Data furnishers and creditors are quickly coming to understand that increased regulatory focus on data accuracy and quality can be hazardous to their wallets.
Since its formation, the Consumer Financial Protection Bureau (CFPB) has diligently pursued its mandate to protect consumers from financial harm. One important point of emphasis for the CFPB has been to enforce long-standing rules that protect the rights of consumers and to hold accountable any organizations that violate those rights, whether wittingly or unwittingly.
Those that fail to meet the highest standards of data reporting and accuracy face substantial fines, assessments and penalties, not to mention potentially crippling damage to their reputation and vital relationship with their customers. To date, well over $1 billion in financial penalties and consent orders have been issued, which highlights the broad negative impact on hundreds of thousands — if not millions of consumers. This is significant as companies just don’t have the means to payout hefty penalties and fines. I hear very often from C-level executives that if they could press the reset button, that they would have paid much closer attention to their data and made it a bigger priority. The reality is that a planned investment in data quality, while perceived as an expense, is actually a cost-effective approach that will yield long-term benefits.
As the CFPB continues to advocate for consumers, there will be increased pressure on data providers and furnishers to ensure that data is accurate and consumers are better able to navigate disputes. For many organizations, the actions taken today to address this evolving regulatory landscape will determine if they end up paying the piper, and again, the punitive penalty is quite steep.
Focusing on content knowledge: Putting consumers front and center
For the foreseeable future, the CFPB will continue pushing data providers and furnishers to put consumers front and center. Today’s environment translates to 12,000-plus data furnishers, resulting in more than one billion pieces of information being updated on a monthly basis. Representing well over 220 million consumers who have some form of credit information, this means that on the whole, the ecosystem of credit data being delivered and promoted to credit file has to be robust, healthy and accurate. Data furnishers are under pressure to fully understand the impact their contribution has on this ecosystem. Consumers are depending on their lenders and creditors to report their data in an accurate and timely manner. The value of credit data is impactful not just for credit-lending purposes, but also in a consumer’s daily life for job applications, rental applications and insurance.
The economic challenges and strict lending practices of the past five years have fostered a more educated, empowered and financially aware consumer. As a result, consumers are increasingly demanding greater insight into their credit data in order to learn how they can improve their creditworthiness. This in turn has put a spotlight on the need for accurate credit reports.
The data reporting dilemma: Embracing the new normal
As data furnishers and creditors face fines, consent orders and penalties when data is found to be flawed or errors exist that imply insufficient due diligence, some organizations are questioning whether it makes sense to report their data in the first place.
Taking a “head-in-the-sand” approach is hardly an effective long-term strategy. Data furnishers have a vital role to play in improving the overall consumer experience around credit reports. By providing better data, furnishers and creditors are enabling a more complete and accurate credit profile, which can enable consumers to understand their credit picture better.
Increasing emphasis on dispute resolution
The CFPB is continuing to push for an environment where data furnishers, creditors and credit reporting agencies are more responsive to consumers when it comes to dispute resolution. Investing in better data can reduce the need to resolve disputes. Meanwhile, continued consumer education can better inform them about ways they can access data on their credit history and the steps required to correct any issues that occur.
Credit reporting agencies are in a position to present data statistics and metrics on data files, allowing furnishers and creditors to see where potential issues might exist. This kind of actionable content enables furnishers to improve the accuracy of data and thereby lower the cost of dispute management and increase regulatory compliance.
Consumers will reward forward-thinkers with loyalty
Today’s consumers, millennials in particular, are increasingly focused on content knowledge. They expect their lenders and creditors to provide the information needed to make informed decisions. This growing segment is extremely technology-savvy and will reward those businesses that allow them to leverage critical data with greater loyalty. Through the power of social media, these customers can become strong advocates for a brand, sharing positive experiences in their network.
While new regulations and mandates continue to impact the way data furnishers and creditors do business, the consumer remains at the center of it all. Those that embrace the push for data accuracy and quality, and a more positive customer experience, will be leaders in the industry and will be rewarded with greater customer loyalty and retention.
Carmen Hearn is the Senior Director of Consumer Information Services for Experian, where she is responsible for acquisitions, Data Integrity Services, and the Experian Credit EducatorSM product. She has served on several advisory and industry council boards and speaks frequently on the merits of credit scoring, consumer credit data and automated underwriting.