This auto finance company’s ‘flawed computer system’ may have hurt thousands of people’s credit scores


Consumer Financial Protection Bureau chief Richard Cordray says First Investors knowingly gave flawed information to credit reporting agencies. (Reuters/Yuri Gripas)

The Consumer Financial Protection Bureau announced a $2.75 million settlement with Texas-based First Investors Financial Services Group on Wednesday. The agency says the auto finance company knowingly and "systematically" provided inaccurate information to credit reporting agencies -- potentially hurting the credit ratings of tens of thousands of consumers.

For three years, CFPB Director Richard Cordray said, the company used a "flawed computer system" from a vendor that provided inaccurate information to credit reporting agencies such as Experian and TransUnion. Information from creditors is used to determine consumers credit scores; incorrect information could result in financial hardships for consumers, such as having to pay a higher interest rate on a mortgage loan, being denied a credit card, or even being passed over for a job or an apartment rental.

Now the company must pay a $2.75 million fine, identify consumer credit profiles affected by the problem and fix them -- as well as fix the way they do business. First Investors also must help all affected consumer receive free copies of their credit reports so they can verify the accuracy for themselves.

According to Cordray, First Investors discovered the problems in April 2011 and alerted the company that sold them the system but did nothing else to stem the problem. "The company did not replace the system or take any steps to correct the inaccurate information it had supplied," he said. "Instead, it simply continued for years to use a system that it knew was flawed." Knowingly using a system with such issues violates the Fair Credit Reporting Act, which requires companies that supply information about consumers to credit reporting agencies to do so accurately.

The errors reported by First Investors appear to have been far-ranging, including understating how much consumers were paying on their debt, overstating the amount due and inflating the number of late payments, according to Cordray. In one case, the CFPB said, the company reported that a consumer was delinquent on a payment 11 times, when the customer was actually deliquent only twice.  The company also allegedly mischaracterized vehicle surrenders, telling credit reporting agencies that some companies had repossessed vehicles when the customers had in fact voluntarily surrendered the cars, CFPB said, actions that look very different on a credit report.

According to the CFPB, the affect on First Investors customers may have been particularly harsh because many were "subprime borrowers to begin with," a population the agency says the company specifically targeted.  "When First Investors knowingly sent the wrong information to the credit reporting agencies, it put consumers with credit profiles that were already impaired in an even more perilous position," Cordray said.

For its part, First Investors said it agreed to the consent order to "resolve the matter and to avoid the expense and business disruption associated with defending any lawsuit," and admits no wrongdoing.

"First Investors, like many companies, relies upon an industry-leading service provider to furnish its account information to the consumer reporting agencies," said First Investors president and chief executive Tommy Moore. "When issues were identified, First Investors worked with its service provider to correct them."

The vendor and the specific system used by First Investors were not identified in Cordray's statement, the consent order or the company's statement. In a press call about the consent order, a senior CFPB official said the investigation is ongoing and that the agency was unable to comment on the details.

But even without the identity of the company behind the "flawed computer system" used by First Investors, it's impossible to deny that information handled by such specialized systems often have significant real world impacts. And without appropriate auditing procedures, those impacts might go unchecked in the digital wild for years.

 

Andrea Peterson covers technology policy for The Washington Post, with an emphasis on cybersecurity, consumer privacy, transparency, surveillance and open government.
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