Consumer Financial Protection Bureau Takes Action Against Auto Finance Company for Distorting Borrower Credit Reports

First Investors Fined $2.75 Million for Knowingly Providing Inaccurate Information to Credit Reporting Agencies for Years

WASHINGTON, D.C.—(ENEWSPF)—August 20, 2014. Today the Consumer Financial Protection Bureau (CFPB) is taking action against an auto finance company that distorted consumer credit records for years. Texas-based First Investors Financial Services Group Inc., which lends primarily to subprime borrowers, failed to fix known flaws in a computer system that was providing inaccurate information to credit reporting agencies. This potentially harmed tens of thousands of its customers. Today the CFPB is ordering First Investors to pay a $2.75 million fine, fix its errors, and change its business practices.

“First Investors showed careless disregard for its customers’ financial lives by knowingly distorting their credit profiles for years,” said CFPB Director Richard Cordray. “Companies cannot pass the buck by blaming a computer system or vendor for their mistakes. Today’s action sends a signal that the CFPB will hold companies accountable for sending inaccurate information to credit reporting agencies.”

A copy of the Consent Order can be found at: http://files.consumerfinance.gov/f/201408_cfpb_consent-order_first-investors.pdf

First Investors is a lending company that offers loans directly to consumers to finance the purchase of motor vehicles. First Investors also offers loans indirectly to consumers by working through auto dealers. The company specializes in lending to consumers with impaired credit profiles; including consumers who have gone through bankruptcy. Because the company services its own loans, it supplies information on its accounts to the credit reporting agencies and is considered a furnisher under the Fair Credit Reporting Act (FCRA).

First Investors is one of many thousands of voluntary data furnishers that provide information to the credit reporting agencies. Furnishers are required by law to have reasonable policies and procedures regarding the accuracy and integrity of the information they provide. Credit reporting agencies track a consumer’s credit history and other consumer transactions based on information supplied by the furnishers. The reports that they sell are used in determining everything from consumer eligibility for credit to employment decisions.

The CFPB investigation found that First Investors furnished inaccurate information about its customers to credit reporting agencies for at least three years. When First Investors discovered the problem in April 2011, it notified the vendor but did nothing more. The company did not replace the system or take any steps to correct the inaccurate information it had supplied. It continued for years to use a system that it knew was flawed. Tens of thousands of consumers were likely subject to these systemic reporting problems.

Specifically, the CFPB found that First Investors was providing distorted information to the credit reporting agencies regarding how its customers were performing on their accounts. The incorrect information First Investors reported included:

Wrong payments and overdue amounts: First Investors provided inaccurate information about how much consumers were paying toward their debts. In many cases, First Investors understated the amounts its customers were paying. When consumers made multiple payments within a single month, for example, First Investors only reported one of the payments. This does not give consumers full credit for keeping up with their loan obligations. First Investors also overstated the dollar amount by which many of its customers were past due on their accounts.

Distorted dates: First Investors inaccurately reported many of its customers’ “date of first delinquency,” which is the date on which a consumer first became late in paying back the loan. In most cases, First Investors was reporting the date to be more recent than it actually was. The date an account first becomes delinquent matters because it determines how long a delinquency can appear on a consumer’s credit report. Inaccurate reporting of the age of a consumer’s delinquency can cause it to appear on the consumer’s credit report longer than is allowed by the FCRA.

Inflated delinquencies: First Investors substantially inflated the number of delinquencies for some customers when it reported customers’ last 24 months of consecutive payment activity. In one case, First Investors reported that a consumer was delinquent eleven times, when in fact the consumer had only been delinquent twice.

Mischaracterization of vehicle surrender: When loans reach a certain stage of delinquency, First Investors has the option to repossess the car. Before that happens, though, consumers have the option to voluntarily surrender their vehicle and avoid a “repossession” showing up on their credit report. First Investors told credit reporting agencies that some of its customers had their vehicles repossessed, when in fact those individuals had voluntarily surrendered their vehicles back to the lienholder.

Enforcement Action

First Investors violated the FCRA by inaccurately furnishing information and it violated the Dodd-Frank Wall Street Reform and Consumer Protection Act by misrepresenting to consumers that the company would only furnish accurate information. The CFPB’s order requires First Investors to take the following actions: 

Correct errors on credit reports: First Investors must identify all consumer accounts affected by its reporting errors and fix any inaccuracies. The company must either provide the correct information, or, in cases where accurate information is not available, First Investors must delete references to the loan altogether.

Help consumers obtain free copies of their credit reports: First Investors will identify and inform all affected consumers about this action. It will also help all affected consumers receive free copies of their credit reports so consumers can check the reports’ accuracy for themselves.

Establish consumer safeguards: First Investors must change how it does business and establish safeguards to ensure that it reports only accurate information about its customers to credit reporting agencies. In addition, it must ensure it has the staffing, facilities, systems, and information necessary to timely and completely respond to consumer disputes. And, it must establish an audit program to identify any systemic inaccuracies.

Pay a civil monetary penalty of $2.75 million: First Investors will pay a $2.75 million fine for the illegal actions.

The CFPB will continue to enforce federal laws to ensure accuracy in credit reporting and protect consumers from deceptive acts and practices. Consumers should check their credit report for inaccuracies at least once a year. Consumers can order a free credit report once every 12 months from AnnualCreditReport.com.

Related Material:

Prepared Remarks of Richard Cordray, Director of the Consumer Financial Protection Bureau, First Investors Press Call, Washington, D.C., August 20, 2014

Thank you for joining us.  Today the Consumer Financial Protection Bureau is taking action against an auto finance company that distorted consumer credit records for years.  Texas-based First Investors Financial Services Group systemically provided information to credit reporting agencies that it knew was inaccurate, potentially harming tens of thousands of customers.  Today we are ordering the company to pay a $2.75 million fine, fix the mistakes it has caused, and change the way it does business.

Consumers are harmed when companies furnish inaccurate information to credit reporting agencies.  Incorrect reports on file at credit reporting agencies – such as Experian, TransUnion, and Equifax − distort the true picture of how consumers have performed on their loans.  An error could make a big difference in whether someone receives a loan, qualifies for a low interest rate, or even gets offered a job.  It has the potential to disqualify people for rental housing or raise their premiums for auto insurance.   

This is particularly true of First Investors’ customers, many of whom were subprime borrowers to begin with – a population that the company strategically targeted.  When First Investors knowingly sent the wrong information to the credit reporting agencies, it put consumers with credit profiles that were already impaired into an even more perilous position.

Our investigation found that for three years First Investors had a flawed computer system − purchased from a vendor − that provided inaccurate information to credit reporting agencies.  When First Investors discovered the problem in April 2011, it notified the vendor but did nothing more.  The company did not replace the system or take any steps to correct the inaccurate information it had supplied.  Instead, it simply continued for years to use a system that it knew was flawed.

There were all kinds of inaccuracies reported by First Investors.  The company frequently understated how much consumers were paying toward their debt.  It overstated the amount past due.  It misreported the dates when consumers became delinquent.  And it inflated the number of delinquent payments.  In one case, it reported that a consumer was delinquent 11 times when in fact that consumer had only been delinquent twice.

First Investors also mischaracterized vehicle surrenders.  It told credit reporting agencies that some of its customers had their vehicles repossessed when, in fact, those individuals had voluntarily surrendered their cars.  It looks very different on a credit profile to turn the car over to the lender voluntarily, as opposed to the lender tracking down the car and towing it away without the consumer’s consent.

The Bureau recognizes that this kind of careless disregard harms consumers.  First Investors knew there was a problem with its computer system but did not make sufficient efforts to fix the errors.  This is against the law.

So today we are ordering First Investors to pay a $2.75 million fine for these problems.  It must identify all the consumer credit profiles that were affected and fix them.  We are also ordering the company to change the way it does business.  It must repair the significant, systemic problems in how it has been furnishing information to the national credit reporting agencies.  The company must establish consumer safeguards so this does not happen again.  And finally, First Investors will help all affected consumers receive free copies of their credit reports so consumers can check the accuracy of their reports for themselves.

Today’s action sends a signal to all companies that supply information to the credit reporting agencies that they must have sound practices in place that protect consumers.  You cannot pass the buck on this responsibility.  Using a flawed computer system purchased from an outside vendor does not get you off the hook for meeting your own obligations.

Companies that report information about consumers to credit reporting agencies have legal obligations under the Fair Credit Reporting Act.  This federal law applies to all companies that furnish information to credit reporting companies, whether they furnish to one of the big three credit reporting agencies or to a smaller firm like a tenant screening company or a check verification service.  Data furnishers have the legal duty to identify consumers accurately, correctly recount the consumers’ payment histories, and keep their own information and record-keeping in order.

Data furnishers should take all necessary steps to ensure they are complying with federal laws.  They should monitor consumer reporting disputes for patterns or indications of systemic inaccuracies.  They should promptly modify or delete inaccurate information when it comes to their attention.  They should make sure that any products or vendors they use to perform these duties are doing so accurately and legally.  Some are doing this better than others, and some are not doing what they promise or what federal law requires.

Any furnisher not currently meeting these requirements should take immediate steps to abide by the law.  We will continue to monitor this market carefully, and we will not hesitate to take further enforcement actions as they are needed. Thank you.

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

Source: www.consumerfinance.gov