Fair Credit Reporting Practices

The OCC may have been the first to speak out on this topic, but all bank regulatory agencies are now on the bandwagon. The FFIEC has issued advice to financial institutions regarding the importance of full information reporting to credit bureaus.

Dated January 18, 2000, the letter identifies several practices that concern the agencies. First, some lenders are reporting some but not all credit performance information about their customers. Agencies have noted that some creditors do not report information about high credit balances and credit limits.

Second, some lenders that engage in sub-prime lending are not reporting the customers who maintain good loan performance. The success stories are withheld with the consequence that the consumer is not building a positive credit bureau record.

The consequence of non- reporting is two-fold. First, it is unfair to the customer, particularly in situations that involve sub-prime lending as part of a credit building program.

Second, it results in withholding information from credit bureau reports and scoring that may effect the accuracy and utility of the information and score. In short, selective reporting can create a safety and soundness problem for other lenders.

To balance the safety and soundness problem, the agencies recommend that creditors develop a way to assess the effect of incomplete information on scores and other decision-making tools. They also recommend that creditors develop methods for identifying and filling in the missing information, including contacting creditors that may be submitting incomplete reports.

Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 1, 2/00