Borrowers eager to take advantage of low mortgage rates often face ‘severe hardship’ as they cannot correct errors on their credit reports, according to a analysis by the federal government’s consumer watchdog.
The Consumer Financial Protection Bureau analyzed more than 700,000 complaints about the big three credit bureaus – Equifax, Experian and TransUnion – which it received from January 2020 to September 2021.
The CFPB said it never heard back from the credit bureaus on more than half of the complaints it referred to them, and relief was provided less than 2% of the time, compared to nearly 25% in 2019.
One of the factors behind the low response rate could be that credit bureaus suspect that many complaints are filed by third-party companies that promise to help consumers monitor and improve their credit scores, according to The report.
As of early 2020, the CFPB states that Experian and TransUnion “stopped providing substantive responses to consumer complaints if they suspected a third party was involved in filing a complaint.”
But consumers can authorize companies to file complaints on their behalf, the report notes, and the Fair Credit Reporting Act requires credit bureaus to conduct a review when consumers tell the CFPB there are errors in their reports. credit that they were unable to obtain. fixed.
The three national credit bureaus “relyed heavily on complaint response templates instead of providing meaningful and thorough responses to consumers, despite having up to 60 calendar days to respond,” the report said. .
“Overall, consumers describe a consumer reporting system that isn’t working for them and the serious consequences that follow when inaccurate information is – and remains – on their consumer reports,” the report said. CFPB said in the publication of the report.
CFPB Director Rohit Chopra went even further, calling Equifax, Experian and TransUnion a “credit-reporting oligopoly” that has “little incentive to treat consumers fairly when their credit reports contain errors. “.
Equifax has referred a request for comment to the Consumer Data Industry Association, a trade group. Experian and TransUnion did not respond to requests for comment.
In a statementthe Consumer Data Industry Association said it “examined the CFPB report in detail. We agree that responding to legitimate consumer complaints and obtaining correct credit reports are paramount. As the CFPB notes, credit reporting plays an essential role in the lives of consumers, which is why we are committed to expanding access to credit for all consumers.
“The CFPB report highlights trends, including increased activity by some credit repair companies, which may inflate the number of complaints and undermine the process for dealing with legitimate inquiries,” the trade group said. “We are committed to continuing to work with the FTC and CFPB to protect consumers from these harmful and abusive tactics.”
The CFPB said it received more than 500,000 credit or consumer reporting complaints between January and September 2021, compared to 319,000 in 2020.
This could be the tip of the iceberg, however, as the CFPB estimates that credit bureaus receive “millions of [direct] contacts of consumers disputing the completeness or accuracy of information on their credit reports” each year.
Credit or consumer statement complaints, by year
Source: Consumer Financial Protection Bureau
There are “many factors that likely could have contributed to this increase,” the report says, including accommodations provided by the CARES Act, changes to regulatory guidelines during the pandemic, and increased purchases of mortgages and mortgages. mortgage refinance credit due to low interest rates. .
“Although not a statistically valid sample, many consumers the CFPB spoke to mentioned mortgage credit, and housing more generally, as a motivator for working on their credit. “, says the report.
Another reason for the increase in complaints is that consumers are increasingly submitting multiple complaints during a single online session, according to the report.
Since the standard tri-merger credit report used by mortgage lenders includes data from Equifax, Experian and TransUnion, consumers may be more likely to file complaints against all three credit bureaus in one visit. on the website, according to the report.
For potential buyers with errors on their credit report, the stakes are high. According to Optimal Blue Mortgage Market Indexes, a homebuyer with a FICO score of 740 buying a home with a 20% down payment may qualify for a 30-year fixed rate mortgage at 3.29%. But if an error on a credit report drops their score by 25 points, they will be downgraded two “buckets” of credit and can expect a rate closer to 3.43%.
For a borrower who takes out a $283,200 mortgage to buy the home at the median price with a 20% down payment, that translates to an additional $22 per month and $7,900 in interest over the life of the loan.
Consumers who believe they have errors in their credit report can learn more about the complaint process on the CFPB. consumer complaint webpage.
Editor’s note: This story has been updated to include comments from the Consumer Data Industry Association.
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Email Matt Carter