Whether you are a state by state regulated entity or a bank chartered entity, compliance is probably on the top of your mind constantly. Besides all the state examinations and licensing concerns, did you know that there might be something that could lurking in dark and ready to strike? I am talking about federally regulated consumer credit history reporting.

It’s the Law

A 5o year old law in the United States called the Fair Credit Reporting Act or FCRA mandates all consumer information furnishing entity must report consumer credit history timely and accurately. Failure to do so will result in a violation of this federal law and lenders may face stiff fines.

So how does a lender or credit issuers should go about reporting consumer credit activities to credit reporting agencies or credit bureaus? The Consumer Data Information Association CDIA has established a standard way of reporting this type of consumer credit data to various consumer credit reporting agencies or credit bureaus.

We Are The Lucky Ones

Before you think that this is another monstrosity that my compliance department needs to deal with, consider ourselves as one of the few lucky ones. In Australia, the United Kingdom and some of the other developed countries, there aren’t any standard reporting methods. If there are any, only negative attribute such as charge offs or bankruptcy information are reported to a central database. We are the only few countries that has a comprehensive (good and bad) consumer credit bureau databases.

This set of information becomes extremely helpful for lender and credit card issuers to assess the credit worthiness of consumers seeking credit. Imagine that majority of our population are No-Hits at our credit bureaus, it would be impossible to allocate the right amount of credit to the right consumers.

It’s Easy

Now, let’s get back to what CDIA has brought to us. In 1996, almost 20 years ago, CDIA gave us the Metro 2 Format. An industry standard format whenever we need to report consumer credit history. This format provided the much needed interoperability between all lenders, credit issuers, banks, financial institutions and credit reporting agencies. Overnight, whether you are a bank or a non-bank lender, everyone can report, review and underwriting with the same types of information.

Even though we have a standardized reporting format such as Metro 2, the Achilles heel is still how lenders and credit issuers put together the input file to begin with. The industry in general is taking this important process for granted and frequently relies on their loan originations system to report their consumer’s credit history to various credit bureaus.

It’s Lender’s Responsibilty

Often times we discover that our client didn’t know that their loan management system is not reporting consumer credit history properly, if at all. Our clients then struggles to catch up and worst, fear of compliance infractions. Most often, credit bureaus complaint that loans and credit trade lines aren’t being properly reported, most of the time these complaints fell on deaf ears. Some lenders and credit issuers might not know that credit history reporting and the accuracy of that information is not the responsibilities of the credit bureaus, it ultimately falls on the lenders to resolve these issues.

First Mile Issue

We here at MaxDecisions, Inc. are very sensitive to these issues. Ultimately we decided to offer this service to report and audit credit reporting process for our clients. Some of our clients have what we called the First Mile issue. It is that they don’t have the in-house resources allocated to scrub and analyze the data before they submit their files to the credit bureaus. We have help some of our clients to overcome this issue by dedicating experienced experts to fuse data together, standardize loan performance definition and report Metro 2 formatted file to all bureaus the client uses to manage their portfolio.

I encourage you to take a look at your existing credit bureau reporting process and don’t put it off any longer. You could be violating federal regulation with adverse consequences.

Please leave a comment below. We’d love to hear your experiences.

• Standardized your loan performance definition:Whether you are servicing in house or use a third party servicer, standardize your loan performance definition consistently is key for accurate reporting.
• Frequency of reporting:Some bureaus allow you to report weekly, but due to the antiquated way return payments/checks are managed with our current ACH (automated clearing house), It is probably best to report on a monthly basis. We recommend that you report with a 2 to 3 week lag to minimize the amount of noise a returned check or rejected ACH might cause.
• Understand your upstream data:Some clients put full faith in how their Loan Management Systems are reporting to them, whether it is a daily or weekly transmission. If lenders are tracking performance in a separate database, the entire loan portfolio must be updated with more recent payment status. For example, a payment that went through last week might have bounced this week. That loan is no longer in current status.
• Audit frequently:We often find our clients in a situation where their reporting accuracy is deteriorating and they usually get alerted by a frantic call from one of their credit bureau representative. We recommend that our client audit the reporting process from end to end every six month to ensure compliance and most important ensure that their customers are represented with facts in our national credit bureau databases.