The Compliance Factor: credit bureaus’ policy changes improve 20M credit scores
Wednesday, March 7, 2018
Posted by: Trichina Pierce, CCUL Compliance
With any new year comes new year’s resolutions, and one of my longstanding goals—30 years and counting—is to complete my taxes on time and without an extension. So as part of my process, I consulted with my tax preparer on what new tax laws or changes may affect me. From our conversation, different news came to light that will impact credit unions this year: a policy change by the nation’s three major credit bureaus that improved the scores of 20 million people.
And it all came about following a class action lawsuit against attorney generals in 31 states in 2017. Plaintiffs claimed a lot of lien and judgement data was inaccurate due to lack of PII (personally identifiable information) and “mislinking” data from one individual to someone else’s report. 1
As a result of the lawsuit, the nation’s three major credit bureaus—Equifax, Experian and Transunion—began the process of wiping about half of tax liens and most civil judgments data from consumers’ files on July 1, 2017. The effects of this decision are now being seen in early 2018 as certain credit reports and scores no longer reflect or show tax liens and civil debts for consumers with insufficient PII, something that happens often.
So how does this impact credit unions?
This means some credit union members could have credit scores that move as much as 10-40 points or more in 2018. A change that has a significant impact on a credit union making risk-based decisions as a member's report can look more attractive (A or B paper) when in reality, they may have considerable financial issues (C & D paper).
In a CUES article written by Brian Godwin, he sets out some useful guidance for credit unions on compliance considerations that may be affecting us as a result of this landmark lawsuit decision. 2
- Credit unions will want to be cognizant of the impact the revised credit scores may have on risk-based pricing and rate adjustments, as well as effects on their fair lending programs.
- Lenders that use a member’s credit score to set risk-based pricing should have a defined underwriting procedure that mitigates risk by:
o Clearly defining credit scores that fall within each rate tier; and
o Documenting the process for exceptions.
§ Under what circumstances are exemptions acceptable?
§ Who can approve exceptions?
§ How is the decision logged?
- If using credit scores to determine pricing adjustments, lenders should have a detailed, written procedure that applies equally to all borrowers in a given product type. In addition, the procedure should explain the review process for adjustments. Things to cover include:
o How often are reviews performed? (At least every six months?)
o Who completes the reviews?
o When are changes made to a member’s account?
o How are the results documented?
- In addition to fair lending laws, considerations related to pricing notices found in Regulation Z/Truth in Lending will apply. For example:
o Generally, a rate cannot be increased during the first year a credit card account is open. (The exception is when the rate varies based on an index not set by the issuer or a prior disclosed delinquency rate.)
o Prior balance should be protected at its existing rate or index rate if variable.
o Credit unions should periodically review the account to determine if additional rate changes should occur.
To learn more about this development and other priority compliance and risk management news, consider joining CCUL Compliance at one of our regional compliance roundtables. Contact us at email@example.com for more details. Upcoming meetings are set for March and April 2018 in various cities near you.
1 NBC News, Why Your Credit Score May Go Up This Month, June 23,2017.
2 CUES, On Compliance: The Impact of 20 Million Improved Credit Scores, February 2018.