Subprime Auto Lender Fined $2.8 Million
DALLAS (CN) - A Texas subprime automobile lender has been fined $2.75 million for knowingly reporting inaccurate information to customer credit records for at least three years, the Consumer Financial Protection Bureau said Wednesday.
Houston-based First Investors Financial Services Group was slapped with the fine for violating the Fair Credit Reporting Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
CFPB Director Richard Cordray said during a conference call Wednesday that the lender "showed careless disregard for its customers' financial lives" by distorting their credit records for years.
First Investors first learned its computer systems were inaccurately reporting customer credit data to one consumer reporting agency in March 2011.
"In one example, the information respondent furnished to the CRA [Credit Reporting Agency] indicated 11 historical delinquencies when in fact the consumer had only been delinquent twice," the consent order states. "In approximately November 2011, respondent negotiated with the one CRA to implement a workaround that stopped the misreporting of payment history profile information. However, during the nine-month period between the discovery of the problem and the implementation of the workaround, respondent continued to furnish payment history profile information it knew to be inaccurate for between 11,804 and 14,622 customer accounts on a monthly basis."
The CFPB said that by April 2011 First Investors had learned it was inaccurately reporting to the CRAs many of its customers' date of first delinquency, exposing customers to the likelihood that the delinquency would stay on their credit records beyond the 7-year period allowed by the law.
"When First Investors discovered the problem in April 2011, it notified the vendor but did nothing more," the CFPB said in a statement. "The company did not replace the system or take any steps to correct the inaccurate information it had supplied. It continued for years to use a system that it knew was flawed. Tens of thousands of consumers were likely subject to these systemic reporting problems
The CFPB said in its statement that First Investors failed to report certain payments made by borrowers, overstated past due amounts, inflated the number of delinquencies and mischaracterized the type of vehicle surrender that took place.
Cordray said an error in a person's credit reports "could make a big difference" in someone getting a loan or even being offered a job.
"This is particularly true of First Investors' customers, many of whom were subprime borrowers to begin with - a population that the company strategically targeted," Cordray said. "When First Investors knowingly sent the wrong information to the credit reporting agencies, it put consumers with credit profiles that were already impaired into an even more perilous position."
Under the consent order, First Investors must correct the credit report errors, help customers obtain free copies of their credit reports and establish internal safeguards to prevent errors, including an audit program.
Cordray warned companies to not "pass the buck" on setting up sound practices.
"Using a flawed computer system purchased from an outside vendor does not get you off the hook for meeting your own obligations," Cordray said.
First Investors did not respond to a request for comment Wednesday evening.