MONEY & THE LAW: Alternative credit reporting agencies must follow same law as the big three

By: name Newspaper
August 26, 2013 Updated: August 26, 2013 at 6:30 pm
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Now that the housing bubble, brought on by loose mortgage lending, is (hopefully) behind us, there may be another bubble in the works - one involving motor vehicles.

After a near-death experience a few years ago, the U.S. auto industry has come storming back, with some manufacturing facilities running three shifts a day.

What is fueling this boom, in part, is loose auto lending. The subprime auto loan market is expanding rapidly and, according to a recent article in the Washington Post, constitutes 35.4 percent of outstanding auto loans. This translates to $257 billion in subprime loans.

And Wall Street is again in the thick of it, bundling subprime auto loans into securities and selling those securities to investors who like the high interest rates that attach to these loans and are willing to tolerate default rates above 5 percent. Adding further risk in this market are loan repayment periods that exceed the useful life of a vehicle (other than as a large, oily paper weight) and quickly leave borrowers owing more than their vehicle is worth.

Helping to fuel loose lending in the auto industry is a move toward alternative sources of credit analysis. Some auto lenders, in pursuit of qualifying more borrowers and making more loans, are moving from credit reports and credit scores generated by the big three credit reporting agencies: Experian, TransUnion and Equifax. They instead turn to customized reports that drill down on things like utilities payments, cellphone bills and rental histories. The availability of large amounts of public data, and the ability of computers to sort that data, is giving birth to a new credit reporting industry. (If you want to see an example, check out Lexis- Nexis' analytical products sold under the trade name RiskView.)

Fortunately for consumers, a federal law that's been around in one form or another since 1970, the Fair Credit Reporting Act, applies in substantial part to these new credit reporting agencies, in the same manner as the big three traditional credit reporting agencies. In particular, the rules governing error resolution are the same.

Once a credit reporting agency receives notice that information in a consumer's credit file is inaccurate or incomplete, the credit reporting agency must, without charge to the consumer, begin an investigation. The investigation must be completed within 30 days following receipt of the consumer's notice.

As part of its investigation, the credit reporting agency must, within five business days, inform the entity providing the information that the information is being disputed and forward to it everything the consumer has given the agency. The information-providing entity is then supposed to check its records and respond to the credit reporting agency. If the credit reporting agency determines the information in its file is, in fact, inaccurate or incomplete, it must promptly delete or correct the information.

Due to multiple amendments over the past 43 years, the Fair Credit Reporting Act, has become complicated. Helpful information, however, can be found at the Consumer Financial Protection Bureau's website,

In defense of subprime auto lending, subprime auto lenders have one thing going for them that subprime home lenders never did. Years ago, this became the inspiration for a popular Porsche Club of America T-shirt: "You can sleep in your car but you can't drive your house."


Jim Flynn is a private attorney with Flynn Wright & Fredman LLC in Colorado Springs. Email him at

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