against particular real estate, request a property search in the county where the real estate is located. Lastly, you can request searches for judgments in the federal district indicated as the consumer’s recent and previous residences.
When trying to find tax liens, request searches to be performed at the centralized tax lien database in the state [or states] indicated as the consumer’s recent and previous residences. This search reveals tax liens on personal property assets, analogous to a UCC‑type security interest. Again, if you are concerned about particular real estate, be sure to order a search where the property is situated. This search reveals tax liens that may be recorded on real property.
The stated roll-out for the changes to the credit reports is on July 1, 2017, but it is likely that some reports are changing already. Do not delay in updating your due diligence practices!
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.