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Why You Should Address Weakness in Your Credit Dispute Management

A perfect storm is brewing for credit reporting and disputes management. See why and how to minimize risk.

Increased consumer debt, a looming recession and an intensified regulatory focus on credit reporting and disputes management are coalescing to create a perfect storm for credit furnishers. And yet, from my vantage point as an expert in credit dispute operations technology, I see troubling gaps in how furnishers are conducting their credit dispute management operations. My advice to operational risk and portfolio operations leaders? Tackle those operations before the volume of disputes overwhelms you.  It’s time to shore up operations…now.

 

Weak Credit Dispute Management Will Be a Liability

As the complexities of an interdependent global economy—from gas and wheat prices to supply chain problems, war, and inflation—all point to a global recession, some effects of what’s to come are already affecting consumer pocketbooks. Rising consumer prices are already curtailing spending as consumers prioritize groceries and gas over everything else—including debt repayment.

When you add spiraling interest rates to that mix, you can see why consumer debt has ballooned to new highs that surpass pre-Great Recession levels. Unsurprisingly, Buy Now, Pay Later (BNPL) is also exploding, while the bedrock of a market economy—the job market (and its popular cousin, the gig economy) is expected to trend downward.

 

The Consumer Credit Score Cycle is About to Reboot

These troubling indicators all point to a significant reboot in the consumer credit score cycle. Here’s what that looks like:

  • Lenders look to adjust credit risk.
  • Loan pricing tightens.
  • Interest rates increase as credit scores decrease.
  • Cost of funds increases for consumers with lower credit scores.
  • Consumers take a greater interest in their credit score.
  • Furnishers see dispute volumes increase.
  • Consumers get frustrated and turn to Credit Repair Organizations (CROs).

As a lender, you might be thinking, we’ve been down this road before and weathered it—we’re fine. But this time, I argue, is different.

 

Why this Reboot is Different: a Renewed Focus on the FCRA

Now, what is unique to this 2022 cycle (the last cycle lasted from 2009-2014) is the notable change in the federal perspective on consumer protection. During the last cycle, consumers simply weren’t as savvy or empowered about credit reporting and scores as they are today (back then the Consumer Financial Protection Bureau had just been created). Today however, the Consumer Financial Protection Bureau (CFPB) is strong, established and primed to act.

Even prior to the war in Ukraine and even before the real inflationary concerns of massive spending materialized, Rohit Chopra had already published his doctrine on stronger consumer credit protections—one that included a far more intentional focus on credit furnishing and dispute provisions within the Fair Credit Reporting Act (FCRA).

The regulatory agency has clearly signaled that FCRA adherence is its top priority and that, this time around, furnishers will be held to account.

 

As Dispute Volumes Rise, so Does the Need for Efficiency and Evidence

Efficiency is key to protecting your organization from the increased volume of disputes expected in an era of stronger consumer credit protections.

Let’s examine where those disputes are coming from.  Disputes originating from CROs are the top concern for furnishers. A poll from a recent CDIA conference shows that 74% of the respondents identified CROs as the “biggest pain point” in their operations. Additionally, the market size for these services is expected to grow by 9.5% in 2022.

That’s a clear signal for every organization to shore up its credit dispute management and credit furnishing today. Organizations need to be able to demonstrate accurate furnishing standards and adherence, produce relevant policies and procedures encapsulating reasonable investigation for credit reporting disputes, and, above all, adequately evidence that ‘what was said would be done and what was actually done’ match. To do otherwise is to unnecessarily invite increased regulatory scrutiny around at a time when credit furnishers are most vulnerable.

As a credit furnisher, how well prepared are you for this increased regulatory scrutiny? If you’re not sure, reach out. We have the know-how and the experience to evaluate and implement the technology and regulatory guidance needed to help you accurately and efficiently resolve credit reporting issues and disputes.

 

(Editor’s Note: This article was originally featured in the June 30 issue of  iA Strategy & Tech Insights from insideARM’s Collections & Recovery and is shared with permission. Updates made 7/7/2022 and 11/10/2022.)

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