Proposed Amendments to the Fair Credit Reporting Act

The Consumer Financial Protection Bureau (CFPB) issued a proposed rule that would: (1) establish a method for a victim of human trafficking to submit documentation¹ to consumer reporting agencies; and (2) prohibit the consumer reporting agencies from furnishing a consumer report containing the adverse item(s)².

The CFPB is seeking public comment regarding the proposed rule change until Monday, May 9, 2022.

The CFPB is issuing this proposal pursuant to its authority under the Fair Credit Reporting Act (FCRA), the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the mandates set forth by Section 6102 of the 2022 National Defense Authorization Act (NDAA). The CFPB is seeking to assist consumers who are victims of trafficking in rebuilding financial stability and personal independence. 

Summary

On April 7, 2022, the CFPB issued a notice³ of a proposed rule that would amend FCRA Regulation V. The proposed changes would prohibit a consumer reporting agency (CRA) from furnishing a consumer report containing any adverse item of information concerning a consumer that resulted from a severe form of trafficking in persons or sex trafficking if the consumer has provided trafficking documentation to the consumer reporting agency.

Section 6102 of the 2022 NDAA amended the FCRA by inserting Section 605C, and related Subsection 605C(b). that prohibit the furnishing of consumer reports containing any adverse information concerning a consumer that resulted from a severe form of trafficking.

Enacted in 1970, the FCRA regulates consumer reporting. It was enacted to protect consumers from the transmission of inaccurate information in consumer reports. The FCRA was designed to ensure that reporting agencies adopt responsible credit reporting practices. The FCRA, along with its implementing regulation, Regulation V, creates a regulatory framework for furnishing, using, and disclosing information in reports associated with credit, insurance, employment, and other major decisions made about consumers. 

What's New

In the notice, to implement Section 605C of the FCRA, CFPB is proposing several amendments⁴ to Regulation V, which was added by the NDAA for FY 2022. Under Section 605C, CFPB is required to issue regulations within 180 days of the enactment of the 2022 NDAA and Section 605C is effective 30 days after the CFPB issues its final regulation and is recorded in the Federal Register.

The CFPB is proposing the following amendments to Regulation V:

1. Create a new section in subpart O, the subpart on miscellaneous duties of consumer reporting agencies, to add the provisions implementing Section 605C of the FCRA.
2. Apply the proposed regulations to any “consumer reporting agency” as defined in Section 603(f) of the FCRA, namely nationwide consumer reporting agencies, nationwide specialty consumer reporting agencies, and all other consumer reporting agencies.
3. Define terms including “trafficking documentation,” “severe forms of trafficking in persons,” “sex trafficking,” and “victim of trafficking.”
4. Establish procedures for implementation of the new prohibition, including establishing how affected consumers should submit the required documentation to consumer reporting agencies and record-keeping requirements to ensure compliance.

Financial Impact on Survivors

Many victims of human and sex trafficking suffer from financial abuse, which perpetuates the cycle of victimization and abuse. The survivors and organizations that support them report that traffickers employ financial abuse to fund operations and leverage it as a method of control. As the traffickers ruin their victim’s credit history and open large lines of credit, the victims are unable to rent an apartment, make large asset purchases, or find stable employment, making it difficult for the victim⁵ to leave the trafficker(s).

The proposed rule would assist survivors of trafficking in building financial stability by:

1. Helping survivors understand how to report their status to consumer reporting agencies and streamlining the definition of appropriate forms of documentation to assist in the relief of financial burdens. Currently, only survivors trafficked abroad are likely to have a standard form of documentation. The CFPB wants to better understand the types of documentation that exist within the United States because often nonprofits, courts, and multiple levels of government assist survivors. 
2. Requiring CRAs to block adverse information from being published in consumer reports after receiving the proper documentation from the survivor. 
3. Ensuring the new rules are applicable to all CRAs, which would include nationwide CRAs such as Equifax, Experian, and TransUnion. 

Key Considerations

Covered entities should consider proactively assessing their exposure based on the proposed rule and reviewing areas requiring enhancement when the new rule takes effect. This includes identifying and assessing any operational or technical limitations that would inhibit compliance with the proposed amendments and evaluating their current policies, procedures, and controls relating to collection and transmittal of information associated with consumer reporting. CRAs and financial institutions should also consider developing a plan to implement necessary changes, including additional costs and resources required, to help ensure they are able to timely comply with the revised rules.

Though the proposed rule amendment does not require financial institutions to alter their regulatory obligations, financial institutions may experience an increased volume of consumers contacting them regarding adverse items that may have resulted from being a victim of trafficking. In order to handle these unique circumstances and resulting disputes concerning adverse consumer reporting, financial institutions should improve existing processes or develop new processes and procedures.

Call to Action

Guidehouse can help CRAs with programmatic changes if the proposal becomes a final rule and financial institutions assess their compliance programs in light of the proposed regulatory changes, including developing and implementing updates to operations, policies, procedures, controls, and technology. Its areas of relevant expertise include the following:

• Strategic planning
  
• Risk management
  
• Dispute handling
  
• Vendor sourcing and governance
  
• Executive training
  

Guidehouse can quickly review and assess your FCRA compliance program to determine whether it is sound, identify gaps or weaknesses, or conduct training on FCRA compliance. Guidehouse is well-equipped to make an individualized assessment of your unique circumstances and offer innovative advice and solutions for responding to heightened regulatory requirements.

Special thanks to Daniel Lane for co-authoring this article.

^{1 Includes information identifying the consumer as a victim of human trafficking or sex trafficking made by a federal, state, or tribal governmental entity, or by a court of competent jurisdiction. Further, documentation that identifies items of adverse information that should not be furnished by a consumer reporting agency because the items resulted from forms of trafficking in persons or sex trafficking for which the consumer is the victim.
2,3,4 https://files.consumerfinance.gov/f/documents/cfpb_consumer-reporting-cases-of-human-trafficking_nprm_2022-04.pdf
5 https://www.consumerfinance.gov/about-us/newsroom/cfpb-seeks-to-halt-negative-credit-reporting-for-survivors-of-human-trafficking/}