[As seen in Banking Dive, Jan. 30, 2023]
In today’s consumer- and regulation-centric world, accurate credit reporting data is the heart of the credit reporting ecosystem. Handling disputes appropriately is imperative for lenders, as these can reveal potential inaccuracies in furnishing that need to be remediated to avoid customer harm or unwarranted regulatory attention to a lender’s reporting and disputes practices. As we know, the current Consumer Financial Protection Bureau (CFPB) has not been shy about issuing MRAs and consent orders.
In 2023, I expect this trend to continue, yet there are ways to mitigate the challenges this high-risk regulatory environment presents.
The CFPB’s strong attention on regulatory compliance means that we will see even more furnishers putting their focus on consumer reporting operations within their organizations. Furnishers are enhancing processes and updating and creating the policies and procedures designed to meet Fair Credit Reporting Act (FCRA) regulatory requirements.
As an expert in consumer reporting operations and compliance, I continue to see troubling gaps, or absence altogether, in controls across the industry. Many organizations are evaluating operations to ensure they are establishing a clear FCRA enterprise policy as well as outlining clear operating procedures for portfolios and systems of record for furnishing and disputes.
Another trend that will continue to cause regulatory scrutiny is furnishers’ knowledge of inaccurate reporting and the lack of timeliness to complete root cause identification, make appropriate changes to the processes and systems causing such errors, and remediating affected accounts. The CFPB has generated a lot of news coverage around this, alongside its enforcement actions.
That said, one encouraging trend that I have observed points to how the industry is centralizing furnishing and dispute operations or developing centers of excellence in a retreat from product- or portfolio-based siloed organizations. On a related note, I also expect to see more organizations implementing increasingly sophisticated automation for controls and oversight in both furnishing and workflow case management in disputes handling. Let’s take a look at how that plays out below.
One of the most notable benefits of centralized credit furnishing and disputes is how it delivers consistency across the institution—resulting in all consumer trade lines being furnished in the same manner and all disputes being handled similarly among portfolios.
Centralization also brings a holistic, consistent focus on management of consumer data. For a financial institution, this centralization and consistency provides an improved customer experience in the handling of disputes and complaints. For example, if, as a consumer, you have both a mortgage and a credit card with the same bank and you’re unable to pay your bills due to a financial challenge, you can work with the lender in a consistent way to get accommodations across both products. And that financial institution is then managing and reporting those accommodations in the same way for both accounts—something that is highly beneficial to both the consumer and the institution.
Other benefits of centralized credit furnishing and disputes include consistency in regulatory and corporate policy compliance and with operational risk control and oversight. Developing a centralized oversight organization can define standards for all frontline operations. This is a great place to start, but with this construct all furnishing and disputes operations will remain siloed by portfolio.
Conversely, a center of excellence (COE) goes beyond centralized oversight and unifies all furnishing and dispute operations into one unit that enforces the expectations associated with multiple lines of business. With a COE in place, it’s far easier to ensure consistency of operations and regulatory compliance—and certainly to achieve efficiencies of scale—when combining all operations in one group.
Of course, for this to work you need to have both clearly defined furnishing standards and validation controls that follow the data through its full life cycle (both pre- and post-submission of data to the credit reporting agencies). Ideally, you’ll be using automated tools to conduct all needed validations along the way. Similarly, you will benefit from a consistent disputes process across all products and streamline those operations with an automated case management system.
Simply put, FCRA compliance is a high-risk area for banks and other financial institutions. A COE paves the way for more efficient use of technologies (like automation). More importantly, it also provides a singular leadership of those high-risk processes, operations and governance—all to help achieve consistency, compliance and a positive customer experience.