Texas-based First Investors Financial Services Group did not fix
flaws in a computer system that caused it to overstate the number of
times borrowers fell behind on payments and inflate overdue amounts,
the Consumer Financial Protection Bureau said.
Experian, Equifax and other reporting agencies use that information
to generate reports on borrowers' credit histories. The reports help
determine whether consumers are eligible for loans and can factor
into employment decisions.
First Investors, which lends to borrowers with impaired credit
profiles both directly and through auto dealers, found the problem
in 2011 and notified the vendor that provided the computer system,
but did nothing else, the consumer bureau said.
Its actions violated federal law and may have hurt tens of thousands
of borrowers, the CFPB said.
"First Investors showed careless disregard for its customers'
financial lives by knowingly distorting their credit profiles for
years," said bureau Director Richard Cordray.
First Investors neither admitted nor denied wrongdoing and said
between 1 percent and 12 percent of its accounts were affected.
"When issues were identified, First Investors worked with its
service provider to correct them," the lender said in a statement.
The CFPB was created by the 2010 Dodd-Frank law and charged with
overseeing consumer financial products, such as mortgages and credit
cards. It began overseeing big credit reporting agencies in 2012.
Bureau officials are concerned about how credit reporting mistakes
hurt subprime borrowers, who are already subject to predatory
lending and higher interest rates. Moody's Investors Service has
said subprime auto lenders are behaving cautiously and have raised
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First Investors did not replace the computer system that was causing
it to provide incorrect information or take any steps to correct the
data after it was submitted, the bureau said.
In addition to the fine, the lender must find and fix all of the
errors and help consumers get free copies of their credit reports so
that they can check for mistakes, the CFPB said. Consumers are
entitled to a free credit report once each year.
A senior CFPB official on Wednesday said the bureau would continue
to watch companies that furnish credit information to reporting
agencies and that more enforcement actions could follow.
(Reporting by Emily Stephenson; Editing by Bernard Orr)
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