Under the Fair Credit Reporting Act, companies – and lenders – are allowed to access credit reports only for “permissible purposes,” like determining if a person is creditworthy. But federal regulators say a Florida-based subprime credit reporting company illegally obtained tens of thousands of consumers’ credit reports for use in marketing materials for potential clients, including payday lenders.
The Consumer Financial Protection Bureau announced today that it ordered subprime credit reporting company, Clarity Service, Inc. and its owner to pay $8 million for a slew of illegal practices related to mishandling credit reports and failing to investigate consumer disputes.
According to the CFPB’s consent order [PDF], since 2011 Clarity, and its owner Tim Ranney, have illegally purchased credit reports from other credit reporting agencies, supplemented those files with alternative data and resold the new reports to lenders who make small-dollar loans, typically of the payday variety.
A probe of the company’s practices found that Clarity and Ranney collected personal information from hundred of thousands of credit reports for the sole purpose of creating marketing materials used to solicit business from lenders and other financial service providers.
“To generate marketing presentations, Clarity obtained consumer application data from prospective clients relating to consumers that had applied to the client for loans in the past,” the complaint states, noting that Clarity would obtain fully identified, current reports from third-party CRAs.
In one case, the company pulled 190,000 reports for a single client presentation.
The CFPB alleges that Clarity’s use of the reports did not constitute a permissible purpose under the Fair Credit Reporting Act.
Among other things, the Act helps to ensure that consumer reports are obtained and used appropriately and that consumer privacy rights are protected. When a lender requests to pull a credit report for a permissible use, the inquiry often appears on the consumer’s credit file.
Because Clarity obtained the reports without proper permission, consumers’ credit files wrongly reflected a permissible inquiry by a lender.
“When the lender learned of this and raised it with Clarity, Clarity and Ranney requested that the credit reporting companies delete evidence of the unauthorized pulls of information from the consumers’ reports,” the complaint alleges.
In addition to improperly using credit reports, the CFPB claims that Clarity failed to investigate individuals’ disputes – including those related to credit inquiries – even though the company was aware that some files were populated with information from unreliable sources.
“Specifically, the company would not investigate a dispute if a consumer did not supply supporting documents,” the CFPB alleges.
In cases when a consumer identified specific issues and the reason why they thought the item was inaccurate or incomplete, Clarity failed to reinvestigate unless they were provided specific documentation.
Clarity also allegedly failed to investigate disputes related to identity theft and routinely failed to provide information to furnishers about consumer disputes.
Under the CFPB’s proposed consent order, Clarity and Ranney must pay an $8 million civil penalty to the CFPB, end the illegal use of credit reports, implement policies to ensure that reports are used for permissible purposes and fully investigate consumer disputes.
“Credit reporting plays a critical role in consumers’ financial lives,” CFPB Director Richard Cordray said in a statement. “Clarity and its owner mishandled important consumer information and failed to take appropriate action to investigate consumer disputes.”
