3.1 Trade Line Furnishers Each NCRA has a consumer database with over 1.3 billion active trade lines.33 Financial institutions furnish the bulk of these trade lines. Approximately 40% of all trade lines of an NCRA’s files are bank card trade lines. Of the remaining trade lines, 18% came from banks that issue retail cards, 13% are accounts in collection reported by collections agencies and debt buyers, 7% from the education industry,c 7% from sales finance providers (e.g., closed-end loans including auto loans), 7% from mortgage lenders or servicers, 4% from auto lenders, and 4% from other unspecified creditors.34 While the NCRAs receive trade lines from approximately 10,000 furnishers, a small number of very large institutions (typically with multiple lines of business) supply a majority of trade lines. For the NCRAs, the top 10 furnishers provide approximately 57% of the trade lines, the top 50 furnishers provide 72% of the trade lines, and the top 100 furnishers provide 76% of the trade lines in their databases.
35 The institutions’ credit offerings can include bank credit cards, retailer credit cards, auto loans, student loans, and mortgages.36 Other furnisher industries, such as collections agencies, tend to be more fragmented.
37 Furnishers typically report trade line updates monthly in batch files transmitted electronically to one or more of the NCRAs. Most of the largest furnishers report all or nearly all of their trade lines to each of the largest NCRAs.d These updates generally include changes in balances owed, whether or not payments were received, changes in available credit lines (in the cases of revolving credit card accounts), and the status of the account (e.g., current, 30+ days late, 60+ days late). The NCRAs provide a standardized data format, called Metro 2, which most of their furnishers use to submit data.
3.1.1 Furnisher Incentives and Disincentives Reporting to credit bureaus and other consumer reporting agencies by creditors is voluntary and historically has been. Not all creditors report information about their borrowers. Some creditors report information about users of some of their credit products, but not others. For example, credit card issuers who issue revolving credit to consumers usually report trade line information monthly on consumer cards but are less likely to report on small business cards even when these are owed by, and underwritten based on, the personal credit history of the business owner. Furnishers have multiple incentives to contribute data to the NCRAs.
Individual contributors recognize that the cross-company, cross-industry visibility into credit risk offered by a credit bureau depends on widespread creditor participation. If a company elects not to contribute data, it runs the risk that its peers will not contribute data, thus reducing a common resource from which creditors benefit. As indicated above, most furnishers of trade line information to the NCRAs are also large users of credit reports.
A second reason creditors furnish information on their accounts is to maintain an incentive for their borrowers to make timely repayments. Consumers are more likely to repay creditors if they are aware that a creditor may report late payments or delinquent accounts to the NCRAs, which could negatively affect their credit history and/or credit score. Consumers also get the benefit of having their timely payments reported, which will positively impact lenders’ views of their credit worthiness. There are also disincentives for creditors to report on their borrowers to the NCRAs.38 For example, the names of individuals who borrow and make loan payments on time may be included in prescreened lists that NCRAs and other CRAs sell, providing these borrowers with account offers from competing lenders.
Reporting to one or more of the NCRAs may require investment in specialized information systems. Further, data furnishers must follow FCRA requirements such as investigating disputes submitted directly39 or indirectly through the NCRAs.
Since furnishing data is voluntary, furnishers must consider whether the overall benefits of furnishing outweigh its costs. 3.1.2 Reporting Format CDIA developed the Metro 2 guidelines in 1997, on behalf of the NCRAs and Innovis, as their standard for the electronic reporting of consumer trade line information. Metro 2 replaced the original Metro format developed in the late 1970s.40 The format forms the basis by which furnishers provide updates on their borrowers’ account status in bulk file submissions to one or more of the NCRAs, generally on a monthly basis. An obvious benefit of a shared data format is that all furnishers can report trade line information the same way. This simplifies the creation of standardized credit files by each of the NCRAs and simplifies the interpretation of credit information into risk-based credit scores. Each Metro
2 electronic file submission has a furnisher header record, a series of base records on each borrower, supplementary records describing updates to the furnished trade lines, and a trailer record. A description of the various types of record segments and the information that Metro 2 allows furnishers to provide is offered below.
• Metro 2 Header and Trailer Records: Header and Trailer records form the bookends of a Metro 2 file submission. The header record is the first record provided in the Metro 2 file submission and is used to identify the furnisher and the activity period. It also contains the furnisher’s unique identifier at the NCRA receiving the file, the activity date, name, address, and other contact information for the furnisher. Note that this type of header record should be distinguished from the header record on a consumer file maintained by an NCRA that has the consumer’s personal identification information. The trailer record, meanwhile, is the last record in a furnisher’s Metro 2 submission. It includes the sum totals of all the base and supplementary segments submitted.
• Base Segment: The Base segment is used to identify the primary borrower and to provide relevant account information for each trade line. Identification information for the borrower includes first, middle, last name, suffix, generation code, phone number, address, SSN, and date of birth. Account information includes account type (e.g., revolving, installment, mortgage), credit limit, highest credit or original loan amount, duration of credit extended, frequency with which payments are due, account status,f stage of delinquency, date of first delinquency, and date the account closed and conditions under which it was closed (e.g., closed by consumer, paid full amount due, closed by creditor and paid less than full amount). Additionally, the Base segment contains up to 24 months of the consumer’s payment history on the account. Contrary to a frequent assumption, the Metro 2 format does not contain fields for interest rate information on particular loans or revolving accounts.
• Supplementary Segments: Depending on the furnisher and the type of trade line, the furnisher may have additional data segments to supplement the data in the base segment. These include: o Associated Consumer Segment: Contains information on consumers who are associated with a credit account besides the primary user, including name, SSN, date of birth, telephone number, and the relation of the consumer to the account. Associated consumers can include authorized users, guarantors, persons with joint contractual liability, or others.
o Original Creditor Name Segment: Has the name of the original credit grantor, which is necessary to link a consumer debt to the original creditor even after it is outsourced to a third-party collection agency.
o Segment for Accounts Sold to/Purchased from Another Company: Used to report the name of the companies which respectively bought and sold a portfolio of consumer debt.
o Mortgage Information: Used to report any Fannie Mae or Freddie Mac loan number associated with a mortgage account.
o Specialized Payment Information: Has information on deferred payments or balloon payments, if applicable.
o Account Number/Identification Number: Used to report new identification or account numbers
o Employment Segment: Contains employment information on the primary borrower, which may come from the consumer’s application for credit or from employment information that the creditor obtained in approving the account. The Metro
2 format specifies that base segments be reported for each account submitted. Supplementary segments are reported when relevant to the particular trade line or other data that is furnished.
3.2 Public Record Collection While the NCRAs rely on a multitude of furnishers to supply creditor trade line information, they also receive public records including bankruptcy records, civil court monetary judgments, and government tax liens from publicly available government sources. They obtain these records primarily through LexisNexis Risk Data Retrieval Services LLC (LNRDRS). The use of LNRDRS followed the NCRAs’ decisions to move from direct collection from hundreds of sources and suppliers to a single data retrieval vendor.
The NCRAs report they do not use criminal records in their credit reports. Rather, the NCRAs utilize public records representing derogatory items in their credit files. Derogatory is defined as negative information that will likely hurt a consumer’s credit (e.g., late payments, collection accounts, foreclosures, civil judgments)
.41 While each NCRA has its own criteria, public records are generally removed from credit reports once the reportable event becomes obsolete (between seven and ten years depending on the type of information and the applicable statute of limitations). 3.2.1 LNRDRS Data Retrieval LNRDRS retrieves and sends to each of the three NCRAs between 10 and 20 million public record events per year (roughly one third of which are bankruptcies, tax liens, and civil monetary judgments respectively).42
All bankruptcy records are pulled electronically from the PACER system, an electronic public access service that allows users to obtain case and docket information from federal appellate, district and bankruptcy courts. Monetary judgments and tax liens are obtained from 10,000 to 12,000 state and local courts and county and state government offices. LNRDRS reports it obtains information on 30% of judgments and liens electronically. For the remaining 70%, LNRDRS deploys a network of independent contractors who manually access public records at government sources and type the local records into a proprietary software system,
which screens for duplicates and minimizes typographical errors. A single record collector can typically record approximately 200 events in a day. In retrieving records for the NCRAs, LNRDRS provides the data in its “raw” form. The NCRAs undertake the responsibility of assigning records to particular consumer files, and adjusting matching criteria for possible errors. Assignment of a court record to a particular consumer can be challenging for the NCRAs because, according to one estimate, SSNs appear on court records only 3% of the time.
4. Furnisher and Data Screening The NCRAs employ a number of methods to screen furnishers and incoming information for inaccuracies and anomalies. This section examines the vetting and approving of furnishers and various quality screens performed on data files received from furnishers. These methods focus on identifying formatting errors, logical errors,
internal inconsistencies, and anomalies. 4.1 New Furnisher Screening The NCRAs’ data quality processes start with their screening of new furnishers. The NCRAs report that a prospective furnisher can initiate a relationship with them by sending a letter of intent to furnish. Due to the resource and economic costs associated with adding a furnisher, the NCRAs will generally require prospective furnishers to report a minimum of 100 to 200 active accounts per month.43 Each NCRA reportedly puts prospective furnishers through an initial security screening.
Screening generally includes an inspection of features of each business such as its physical headquarters, phone number, website, and business license, as well as company records such as annual reports. Individual NCRAs also may hire third-party investigation services to screen for illegal or unethical business history. Sole proprietorships and new businesses (e.g., in business less than a year) may receive more specialized screening. An NCRA may require the furnishers to submit test files which it will examine to make sure they are Metro 2 compatible. Approved furnishers are trained on Metro 2. After these initial inspections, NCRA policies may trigger reinspections after risk events such as consumer complaints, suspicious trade lines, variations in data submissions, odd anomalies, and changes in company ownership. At least one NCRA has policies to reinspect new furnishers six months after they start submitting data to assess for data quality and fraud risk.
The NCRAs report that they continue to monitor for data quality and fraud once a furnisher starts contributing live trade line data. One example of furnisher fraud is when a supposed credit repair organization represents itself as a furnisher and attempts to boost the credit scores of consumers with bad credit by reporting fictitious trade lines that the consumers purportedly used and paid back on time. Overall, the objective of furnisher screening is to reduce the risk of fraud or of poor data quality by screening out furnishers whose systems are not able to report accurate data on customers or report it in the Metro 2 format.
4.2 Checking Furnished Data Having passed this initial screening, furnishers can start providing data. Furnishers generally provide monthly trade line updates through data file transfers that conform to the Metro or Metro 2 format and contain trade line updates on all of the furnishers’ active accounts. All new furnishers are being added under the Metro 2 format,
which was first introduced in 1997. Data submitted by a furnisher to an NCRA generally goes through a multi-stage process to identify data irregularities. Typical data quality checks will identify issues such as blank fields or logical inconsistencies in the data – both at the level of the data file and at the individual consumer’s trade line.
If a furnished account is reported as closed, and then in a subsequent data feed the furnisher reports a new account balance, the NCRA might flag that inconsistency. Other inconsistencies might be account balances higher than the maximum credit line, duplicate instances of information on the same account being furnished, or data patterns inconsistent with the furnisher’s historical pattern of transactions. It is not uncommon for furnishers’ bulk files to be initially rejected by the NCRAs.44 The NCRAs report that furnishers tend to correct most of the problems causing the file rejection, leaving only a small percentage of files permanently rejected.
Some data rejections might not result from an error in the data but from format incompatibility when the furnisher uses the wrong codes to update accounts, or the furnished data shows unfamiliar formats because of system changes at the furnisher. Within file submissions, individual consumer base records and tradeline updates are similarly screened for formatting errors, logical errors, internal inconsistencies, and anomalies. The rejection rates for incoming trade line data from furnishers appear to vary across multiple dimensions (e.g., by individual furnisher, by furnishing industry, by the NCRA receiving the data). For example, submissions from collections agencies tend to have a higher rejection rate than rejections for credit card trade lines.45 While the NCRAs’ data screens do find errors by identifying anomalies and inconsistencies, these checks rely on underlying furnisher data to be valid.
The NCRAs do not conduct independent checks or audits to determine if the data is accurate, such as contacting a consumer to ask if she is properly associated with an account or if the balance reported on an account is true, or checking the record-keeping practices of a furnisher. The NCRAs generally rely on furnishers to report information on consumers that is complete and accurate. 4.3 The Furnisher Rule In 2009, the Federal Trade Commission,
the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision issued a joint rule (“Furnisher Rule”) implementing the accuracy and integrity and direct dispute provisions for furnishers mandated by the Fair and Accurate Credit Transactions Act (FACTA).46 The CFPB has since restated this rule.47
