fair credit reporting act / metro 2 credit reporting

Transcription

FAIR CREDIT REPORTING ACT /
METRO 2 CREDIT REPORTING
SERVICES AND TOOLS
TABLE OF CONTENTS
2
01
Current State of The Industry
02
Navigant Approach and Tools
03
Prior Engagements
04
Select Management Bios
SECTION I
CURRENT
STATE OF THE
INDUSTRY
CURRENT STATE OF THE INDUSTRY
FCRA / METRO 2 COMPLIANCE MATURITY
Many Industry participants do not yet have well developed infrastructure and expertise to cope with the
current regulatory environment. Most are aware of the need to change.
Majority
Number of Firms
Number of firms
at Maturity Level
Least Mature


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
Lack of data governance
checks or tools
No independent validation
Limited documentation on end
to end processes
Widespread inconsistencies in
Metro 2 Transmission
Mature




Limited assessment of any
missing fields or invalid values
Limited independent
validation
Documentation for some
aspects of key processes
Some inconsistencies in
Maturity of Practices
4
©2016 Navigant Consulting, Inc. All rights reserved.
Most Mature


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Complete checks on
population with monthly
reporting tools and
dashboards
Full independent validation
Full documentation on end to
end processes
Minimal inconsistencies in
REGULATORY FOCUS
CFPB – Consent Orders with FCRA Implications
CarHop - December 17, 2015
• $6,465,000 civil penalty for impacting 84,000 accounts ($75+ per account), Independent Consultant required to do a
review of policies, procedures, practices and systems
DriveTime – November 19, 2014
• $8,000,000 civil penalty, Independent Consultant required to do a review of furnishing policies, procedures and practices
First Investors – August 20, 2014
• $2,750,000 civil penalty, Independent Consultant required to do a review of compliance with the Consent Order
Independent Consultants are paid for by Company, adding to cost of Consent Order
Recent Remarks from the CFPB Director Richard Cordray (bold emphasis added)
February 3, 2016
Today we are issuing a bulletin warning banks and credit unions that they must meet their legal obligation to have
appropriate systems in place with respect to accuracy when they report information, such as negative account
histories, to the consumer reporting companies. More effort and rigor are needed to make sure that the risks consumers
actually pose to potential financial providers can be evaluated correctly.
Of course, the specialty consumer reporting companies that track deposit accounts also merit our scrutiny as we work on
these issues. They have important legal obligations with respect to the accuracy of the information they sell, as specified in
the Fair Credit Reporting Act. Ensuring that they are adopting and implementing reasonable procedures to assure
maximum possible accuracy of the credit reporting information they provide, as the law requires, is an important
area for regulatory oversight.
5
FINES AND PENALTIES FOR NON COMPLIANCE
The penalties and consequences of non compliance can be severe.
1
Private Action
No private right of action for accuracy, but;
Private right of action for failure to conduct a reasonable investigation of an indirect dispute:
 Actual Damages, costs and attorney’s fees
 Civil Penalties of $100 - $1,000
2
Federal Enforcement (CFPB)
Penalty Amounts (12 U.S. Code § 5565):
Regulatory agencies, including
the CFPB, can bring
enforcement action under the
Consumer Financial Protection
Act for violations of a federal
consumer law (including Credit
Reporting)
6
 Any violation (i.e. including
unintentional ones) up to $5,000 per
day
 Recklessly engages in a violation up
to $25,000 per day
 Knowingly violates a Federal
consumer law up to $1,000,000 per
day
Mitigating factors include the
gravity of the violation, the losses
to consumers, and the history of
previous violations
COMMON INDUSTRY GAPS
During furnishing issues often manifest in the following four areas:
Data Quality
 Data consistency from input
to output i.e., inappropriate
values in fields, placement
of fields in correct record
layout
 Inaccurate demographic
information such as,
Dummy SSN, Inaccurate
DOB, Zip Codes, etc…
 Lack of information in
general, sparse data inputs
into the Metro 2 processing
 Garbage In Garbage Out
 Incorrect information in one
field can have cascading
effect on other fields
Metro 2 Interpretation
 Incorrect or inadequate
Metro 2/ Business
Requirements
Documentation
 Misunderstanding of
Business Definitions e.g.
Interest Due, Date Opened,
Date Closed, Deferred
Payment Start Date
 Delinquency for Metro 2
purposes may be calculated
differently than for day to
day business and collection
activity
 Even the Credit Reporting
Resource Guide can
provide conflicting
information or items that
may conflict with items of
law
Poor Documentation
Programming Error
 Incorrect calculation of
fields, e.g. ensuring that
fees and interest are
appropriately reflected in
current balance but do not
include future charges
 Failure to develop and
document appropriate
hierarchies, e.g. for Account
Status where an account is
delinquent and charged off
and repossession has taken
place or for Special
Comment Codes
 Timing issues such as when
the transmission is
generated and how
reversed payments are
addressed

Lack of formalized
IT/Technical
documentation for Metro
2 file generation

Procedures are outdated
and reference older
versions of Metro 2
guidance using incorrect
codes

Process maps are do not
adequately reflect what is
taking place and are
lacking risk and control
points.

Failure to document key
concepts such as the
organization’s definition
of a reasonable
investigation or frivolous
dispute
Navigant has developed a proven approach to evaluate and identify issues related to the integrity and accuracy of data
furnished to the Credit Reporting Agencies (“CRAs”). Navigant leverages numerous tools to improve FCRA compliance.
7
PITFALLS AND MISTAKES
8
Illogical
Conditions
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Not reporting charge off amount for charged off accounts
Not reporting a DOFD for accounts with a delinquent / derogatory status
Populating Payment Rating for account statuses that are supposed to be blank filled
Invalid Portfolio and Account Type combinations
Paid in full loans with DOFD
Not changing Scheduled Monthly Payment to zero once account charged off
Calculation
Errors

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
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

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Including interest/finance charges in Original Loan Amount
Not including fees and/or interest due in current Balance
Rounding rather than truncating values
Using end of month for Date Closed
Counting delinquency immediately rather than 30 days after the bill due date
Using billing date for Date of Account Information
Using charge off date as DOFD
Only reporting last payment amount not summing all payments in reporting period
Payment History Profile not being updated e.g. for retroactive deferrals
Data
Quality

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Placing businesses in base segment
Placeholders (999999999, 1234, etc.) for social security numbers
Furnishing accounts with insufficient information after a transfer, e.g. unknown DOFD
Including amounts not 30 days past due in Amount Past Due field
Bankruptcy

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
Zeroing out Current Balance
Not reporting Dates of Last Payment
Incorrect Consumer Information Indicators
Incorrect Payment History Profile (e.g. D between petition date and resolution)
Others

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Reporting a DOFD for post petition bankruptcy debt
Continuing to report closed accounts
Continuing to report deceased borrowers
Using deletions too frequently/inappropriately
Failure to distinguish between voluntary/involuntary surrender
‘Re-Pollution’ of accounts corrected via eOSCAR after dispute
Use of AI Special Comment Code potentially impacting SCRA
Not using code for foreign addresses (may not create trade lines)
SECTION II
NAVIGANT
APPROACH AND
TOOLS
NAVIGANT APPROACH
THREE CORE WORK STREAMS
Navigant develops customized solutions for our clients depending upon their individual needs
and unique circumstances
3
Our credit reporting solutions typically cover three core work streams:
1
Current state assessment of corporate and
business unit policies and procedures
2
An evaluation of the accuracy of the Metro 2
furnishing file (for each business unit and or
system)
P&P
Review
Trade
Line
Testing
Metro 2 File
Analysis
In depth review of a
sample of accounts
tracing information
throughout the
furnishing process.
Covers multiple
scenarios and
account
characteristics.
Navigant - Value in Tailored Solutions
While Navigant has had success with the solutions above, clients can select key activities most applicable
to their situation. For example, a review of dispute related policies and procedures with trade line testing of
bankruptcy and charge-off accounts.
10
NAVIGANT APPROACH
SELECTED SERVICE OFFERINGS
1
Policy & Procedure Review
 Leverage previously identified process
and controls work: Review any work
performed by you or external counsel,
including internal audit reports and quality
assurance testing
 Review Policies & Procedures for
compliance with FCRA and Regulation V,
12 CFR 1022.42 § and Appendix E
 Review process controls: Add risks and
controls to process maps. Evaluate
controls via interviews with the business
units and supporting organizations if
process maps are not readily available
 Disputes: Observe the direct and
indirect dispute resolution process.
Evaluate furnishing information which is
changed as a result of the dispute
 Evaluate staffing resources: Review
organizations supporting credit reporting,
including disputes. Evaluate timeliness of
dispute responses including e-OSCAR and
the tracking of direct disputes
 Review training related furnishing
material: For e-OSCAR,
furnishing/submission systems, other CRA
tools if applicable
11
3
2
Evaluation of Metro 2 File
Gap analysis of file:
 Were the required segments
submitted;
 Were all required fields submitted;
 Was the correct record layout used;
 Recommended remediation (if
applicable)
Deploy over 100 different tests to assess
Metro 2 File
Metro 2 logic test examples
 Delinquent accounts have a date of
first delinquency, amount past due
etc.;
 Account status and special comment
code combinations, e.g. terminated
lease with obligation satisfied should
only be associated with paid in full
account
Business rules test examples
 Terms duration less than 30 years for
mortgages, 7 years for auto, 20 years
for student loans etc.
 Loan amounts match portfolio
expectations
Trade Line Testing
 Sample at least 30 trade lines per
system/portfolio and perform three way
matching between servicing system,
Metro 2 file and CRA soft inquiry reports
 30 Trade Lines to cover scenarios such
as:
 Bankruptcy;
 Repossession/foreclosure;
 Charge offs;
 Fraud;
 Disputes;
 Delinquency/DOFD Calculation
 Confirm accuracy of data and mapping
programs used to create Metro 2 files
 Analysis is product specific and takes
into account nuances across industry and
account type
 Provide root cause analysis
 Isolated Data Integrity Issue
 Systemic Data Integrity Issue
 Systemic Software Issue
 CRA Handling
NAVIGANT APPROACH
POLICY AND PROCEDURE REVIEW
1
Policy and Procedure Review - Gap analysis to determine areas of risk within policies, procedures and processes.
Undertakes the following key steps:
 Map existing documentation to 12 CFR 1022 Appendix E, which governs interagency guidelines concerning the
accuracy and integrity of information furnished to consumer reporting agencies
 Determine if any item of A through M does not apply
 Ascertain if entire policies or procedures are missing
 Assess whether any gaps within specific policies or procedures exist
 Provide detailed explanation of gaps assessing impact and risk of failing to correct
 Create Risk Ranked Gaps Matrix (example below)
 Provide recommendations for remediation, include best in class targets
Policies
Document
A
B
C
D
12 CFR 1022 Appendix E, Part III Items
E
F
G
H
I
J
K
L
M
POLICY Fair Credit Reporting Act
POLICY Vendor Management
PROCEDURE Amend Consumer Credit File
PROCEDURE AUD
PROCEDURE Bankruptcy
PROCEDURE Cease and desist
PROCEDURE Charge Off
Procedures
PROCEDURE Credit Dispute via Call
PROCEDURE Credit Dispute via Letter
PROCEDURE eOSCAR
PROCEDURE Fraud and ID Theft
PROCEDURE ID Theft Affidavit and Instructions
PROCEDURE Indirect Disputes
PROCEDURE Metro 2 File Creation
PROCEDURE Quality Assurance
PROCEDURE Reject Reports
12
Key
No Gap
N/A
High Risk
Gap
Medium
Risk Gap
Low Risk
Gap
NAVIGANT APPROACH
EVALUATION OF METRO 2 FILE
2
13
Metro 2 File Analytics & Risk Ratings - database/analytics to evaluate actual Metro 2 files. Tool does the following:
 Performs Data Analytics
 Identifies where applicable max, min, counts, std deviation of results
 Performs frequency/stratification and bucketing of all fields into risk buckets including
• Balance ranges to identify unusual values (e.g.. For loans large balances or negative balances)
• Date Ranges (identify dates which may not be logical)
• Missing Values
• Account Status counts
 Utilizes smart logic/business rules comparing fields to identify furnishes results which may be inaccurate
• Account Status / Date of first date of delinquency
• Provides loan level exception reporting based on business rules for audit/review
 Provides automated summary reporting of analysis
 Identifies incorrect record layout, missing segments and/or missing fields
NAVIGANT APPROACH
TRADE LINE TESTING
3
Servicing System to Metro 2 File to CRA soft pull - Approach and template to facilitate testing of the accuracy of Metro 2
calculations used to create Metro 2 file. The template provides a landing spot to process source servicing data to perform
independent calculation for conversion to Metro 2 format. Additional comparison to CRA outputs. Items include:
 Clear methodology to ensure all unique and high risk Metro 2 calculations are tested.
 Manual or bulk recalculation of Metro 2 fields using source servicing system information.
 Input entry screen for CRA soft pulls to validate reporting agencies are receiving and processing data properly
 Audit Reporting /Tracking of calculation comparison results across all segments/fields
 Root cause analysis of any potential issues
14
NAVIGANT APPROACH
OTHER TOOLS
CRA Submission / Rejection Analytics - Database/analytics which takes rejection files from each of the CRAs to perform analysis
and dashboard reporting. Used to identify and isolate submission errors, allows for review and development of solutions.
Disputes Analysis – Analytics tool to evaluate and identify issues associated with borrower disputes. Tool has database which reads in
as input e-OSCAR indirect dispute file and client tracking of direct disputes.
Rejection Analytics Example
15
Disputes Analytics Example
SECTION III
PRIOR
ENGAGEMENTS
PRIOR ENGAGEMENTS
FCRA / METRO 2
Company
National Used Car Dealer
and Automobile Finance
Company
Engagement Summary
Description
As the Independent Consultant engaged as part of a Consent Order, Navigant provided
an assessment of compliance management systems, internal control systems, and
compliance audit procedures related to FCRA.
Independent Consultant
The engagement analyzed compliance with appropriate collection and furnishing
practices, as well as developed recommendations on an appropriate staffing models,
facilities, and the systems necessary to furnish accurate information to the CRAs.
Navigant was engaged as an Independent Consultant under a Consent Order to review
and develop an audit report to assess compliance with information furnished to the
CRAs.
Automobile Finance
Company
Top Ten Auto Finance
Company
Top Five Captive Auto
Finance Company
Independent Consultant
Credit Reporting Business
Requirements and System
Testing
Credit Reporting, Policy &
Procedure and Business
Requirements Review
The scope of the engagement included the assessment of the process of identification of
“all inaccurate” accounts and credit information furnished to the CRAs as a result of
Systemic Inaccuracies and a validation of the Metro 2 reporting / customer account
information system.
Navigant is working with a top 10 auto finance company to assist in developing business
requirements related to furnishing requirements for both leased and financed
automobiles.
Project involves developing detailed specifications to support IT program changes being
developed to support compliance with Metro 2 guidelines. Upon completion of program
changes Navigant will also be assisting with user acceptance testing.
Navigant assisted a top 5 auto lender to review Policies & Procedures and their
furnishing file to detect inconsistencies with FCRA or Metro 2 reporting standards.
Navigant provided recommendations related to improving controls including creating
monitoring dashboards for executive reporting to track disputes and rejected records
from the CRAs.
Navigant created detailed remediation plans for any identified inconsistencies.
Additionally we also reviewed business requirements documentation for new system
implementation for any inconsistencies with the Metro 2 guide.
17
PRIOR ENGAGEMENTS
FCRA / METRO 2
Company
Engagement Summary
Description
Regulation X and
Credit Reporting
Navigant assisted top five mortgage servicer in the assessment of its compliance with
CFPB Regulation X. This project included the company’s ability to appropriately suppress
credit reporting during timeframes when the borrower may file a “notice of error” as
defined by the CFPB.
Top Five Mortgage
Servicer
Credit Reporting
Review
Navigant is in the process of performing a review related to the company’s credit
reporting practices. The evaluation involves assessing the “accuracy” and “integrity” of
the information being furnished by the company to the CRAs. The review focuses on the
processes and practices related to:
• Responding to borrower credit reporting disputes;
• Suppressing reporting in cases where the borrower has asserted an “error” in
conjunction with the requirement of Regulation X;
• Reporting of credit information in compliance with Metro 2 standards;
• Identification of compliance issues or control gaps;
• Completeness of policies and procedures;
• Efficiency and effectiveness of the design of operational processes related to credit
reporting; and,
• Analyses to determine any required remedial credit reporting.
National Provider of
Student Financial Aid
Services
Navigant was engaged to perform a detailed review of furnishing operations and related
system processes which ultimately result in the creation and submission of Metro 2 files
to the CRAs. This review entailed end-to-end process walkthrough of Metro 2
Metro 2 Credit Reporting
Process Review and Analysis submissions, data analytics and a review of a sample of accounts to determine root cause
and provide remediation recommendations for inaccuracies found. Review also included
management of go forward system and remediation plans.
Top Five Mortgage
Servicer
Top US Retail Bank
18
FCRA and Metro 2 Credit
Reporting Programmatic
Assessment
As part of the Bank’s efforts to further improve its policies, procedures, and processes
associated with FCRA and Metro 2 related credit furnishing activities, Navigant was
engaged to provide an independent programmatic assessment. In this review Navigant
performed the following: 1) Evaluated potential gaps identified by the Bank; 2) Assessed
the approach conducted to identify the potential gaps and determine if there were any
other areas which required additional assessment; 3) Categorized each of the identified
gaps; 4) Provided a priority for the remediation of such gaps; and 5) Provided
recommendations on remediation approach and strategy.
SECTION IV
SELECTED
MANAGEMENT
BIOS
SELECTED MANAGEMENT BIO
JOHN DELPONTI
JOHN DELPONTI
MANAGING DIRECTOR
john.delponti@navigant.com
704.347.7650
Mr. DelPonti is a Managing Director in the Consumer Finance practice and based in the Charlotte, NC
office. He co-leads the Mortgage Banking – Financial and Operational Risk Management Practice
providing consulting services in all aspects of consumer and mortgage banking related activities including
risk assessments, strategy, and reengineering related reviews.
Mr. DelPonti has extensive experience with over 25 years in mortgage, consumer and finance banking,
distressed workouts, capital markets operations, loan valuation and restructuring, portfolio asset
management, financial due diligence, post merger integration, lending best practices, mortgage servicing
reviews, and risk management including bank (OCC/OTS/FDIC/CFPB) regulatory and compliance
management. He is currently leading bank work on FCRA related reviews both from a regulatory (CFPB
focus) and Metro 2 guideline perspective. He is a former partner at PricewaterhouseCoopers, LLP
where he managed business advisory and audit services focused on top 10 consumer mortgage banks.
Prior to re-joining Navigant in August of 2010, Mr. DelPonti was founder and CEO of a distressed
mortgage special servicing and asset management company, where he grew annual revenues from zero
to over $25 million in less than 3 years. He also was Chief Risk Officer for a $30 billion thrift bank.
20
BEJI VARGHESE
BEJI VARGHESE
MANAGING DIRECTOR
beji.varghese@navigant.com
Office: 704.347.7639 Mobile: 980.333.7763
Beji Varghese is a Managing Director within the Consumer Finance practice group of Navigant. Mr.
Varghese specializes in the area of governance, risk and compliance and has advised multiple
companies in the design and implementation of effective financial reporting internal controls.
Mr. Varghese has worked on multiple large bank and non-bank FCRA related projects from a regulatory
(CFPB focus) perspective. In addition, he has been intimately involved in helping mortgage servicers
mitigate the current issues affecting their foreclosure, bankruptcy and mortgage servicing processes. He
recently moderated a panel of industry experts at a regulatory conference discussing the impact of the
current consent orders, the potential impact of the CFPB and other related issues. He is the author of
“Fixing a Flawed Process” discussing the complexities of implementing a Single Point of Contact within
the current mortgage servicing environment in the November 2011 issue of the Mortgage Banking
magazine –a premier mortgage banking publication.
Mr. Varghese has led credit reporting reviews, risk and compliance reviews, distressed workouts,
consent order reviews and lending best practice reviews for the top 20 US consumer finance companies.
Mr. Varghese also has a strong technology background having lead multiple data migration and
warehousing projects for the top ten mortgage banks.
Prior to joining Navigant Mr. Varghese was the COO at a specialty servicer. In that role he was
responsible for growing the business ($600million in UPB to $ 3.5 billion in UPB) and for operations
management and servicing system performance improvements.
21
DAVID KING
DAVID KING
DIRECTOR
david.king@navigant.com
Office: 713.646.5038 Mobile: 713.294.6025
Mr. King is a Director in the Consumer Finance practice based out of the Houston office. He has
extensive project management and consulting experience across a wide variety of financial service
functions. Mr. King has lead engagements covering risk management, compliance, data extraction and
analysis, systems integration, systems development and document management. He is a Certified Fraud
Examiner and has been a team leader and project manager for compliance reviews, vendor audits and
government inquiries for numerous companies across the world.
Mr. King has conducting numerous current state assessments relating to FCRA. The assessments
include reviews of policies and procedures pertaining to disputes, furnishing and usage, an evaluation of
Metro 2 files submitted by clients to the CRAs, and the testing of trade lines. He has also supervised the
teams acting as the Independent Consultant in Consent Orders issued by the CFPB related to FCRA.
He has assisted a wide variety of clients in the auto, student and mortgage lending industries, some of
whom are furnishing millions of trade lines a month and investigating thousands of disputes.
Mr. King has been heavily involved in the development of various Navigant tools, including our online
loan review tool and suite of credit reporting modules. This has involved managing business analysts
and software developers, overseeing version releases, leading user acceptance testing, drafting business
requirements documentation, designing reporting, and soliciting feedback from end users for
enhancements.
22

fair credit reporting act / metro 2 credit reporting

Transcription

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