Archives for July 2022

Please join Consumer Financial Services Partner Chris Willis and his guests and colleagues, Stefanie Jackman and Sarah Reise, as they discuss the intersection of fair lending with collections. They cover which types of processes relevant to third party debt collection could be subject to a fair lending review, the difference between disparate treatment and disparate impact, how the CFPB may review collection-related decisions, what a basic fair lending analysis may look like for collectors, the processes that are likely to be targeted for a fair lending review, and what collectors can do now to update their compliance management system and assess their operations to try and identify and mitigate potential fair lending issues.

Consumer Financial Services Partner Stefanie Jackman focuses a significant portion of her practice on providing compliance-related advice to her clients. She regularly counsels clients on conducting compliance assessments relating to their debt collection, credit reporting and dispute resolution processes, fair lending and underwriting, and vendor oversight, as well as the functionality of their overall compliance management system.

Sarah is counsel in the firm’s Consumer Financial Services Practice Group, where she represents clients in financial services and mortgage banking in cases involving all aspects of consumer financial services and products, including claims arising under state and federal lending statutes and consumer protection laws, such as the Fair Credit Reporting Act (FCRA), the Fair Debt Collections Practices Act (FDCPA), the Real Estate Settlement Procedures Act (RESPA), and the Truth in Lending Act (TILA).

In case you missed it, in a June 28, 2022, press release, the  Consumer Financial Protection Bureau (CFPB) announced it issued an interpretive rule (Rule) clarifying that states can police credit reporting markets. Within the Rule, the CFPB specifically encouraged states to target medical debt and tenant screenings. 

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In the CFPB’s view, the Fair Credit Reporting Act (FCRA) only preempts narrow categories of state law and does not preempt state laws that forbid certain information or other content from appearing in credit reports. The Rule included the following non-exhaustive list as examples of restrictions states may impose without conflicting with the FCRA: 

• Forbidding consumer reporting agencies or furnishes from including medical debt in a consumer report for a certain period after the debt was incurred.

• Prohibiting consumer reporting agencies from including information about a consumer’s eviction, retail arrears, or arrests on a consumer report. 

The CFPB noted that it clarified this topic in response to recent legal challenges claiming the FCRA preempts state consumer protection laws. Since the CFPB published this clarification as an interpretative rule, it was not required to provide a notice-and-comment period for interested parties to provide feedback. 

The Rule can be found in its entirety here. 

insideARM Perspective:

It is clear that the CFPB does not think the FCRA sufficiently protects consumers. However, rather than using any of its own authority to protect consumers, the CFPB has simply advised states that it won’t get in the way of state legislation. This stance is likely to result in a patchwork of various state laws which will be difficult if not impossible to meet simultaneously. Ultimately, giving states the green light to enact 50 different versions of credit reporting laws is going to create confusion and harm consumers.  

There are three takeaways that stick out after reading this Rule: 

1.  ARM entities that report medical debt to the credit bureaus may want to re-evaluate that strategy. The CFPB isn’t mincing its words: it does not think medical debt belongs on credit reports. 

2. Compliance departments should be fully staffed. Complying with state and federal laws simultaneously is getting more, not less, complex. Those that are understaffed will pay a price down the line. 

3.  Keep an eye on your state legislatures. If you see something brewing that the industry would want to know about, send it around (including to us at editor@insidearm.com!). 

Dispute volumes continue to exhaust dispute processing operations. Even highly proficient teams can be more efficient with a Disputes Case Management System (DCMS). Read on for the top four advantages of migrating to a DCMS.

Picture this…the next five disputes in queue are a mix of indirect and direct, which means two different applications. The disputes are for five different products, which means five different systems of record. Summary notes are captured in a different application, and customer correspondence sent from yet another application.

Confused yet?

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Welcome to the daily routine of a typical dispute specialist.

Because of the rinse and repeat nature of many disputes, your specialists may be highly proficient in navigating the tangled web of their day-to-day duties. But are they truly efficient?

Disputes Case Management Systems Smooth the Process and Build Efficiency

A robust disputes case management system helps untangle the growing web of inefficiency navigated daily by dispute specialists.

Let’s face it, dispute volumes are through the roof. Large furnishers are handling volumes in the tens of thousands every month (many of which are duplicates). Volumes for smaller furnishers are relatively significant as well.

Because of high dispute volumes and multiple disparate systems to navigate, your typical dispute specialist is a highly proficient worker who skillfully navigates green-screens and web-based applications alike.

Some refer to this constant multi-system navigation as the “swivel-chair effect.” Imagine if you could perform all the following dispute-related activities in one central location:

• Organize disputes into manageable queues
• Review direct and indirect disputes
• Consolidate duplicates
• View and analyze all relevant information from multiple systems of record
• Retain evidence of completing your “reasonable investigation”
• Summarize all activities taken
• Send correspondence to the customer
• Submit an AUD or ACDV

This all sounds appealing, but the real question is: how much more efficient could your specialists be with such a tool? It is impossible to definitively quantify but combining your specialist’s proficiency with DCMS efficiency is likely a tailor-made formula for success.

A DCMS Simplifies, Prioritizes, Eliminates Errors…and is Regulator Ready

Now for some of the specifics related to key pain points that a disputes case management system can eliminate.

Duplicates – Triplicates – Quadruplicates…

Ever get frustrated that your specialists must reply to the same verbatim dispute from the same customer multiple times in a month? Ideally, you would consolidate these disputes so that two, three or four responses turn into one. Consolidation significantly cuts down redundant, excess and unnecessary work. A DCMS can do just that.

Disputes are generally not responded to immediately upon receipt. So, a DCMS uses the time when disputes are waiting in queue to detect similar or duplicate disputes. Then, the DCMS consolidates them all into one case. When your dispute specialist works that case, they issue one response and close all related dispute cases at once.

Evidence – A Regulator’s Best Friend

If you have ever participated in a regulatory exam, you know how critical it is to be able to provide tangible evidence to the regulatory body. From a disputes perspective, you must provide copies of received disputes and system notes; and you need to show what the system of record looked like when the dispute was received. This applies to disputes where furnishing was accurate and inaccurate.

Generally, when regulators arrive to perform a historical lookback, they are looking for tangible evidence. The evidence validates what data was in a system at the time of a dispute compared against what was changed (if anything). A DCMS captures and retains this information, thereby making a regulatory data request a significantly simplified exercise to fulfill.

Queue Management – Prioritizing the Workday

While all disputes have the same response SLA, all disputes are certainly not created equal. Some disputes have higher sensitivity (e.g., ID theft). Some may take a bit longer to investigate (e.g., Mortgage COVID forbearances or purged accounts). And some may be “light touch” requiring a simple investigation (e.g., goodwill requests).

The ability to strategically prioritize and assign disputes, using many different attributes, will allow for efficiency gains. A DCMS can ingest all available data and dissect it based on your criteria (e.g., dispute code, product, system of record, dispute type). Logic rules can then be applied to create prioritized dispute queues so critical cases and those known to take longer are fast-tracked to specifically trained specialists.

Eliminate “Fat Finger” Errors

The speed at which dispute specialists constantly copy information from one place to another ultimately results in data entry errors. Many times, because they are working so quickly, mistakes go unnoticed, which ultimately results in updating a tradeline with more inaccurate information.

Imagine if all required information was populated with the click of a button and simply required a review for accuracy. This ability not only reduces time to complete a dispute but eliminates unnecessary data entry errors. A DCMS can load, copy, or transfer relevant data with the click of a button, eliminating the need for monotonous manual keying of data.

As you can see, a DCMS solves many of the challenges that disputes organizations encounter daily; but you must be willing to make the investment and configure the DCMS to work for your organization.

A DCMS will only be as effective as you are willing to make it. Remember that an under used or poorly configured DCMS can still drive inefficiencies in a dispute organization. Capitalize on your specialist’s proficiency today and deploy a DCMS into your organization, and truly become a model of efficiency in credit bureau dispute processing.

In a new advisory opinion, the CFPB addresses the Fair Credit Reporting Act’s permissible purpose requirement as it applies to both consumer reporting agencies and users of consumer reports.

Consumer reporting agencies. 

FCRA Section 604(a) enumerates the circumstances under which a consumer reporting agency (CRA) may provide a consumer report to a user.  These circumstances, set forth in Section 604(a)(3), include where the CRA has “reason to believe” that the user intends to use the report for one of the listed “permissible purposes.”  Such purposes include where the user “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving an extension of credit to, or review or collection of an account of, the consumer.”  Another permissible purpose is where the user “has a legitimate business need for the information…in connection with a business transaction that is initiated by the consumer or to review an account to determine whether the consumer continues to meet the terms of the account.”

The CFPB states that it interprets the permissible purposes identified in Section 604(a)(3) to be “consumer specific,” meaning that “they apply only with respect to the consumer who is the subject of the user’s request—and a consumer reporting company may not provide a consumer report to a user under FCRA section 604(a)(3) unless it has reason to believe that all of the consumer report information it includes pertains to the consumer who is the subject of the user’s request.”   In addition, a CRA may not provide a consumer report under Section 604(a)(3) “unless it has reason to believe that the user has a permissible purpose with respect to the consumer about whom the report is requested.”  This also means, according to the CFPB, that a CRA may not provide a consumer report under Section 604(a)(3) “unless it has reason to believe that all of the consumers report information it includes pertains to the consumer who is the subject of the user’s request.”

In November 2021, the CFPB issued an advisory opinion that affirmed that the use of “name-only matching” by consumer reporting agencies, including tenant and employment screening companies, did not satisfy the FCRA requirement for a CRA ”to follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the [consumer] report relates.”  “Name-only matching” means the matching of information by a CRA to a particular consumer who is the subject of a consumer report based solely on whether the consumer’s first and last names are identical or similar to the first and last names associated with the information, without verifying the match using additional identifying information for the consumer.

In the new advisory opinion, the CFPB goes a step further and states that “the use of poor matching procedures, such as name-only matching, can lead to violations of the FCRA’s permissible purpose provisions.”  This is because a CRA using poor matching procedures “cannot rely on these procedures to form a reason to believe that all of the information it includes in a consumer report pertains to the consumer who is the subject of the user’s request.”  As an example, the CFPB describes a scenario in which a CRA that conducts a public records search using name-only matching identifies one or more individuals with the same name as the consumer who is the subject of the user’s request and, instead of taking additional steps to match the information to the specific consumer who is the subject of the request, provides the user with a report containing a possible match or list of possible matches.  According to the CFPB, in this scenario, the CRA has not formed a reason to believe that all of the information it includes in a consumer report pertains to the consumer who is the subject of the user’s request.  By including information that identifies (even if not by name) consumers who are possible matches and consumer report information about those consumers (such as information bearing on creditworthiness), the CRA has provided consumer reports about those consumers to a user that does not have a permissible purpose to obtain them.

The CFPB also addresses the use of disclaimers by CRAs using matching procedures to warn users that the information on a consumer report may not belong to the consumer who was the subject of the user’s request.  The CFPB states that a disclaimer “will not cure a failure to have a reason to believe that a user has a permissible purpose for a consumer report” and “will not change the fact that the consumer reporting company has failed to satisfy the requirements of 604(a)(3) and has provided a consumer report about a person lacking a permissible purpose with respect to that person.”

Users of consumer reports. 

Section 604(f) prohibits a person from using or obtaining a consumer report “unless…the consumer report is obtained for which the consumer report is authorized to be furnished under [FCRA Section 604]” and the purpose is certified in accordance with FCRA Section 607.   The CFPB states that it interprets Section 604(f) “to provide that consumer report users are strictly prohibited from using or obtaining consumer reports without a permissible purpose.”  The CFPB rejects the court decisions that have applied a “reason to believe” standard, stating that the plain language of Section 604(f) “clearly imposes a strict prohibition on using or obtaining a consumer report without a permissible purpose.”  The CFPB’s interpretation appears to raise the potential for users to be held liable for FCRA permissible purpose violations resulting from a CRA’s matching procedures or mistakes.  As a result, users will need to consider the impact of such potential liability on their selection and contractual relationships with CRAs.  Notably, users have routinely relied upon the “reason to believe” standard – which the CFPB rejected – to defend against claims by consumers that it was an identity thief that applied for credit and triggered the user to make the credit inquiry. 

Criminal penalties. 

In its background discussion, the CFPB highlights the potential for criminal liability arising from violations of the FCRA’s permissible purpose requirement.  FCRA Section 619 imposes criminal liability on “any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses.”  Section 620 imposes criminal liability on “any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to a person not authorized to receive that information.”  (Except for one criminal matter mentioned on the Department of Justice’s website, we are not aware of any FCRA criminal prosecutions.  The DOJ states that in 1998, it obtained the conviction of an individual in Colorado who had fraudulently obtained a credit report to use in a political campaign.)

On July 15, the California Department of Financial Protection and Innovation (DFPI) issued an invitation for comments on proposed additions to regulations implementing the Debt Collection Licensing Act (DCLA). According to the invitation, the new provisions pertain “to the scope, annual report, and document retention requirements of the DCLA.” For example, the proposed regulations define “original creditors” and propose to generally exclude them from licensure unless one or more of the following benchmarks applies:

The proposed regulations also exclude from licensure “person[s] solely servicing debts not in default on behalf of an original creditor[.]”

Additionally, the proposed regulations would:

• Add some definitional provisions, including one which defines what it means to “[e]ngage in the business of debt collection”;

• Exclude parent entities, subsidiaries, and affiliates from the statutory licensing exemption;

• Exclude various government bodies, health care-related entities, public utilities, and some entities operating under the Student Loan Servicing Act from licensure under the DCLA;

• Exclude from the definition of “consumer credit transactions” certain debts related to resident rent, HOAs, and health care;

• Require a signed attestation from a principal officer or sole proprietor of a licensee to the accuracy and completeness of the annual report;

• Clarify what information an annual report must contain regarding certain debtor accounts;

• Require, with some exclusions, records pertaining to contact or attempted contact with anyone associated with a debtor account, along with records pertaining to: (a) Employees; (b) Records required by other laws; (c) Accrued fees, interest, and charges; (d) Termination of collection efforts on an account; and (e) Complaints, responses, and supporting compliance documentation; and

• Require the above records be kept for seven years and outline how to calculate the retention period.

To review the full text of the proposed regulation, click here.

Comments, which may be submitted either by email or mail, must be submitted by Monday, August 29. For information regarding how and where to submit comments, review the DFPI’s invitation to comment by clicking here.

ORLANDO, Fl —During ACA International’s 2022 Convention & Expo in Orlando, the Council of Delegates elected four board members to serve three-year terms and one board member to serve a two-year term on the ACA Board of Directors. The ACA Board of Directors also elected a slate of new officers for the 2022/2023 term.

The officers elected by the ACA Board of Directors to serve one-year terms in their respective roles are:

• Courtney Reynaud, president (president of Creditors Bureau USA in Fresno, California) 
  
• David Williams, president-elect (president/CEO of Williams & Fudge Inc. in Rock Hill, South Carolina)
  
• Michael Klutho, treasurer (shareholder at Bassford Remele in Minneapolis, Minnesota) 

The board members elected by the Council of Delegates for three-year terms are:

• Christian Lehr, co-owner at Healthcare Collections-I LLC
  
• Tim Haag, president of State Collection Service Inc.
  
• Harry Strausser III, president of Applied Innovation Inc.
  
• Gregg Swersky, chief relationship officer, Wakefield & Associates Inc. 

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The board member elected by the Council of Delegates for a two-year term is:

• Stephen Laws, president at Magnet Solutions and Accelerated Receivables Solutions in Scottsbluff, Nebraska.

“The ACA Board of Directors plays an essential role in helping members succeed as leaders in the accounts receivable management industry focused on advocacy and education and ensuring ACA is the voice for the industry with regulators and legislators,” said ACA CEO Scott Purcell. “I truly value the new members taking on these essential volunteer leadership roles and continuing to lead us into new horizons after some tough years for businesses and consumers. Furthermore, I look forward to working with the returning members and new officers as we continue the momentum as leaders in the industry we’ve achieved in the last year.”

The line of cases known as “Hunstein Copycats” continues to develop through the court systems. Unlike the last case to make headlines, the most recent result is positive for the ARM industry. 

In Tukin v. Halsted Financial Services, No. 21-cv-00025 (N.D. Ill  July 12, 2022), the consumer alleged that the debt collector (Halsted) violated the Fair Debt Collection Practices Act (FDCPA) when it used a letter vendor to print and mail the consumer a letter. The consumer also alleged that Halsted’s demand letter violated the FDCPA because it improperly listed the current owner of the debt, failed to contain required disclosures, and had a code on the outside of the envelope. Though the consumer alleged that Halsted’s letter was confusing, he admitted during his deposition that he benefitted from Halsted’s letter because he could pay off his debt for less than the amount owed. 

Halsted filed a motion for summary judgment alleging that the consumer did not suffer an injury sufficient to allow him to maintain the action in federal court. The judge agreed with Halsted and ruled in its favor. 

First, regarding the alleged deficiencies with the letter, the judge noted that confusion caused by a letter is not an injury sufficient enough to maintain a lawsuit. Because the consumer testified at deposition that he benefited from Halsted’s communication, the court found the consumer could not demonstrate he suffered any injury at all. 

The judge also rejected the consumer’s allegation that Halsted violated the FDCPA by using a letter vendor. Specifically, the court held that the consumer could not establish that he suffered an injury because (a) the letter vendor did not analyze, modify, or manipulate the data and letters transmitted to it for printing; (b)the data used to print and mail the letters was secure and encrypted at all times; and (c) no individual had access to unencrypted data. According to the court, “Put simply, [the consumer] has not provided any evidence that his information was disclosed, not can he show a resulting injury from that disclosure.” 

After the decision, Halsted’s General Counsel, Brian Glass, remarked, “Halsted is very pleased with the outcome and is thankful to Manny Newburger and Nabil Foster for their expert representation. In this case, the Plaintiff testified that he actually benefited from our letter, which was the subject of the litigation and contained a discount offer, because he was able to pay off his debt for less than the amount owed. Without concrete injury, cases like this cannot persist in Federal Court. We are committed to defending frivolous matters and Judge Wood’s decision to dismiss the pending litigation solidifies our decision to defend this case.”

The full order granting summary judgment in Halsted’s favor can be read here. 

insideARM Perspective:

The notable difference in this case that distinguishes it from other Hunstein copycat cases is that the debt collector was able to introduce evidence. Note that Halsted won on a motion for summary judgment, after gathering evidence, not a motion to dismiss where the court is limited by what has been alleged in the complaint. This distinction is significant because by waiting until the summary judgment phase to file its motion, Halstead was able to gather and introduce evidence that the consumer’s information was not actually disclosed to anyone. 

Since the CFPB has apparently decided not to comment on the Hunstein issue, the ARM industry is now forced to rely upon the courts to bring some common sense to the table. Though success on a Hunstein copycat defense still may be luck-of-the-draw, the ruling in Tukin may provide a road map for defense for those who are willing to reach the evidentiary stage of litigation. 

The COVID-19 pandemic created unprecedented challenges for the debt collections industry, including new regulatory rules, changing consumer demands, and a potential uptick in activity as forbearance nears an end and deferments fall off. The pandemic continues to affect everyone’s lives, and — along with inflation and market fluctuations — the only thing that’s certain is continued uncertainty. As lenders and third-party collections agencies plan their next steps, a robust evaluation of debt-recovery processes should be a required starting place.

In such uncharted territory, the more tools you can deploy and optimize, the greater your chances for high rates of return. Therefore, leveraging the best data and analytics on the market — paired with innovative solutions — are essential for your collections roadmap. Using data to automate and streamline — while strengthening your risk-identification and mitigation approach — can set you on the right path.

Your comprehensive strategy should focus on the following areas: 

• Leveraging the best data and digital solutions available
• Increasing agility in your end-to-end debt management process
• Using tools and services that keep you abreast of regulatory developments 

Customizing your approach can help minimize loss, optimize resources and maintain relationships, so you can collect debts faster and improve cash flow. Superior data and analytics provide a more comprehensive consumer view, which can lead to higher recovery rates, when deployed tactically across the collections lifecycle. To do that, let’s expand on the concepts above.

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Access the best data and digital technology

Data providers have a broad range of digital solutions created exclusively for the collections industry and its unique needs at every phase of the collections journey. For instance, collection-management software, skip-tracing and contact-information tools using advanced analytics can help identify, prioritize and assist with contacting and communicating with consumers. Pair these with other digital options that help treat and monitor, and you can evolve your collections processes to be as frictionless as possible for both your staff and consumers. 

Solutions that provide optimum visibility into consumers’ overall financial picture can bolster risk-management efforts. The deeper your consumer view, the stronger your prioritization insights. When you better understand and meet consumer needs, you can intervene earlier to prevent delinquency and collect greater amounts. 

With the proliferation of digital devices, contacting consumers at the right time, through the right channel, can improve their experience and increase likelihood of cooperation. Collections should be viewed as an omnichannel opportunity that can result in better return rates and less stress for the consumer. 

Increased agility in end-to-end debt management brings value

A lack of investment in the latest solutions can leave your business grappling with technology and processes that are severely outdated and leave little room for customization or optimization. Suppose you need to develop new payment or forbearance tools? Or perhaps you need options to help you respond fast to fluctuating market conditions? There are solutions that will help you stay agile and profitable in the face of these variables. 

Solutions that use machine learning and artificial intelligence are transforming how debt is collected, and effectively harnessing these tools is crucial. These technologies can analyze massive amounts of data from diverse sources and deploy algorithms to improve existing processes and capture new insights about delinquency risk and manage vulnerable accounts. Leveraging every advantage available can differentiate you from your competition.

Find options to meet and manage regulatory developments 

One of the greatest challenges for collections is adapting to an ever-evolving regulatory framework. When you can assess emerging vulnerabilities and update policies, you can better respond to market shifts and changing regulatory requirements. Ensure your debt-management strategies are fair and compliant with all regulations and policies in place through the latest solutions. 

From superior data through innovative compliance solutions, an industry partner that provides a range of options across the debt-management lifecycle can help you strengthen your bottom line.

Connect with a partner with best-in-industry data, technology, and in-depth industry experience

The uncertain economic environment continues to impact the collections industry. In the face of continued compliance requirements, changing consumer demands, and an expected uptick in collections volumes, debt-collection departments and agencies are navigating an industry in constant flux. Fortunately, there are opportunities as never before to tap into innovative solutions to minimize challenges and reap advantages as we move into the next phase of our global economy. 

Experian is committed to providing its partners the best solutions available and personalized customer service to optimize your efforts at every phase of the collections lifecycle. Retool your strategies with a trusted, best-in-industry data and analytics partner today to prepare for tomorrow.

ROCHESTER, N.Y. –Continental Service Group, Inc., d/b/a ConServe, is pleased to announce that Michelle Hartmann, Vice President of Sales was awarded the 2021 COHEAO Commercial Member of the Year award by the Coalition of Higher Education Assistance Organizations (COHEAO) at their 2022 Annual Conference held in Washington, DC in July.

Michelle was appointed the Internal Operations Co-Chair, Communication Chair in 2021.

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ConServe is a long-time member of COHEAO and strongly believes in COHEAO’s advocacies to preserve and improve campus-based programs, thereby providing students with access to Federal campus-based programs to help them achieve their higher education goals. Kevin Gelabert,

ConServe Chief Marketing Officer said, “ConServe’s involvement with National and Regional organizations provides us with immediate access to the latest information regarding Federal and state regulatory rules and updates. Michelle’s board position and dedication to her responsibilities reinforces ConServe’s position as a leading industry resource for our valued Clients and I commend her tenacity to always exceed expectations.”

Michelle oversees the training and management of ConServe’s Sales Team while exceeding Client expectations. Additionally, she has played an active role in supporting COHEAO’s efforts to improve networking and professional development through its conferences, webinars and task forces with a focus and has played an active role in growing membership. Michelle said, “It’s been gratifying to join the COHEAO Board of Directors to represent ConServe, campus business officers and finance professionals nationwide. I’m honored to have received this recognition from the COHEAO Board, and I take pride in supporting COHEAO’s many advocacies that influence positive change for their members, institutions and valued students.”

About ConServe

ConServe is a top-performing accounts receivable management service provider specializing in customized recovery solutions for their Clients. Anchored in ethics and compliance, and steadfast in their pursuit of excellence, they are a consumer-centric organization that operates as an extension of their Clients’ valued brands. For over 36 years, they have partnered with their Clients to provide unmatched customer service while simultaneously helping them achieve their accounts receivable management goals. Visit us online at: www.conserve-arm.com

About COHEAO

Since 1981, COHEAO has served as a partnership of colleges, universities, and organizations dedicated to promoting student friendly, efficient operated campus-based loan and tuition payment programs. COHEAO members are dedicated to the preservation and improvement of the Federal Perkins Loan and HHS Loan Programs. COHEAO is an advocate for the sound regulation of student financial services operations and campus accounts-receivable manage practices. Visit COHEAO online at: www.coheao.com

A new report by the CFPB uses over five million credit records from one of the three nationwide consumer reporting agencies to examine how credit card companies have used credit line decreases throughout the Great Recession and the early stages of the COVID-19 pandemic.  As a general trend, the report found issuers used credit line decreases during broad economic downturns as a way to decrease overall risk.

The report’s discussion of the underlying data included the following:

• While credit line decreases were four times as common if a consumer had a recent credit card delinquency, 67 percent of consumers whose credit lines were decreased had no recent credit card delinquency.

• Of the consumers who received a credit line decrease, the median decrease was 75 percent of their total credit line.

• Given the substantial decreases in credit lines, credit utilization concomitantly spiked with median deep subprime, subprime, near-prime, and prime consumers, topping out at 94 percent of their available credit.  Even super-prime consumers doubled their utilization rate from 37 percent to 78 percent. The result of these credit line decreases and credit utilization increases was consumer credit scores decreasing—between the median range of 33 and 87 points for consumers with a recent card delinquency and between the median range of 1 and 12 points for consumers with no recent card delinquency.

The report concludes by stating that although prime consumers have been able to compensate for these credit line decreases by using other credit cards or opening new accounts, subprime and deep subprime consumers have been unable to return to previous credit card usage rates.  While the report takes no position on how the CFPB should approach credit card line decreases, in the past similar reports presaged heightened regulatory scrutiny of the issues that were the subject of the report, such as overdraft fees and credit card penalty fees.

Indeed, it is possible that the CFPB will use the report as the basis for seeking additional limits on the circumstances under which credit issuers can reduce credit limits on credit cards.  For example, Regulation Z already specifies the circumstances under which creditors can reduce the credit limit on home equity lines of credit.  One of these circumstances is where the creditor has a reasonable belief that the consumer will be unable to pay because of a material change in the consumer’s circumstances.  If the CFPB were to promulgate a regulation imposing a similar limit on the ability of credit card issuers to decrease credit limits, card issuers would not be able to use a general economic downturn as a basis for decreasing a credit limit on a credit card.