Borrowers who are eager to take advantage of low mortgage rates often face “serious harms” because they can’t get errors on their credit reports fixed, according to an 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 — that it received from January 2020 through September 2021.
The CFPB said it never heard back from the credit bureaus on more than half of the complaints it forwarded to them, and that relief was provided less than 2 percent of the time, down from nearly 25 percent in 2019.
One factor driving the lower response rate could be that credit bureaus suspect many complaints are submitted by third-party companies that promise to help consumers monitor and boost their credit scores, the report said.
Beginning in early 2020, the CFPB says Experian and TransUnion “stopped providing substantive responses to consumers’ complaints if they suspected that a third-party was involved in submitting a complaint.”
But consumers can authorize companies to submit complaints on their behalf, the report noted, and the Fair Credit Reporting Act requires credit bureaus to conduct a review when consumers tell the CFPB there are errors on their credit reports that they haven’t been able to get fixed.
All three national credit bureaus “relied heavily on template complaint responses 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 is not working for them and the serious consequences that follow when inaccurate information is — and remains — on their consumer reports,” the CFPB said in releasing the report.
CFPB Director Rohit Chopra went even farther, characterizing Equifax, Experian and TransUnion as a “credit reporting oligopoly” that has “little incentive to treat consumers fairly when their credit reports have errors.”
Equifax 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 statement, the Consumer Data Industry Association said it was “reviewing the CFPB report in detail. We agree that responding to legitimate consumer complaints and getting credit reports right are paramount. As the CFPB notes, credit reporting plays a critical role in consumers’ lives. That’s why we are committed to expanding credit access to all consumers.”
“The CFPB report highlights trends including increased activity by certain credit repair companies, which can inflate complaint numbers and undermine the process of addressing legitimate requests,” the trade group said. “We are committed to continuing to work with the FTC and CFPB to protect consumers against these harmful and abusive tactics.”
The CFPB reported receiving more than 500,000 credit or consumer reporting complaints between January and September of 2021, up from 319,000 in all of 2020.
That could be the tip of the iceberg, however, as the CFPB estimates that the credit bureaus receive “millions of [direct] consumer contacts disputing the completeness or accuracy of information on their credit reports” each year.
Credit or consumer reporting complaints, by year
Source: Consumer Financial Protection Bureau
There are “many factors that plausibly could have contributed to this increase,” the report said, including accommodations provided by the CARES Act, changes in regulatory guidance during the pandemic, and increased shopping for mortgage credit and mortgage refinance credit due to low interest rates.
“Although not a statistically valid sample, many consumers the CFPB talked with mentioned mortgage credit, and housing more generally, as a motivating factor for working on their credit,” the report said.
Another reason for the increase in complaints is that consumers are increasingly submitting multiple complaints in a single online session, the report found.
Because the standard tri-merge credit report used by mortgage lenders includes data from Equifax, Experian, and TransUnion, consumers may be more likely to submit complaints about all three credit bureaus in one website visit, the report said.
For would-be homebuyers with mistakes on their credit report, the stakes are high. According to the Optimal Blue Mortgage Market Indices, a homebuyer with a 740 FICO score buying a house with a 20 percent down payment can qualify for a 30-year fixed-rate mortgage at 3.29 percent. But if a mistake on a credit report dings their score by 25 points, they’ll be demoted two credit score “buckets,” and can expect a rate closer to 3.43 percent.
For a borrower taking out a $283,200 mortgage to buy the median-priced home with a 20 percent down payment, that translates into an extra $22 a month, and $7,900 in interest over the life of the loan.
Consumers who believe they have mistakes on their credit report can learn more about the complaint process on the CFPB’s consumer complaint webpage.
Editor’s note: This story has been updated to include comments from the Consumer Data Industry Association.