After previously examining ‘junk fees,’ CFPB now focuses on ‘junk data’

The Consumer Financial Protection Bureau started the year by launching an initiative in connection with what the federal regulator called “exploitative junk fees.”

Last week, the CFPB turned its attention to what it’s calling “junk data.”

The bureau issued guidance to consumer reporting companies about their obligation to screen for and eliminate obviously false “junk data” from consumers’ credit reports. The CFPB said companies need to take steps to “reliably detect and remove inconsistent or impossible information from consumers’ credit profiles.”

For example, officials said many children in foster care have large amounts of information on their credit reports that is “clearly” junk data because as minors they are prohibited from entering into most contracts for credit.

While incorrect data affects millions of Americans, the CFPB believes that children in foster care may be particularly susceptible to these problems because of a high rate of identity theft impacting that population.

The regulator explained roughly 400,000 children in the United States foster care system often lack permanent addresses, and their personal information is frequently shared among numerous adults and agency databases.

“When bad actors take advantage of children passing through their care and use their personal information to take out loans, children in foster care may enter adulthood saddled with negative and clearly inaccurate credit histories that can hinder their progress toward financial independence,” the CFPB said in a news release.

“When consumer reporting companies include inconsistent or conflicting account information or information that does not make sense or cannot be true, consumers can suffer real-world consequences,” the bureau continued.

The CFPB pointed out that junk data in reports can lead to consumers being denied credit, housing, or employment, or paying more for credit. The bureau acknowledged junk data can take many forms, but some examples are credit reports that reflect a child having a mortgage, or a credit report that reflects a debt incurred years before the person’s birth.

The regulator reiterated that consumer reporting companies have a legal requirement to follow reasonable procedures to assure maximum possible accuracy of information that they collect and report. As part of that requirement, companies must have policies and procedures to screen for and eliminate junk data.

Specifically, the CFPB said the policies and procedures should be able to detect and remove:

—Inconsistent account information: Sometimes consumer reports can show two or more pieces of information that cannot all be true. For example, an account is paid in full but still shows a balance, or a date of first delinquency predates the account’s opening.

—Information that cannot be accurate: Sometimes information on consumer reports reflects obvious impossibilities. For example, if a tradeline includes a date that predates the consumer’s date of birth or if just one of many tradelines indicates a consumer is deceased.

The bureau said a consumer reporting company’s policies, procedures, and internal controls should further identify and prevent reporting of illegitimate credit transactions for a minor.

Officials added that minors generally cannot legally enter into contracts for credit except in certain limited circumstances, including applications for student loans, for emancipated minors, or as credit card authorized users.

“When a credit report accuses someone of defaulting on a loan before they were born, this is nonsensical, junk data that should have never shown up in the first place,” CFPB director Rohit Chopra said in the news release. “Consumer reporting companies have a clear obligation to use better procedures to screen for and eliminate conflicting information, or information that cannot be true.”

The entire advisory opinion can be found via this website.

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