DETROIT -

With a credit report being such a significant element in the vehicle financing process, Consumer Financial Protection Bureau director Richard Cordray told the gathering assembled for a credit reporting field hearing how regulators might oversee how credit report providers do business.

Cordray insisted on Monday that, “credit reporting plays a critical role in consumers’ financial lives, a role that most people do not recognize because it is usually not very visible to them. Credit reports on a consumer’s financial behavior can determine a consumer’s eligibility for credit cards, car loans, and home mortgage loans — and they often affect how much a consumer is going to pay for that loan.

“If you have a credit record that appears to show a greater risk that you will fail to repay a loan, then you may be denied credit and you likely will be charged higher interest rates on any loan offered to you,” he continued at the Detroit Institute of Arts.

“Because no federal agency has previously had the kind of broad access to information about the operations of the credit reporting companies that the bureau will now have, there is much we do not know yet about the true risks that consumers face in this market,” Cordray declared. “As we go forward, we will be gathering data to determine how the various parts of the Consumer Bureau can best act to protect consumers.”

Cordray spelled out what the three areas of focus the CFPB intends to take when it comes to credit reporting.

The bureau believes oversight of credit reporting companies — chiefly Experian, Equifax and TransUnion — will help make sure that the information provided to them is itself reliable.

Cordray reiterated that lenders and others who furnish information to the credit reporting companies are legally required to have policies in place about the accuracy and integrity of the information they report — which includes identifying consumers accurately, correctly recounting their actual payment history and keeping their information and record keeping in order.

“Otherwise, their sloppy work becomes the true source of harm to the consumer’s overall creditworthiness,” Cordray cautioned. “We want to deepen our understanding of the record keeping and reporting practices by lenders and we want to see what the credit reporting companies can be doing to test and screen for the quality of information they receive.

Next, the CFPB noted that given the number of complaints it already has heard from consumers, and the findings reached in some reports on the subject, regulators want to know more about the accuracy of how credit reporting companies assemble and maintain the information contained in consumer credit reports.

“Accuracy is critical for consumers and for markets,” Cordray emphasized. “We recognize that achieving such accuracy takes a great deal of discipline and effort, particularly for a company that is handling and processing a huge volume of information. But because of the increasingly significant role these reports are taking on in our financial lives, the collateral consequences of mistakes can greatly harm consumers.

“The wrong information may cause them to be denied a loan, to be charged a much higher interest rate, or to be passed over for a job, causing them serious economic hardship,” he added. “And inaccurate credit reports also deprive lenders of essential information they need to assess credit risk properly.”

Furthermore, the CFPB pointed out that it’s keenly interested in understanding more about the problems and frustrations that consumers say encounter in trying to resolve disputes about the information contained in their credit reports.

“Some errors may be unavoidable even in the best of system,” Cordray acknowledged. “But when consumers find what they perceive to be erroneous information in their credit reports, they should not be burdened by unreasonably laborious processes to get errors removed from their files.

“There are certainly valid reasons why a credit reporting company must conduct a reasonable investigation when a consumer disputes information, and follow the procedures outlined in the law,” he went on to say. “But the harm done by errors is borne above all by consumers, and they deserve straightforward, effective, and timely mechanisms for addressing disputed items.”

Before Cordray made his comments in Detroit, Experian spokesman Gerry Tschopp told the Wall Street Journal, “Further careful study will continue to confirm the high degree of accuracy achieved by credit-reporting companies in a highly complex environment.”

Tuschopp added “the industry has implemented effective solutions for consumers to dispute what they identify as errors.”

Equifax and TransUnion declined to comment in this report.

After giving the brief outline, Cordray informed the gathering that today’s proclamation is “just a start” of what the CFPB plans to do in connection to credit reporting.

“These initial areas of concern — accuracy of the information received by the credit reporting companies, their accuracy in assembling and maintaining that information, and the processes that govern error resolution — are just a start,” Cordray insisted. “They are the obvious and essential basics. But as we learn more about this market from consumers, from the supervised firms, and from others, we will adapt and adjust.

“The Fair Credit Reporting Act sets out an ambitious goal: Credit reporting companies ‘shall follow reasonable procedures to assure maximum possible accuracy of the information’ contained in credit report,” Cordray continued. “In this context, we are here to correct what is not going well, and we are here to see that this market is made to work better for those who are affected the most. And we will exercise our supervisory authority to make sure that the consumer financial laws are being followed.

“This country’s credit reporting system is a resource in which we all have a stake,” Cordray went on to say. “That system must merit our trust and confidence for the credit markets to be perceived as fair. We all share in this responsibility. But the credit reporting market is not one where consumers can shop around among different providers, for people have no choice about whether to have any of the credit reporting companies keep track of their credit history. That is why the Consumer Bureau’s new authority is so important, and why it must be exercised carefully and effectively.

As much burden as the CFPB appears to be putting on credit reporting companies, Cordray closed his comments by pointing out the responsibilities that fall on consumers.

“What consumers can do, however, is be smart about how they manage their own credit,” the director recommended. “They need to know how to build up their creditworthiness, so that they can take control over their credit history in a positive way. They also need to be aware that federal law gives them the right to a free credit report from each of the nationwide credit reporting companies.

“It is critical for each of us to exercise that right. Keep in mind that nobody else has as much incentive to protect you as you have to protect yourself,” he concluded.

Cordray’s entire speech at Monday’s credit reporting field hearing can be found here. A video of his presentation can be viewed below.

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