The Consumer Financial Protection Bureau took a fresh approach to cracking down on auto lenders in a consent order released last week, citing First Investors Financial Services Group of Houston for failing to furnish accurate customer data to credit reporting agencies and ordering it to pay a $2.75 million fine.
Citing inaccurate data is a new angle for the CFPB, which has relied on allegations of pricing discrimination to corral auto lenders.
Specifically, the bureau said, First Investors Financial Services failed to correct known flaws in a vendor's computer system that furnished inaccurate customer data to credit reporting agencies. In one case, the bureau said, the faulty information made it look as if a customer was delinquent 11 times, when the customer was only delinquent twice.
Besides the fine, First Investors Financial Services must correct errors on consumers' credit reports, help consumers get free copies of their credit reports and rewrite its policies and procedures to make sure it furnishes accurate information to credit bureaus.
In a written statement last week, First Investors Financial Services said it accepted the consent order "to avoid the expense and business disruption associated with defending any lawsuit." It did not admit to any wrongdoing. The various problems cited by the CFPB affected 1 to 12 percent of First Investors Financial Services accounts, the company said.
In the consent order, announced Aug. 20, the CFPB cited the so-called Furnishers Rule. As the name implies, the Furnishers Rule governs how lenders furnish customer data to credit bureaus.
That "could be the first example of [the CFPB] going after an auto finance lender," citing the rule, said Ken Rojc, managing partner in charge of the auto finance group for Nisen & Elliott law firm in Chicago.
In a separate case in May -- a consent order between the Federal Trade Commission and subprime auto lender Consumer Portfolio Services in Irvine, Calif. -- the FTC also cited the lender's responsibilities under the Furnishers Rule. The FTC ordered Consumer Portfolio to establish a "comprehensive data integrity program" to make sure its account information is correct and complete, including the information it furnishes to credit bureaus.
In contrast, previous CFPB consent orders in auto finance have been based on allegations of pricing discrimination against legally protected borrowers, such as minorities or women, or else misleading claims in the marketing of aftermarket F&I products, such as extended service contracts.
CFPB Director Richard Cordray said the consent order with First Investors Financial Services was meant to "send a signal" to companies that furnish information to credit bureaus: "You cannot pass the buck on this responsibility."
Without citing auto lenders specifically, the CFPB said it is investigating more cases concerning consumer data accuracy.