The Consumer Financial Protection Bureau (“CFPB”) was tasked with bringing increased transparency into consumer financial markets. As part of their mission, the bureau is looking into whether credit scoring gives consumers the tools they need to make informed decisions.
The CFPB released a preliminary report to Congress yesterday looking at the differences between the credit reports sold to consumers and those reviewed by lenders to make credit decisions. As the report notes, many consumers do not realize that there are differences.
According to the report, the credit scores available for purchase by consumers may vary from the score used by lenders for a number of reasons, including:
The use of different scoring models;
Lenders and consumers may be using different credit reporting agencies (CRAs);
Data in reports may change between the time the consumer purchases the score and when the lender obtains it;
A consumer and lender could possibly get different reports from the CRAs if they used different identifying information.
The report noted that when the score a consumer obtains differs from the one a lender sees, it may result in harm to the consumer. For instance, if the consumer sees a less favorable report, the consumer may apply to lenders that are offering less favorable terms. If the consumer sees a more favorable report, she may waste money on application fees. This may further harm the consumer as a denial of a credit application generally has a negative effect on credit scores.
The CFPB’s investigation into this issue is not complete. It is now working with the various CRAs to obtain and compare data. The full text of the report is available here.