In a report released on November 2, the Consumer Financial Protection Bureau (CFPB) found that credit report disputes more commonly occur among consumers in majority Black and Hispanic neighborhoods than consumers in majority white neighborhoods. New CFPB Director Rohit Chopra attributed this disparity to alleged “[e]rror-ridden credit reports” that “are far too prevalent and may be undermining an equitable recovery” for minority consumers.
The Fair Credit Reporting Act (FCRA) allows consumers to file a dispute with a credit reporting agency (CRA) if they believe an inaccuracy exists on their credit report. The FCRA then requires the CRA to conduct a reasonable investigation and correct any inaccuracies discovered as a result of its investigation.
The CFPB’s report seeks to “document how disputes can appear in credit data, the characteristics of consumers whose disputes appear on their credit reports, and what happens to accounts that have been reported as being disputed.” The report catalogued the percentage of auto loan, student loan, credit card, and retail card accounts opened between 2012 and 2019 in which a dispute flag appeared on the applicant’s credit report. The report then isolated these statistics by various demographic categories based on census data for the area in which the consumer resided. The resulting numbers showed that credit disputes more commonly occur among consumers residing in areas identified as majority Black or Hispanic by census data. In particular, the research found that consumers residing in majority Black neighborhoods were more than twice as likely to file credit report disputes than those in majority white areas.
The CFPB’s report concluded that this demographic disparity was “striking,” but also noted “a few important caveats to this result.” First, it noted that census data on race and ethnicity strongly correlated with other characteristics that may affect the likelihood of a dispute to appear on the consumer’s record, most notably credit score. The report acknowledged that “[i]t may be that the disparity in dispute flag rates by census tract race in part reflects the patterns in credit score.” Second, the report noted that census data on race is only a proxy for the consumer’s actual race, and therefore it does not necessarily reflect the actual race of each consumer for whom a dispute flag appeared.
In addition to showing a disparity correlating to race and ethnicity, the report also revealed that younger consumers were generally more likely to have disputes appear on their consumer records than older consumers, contrary to the researchers’ expectation that older consumers, “who typically have more experience with the credit system,” would more likely file disputes. Finally, the report showed a strong correlation between a consumer’s credit score and the likelihood of dispute, with consumers with credit scores below 619 being roughly twice as likely to have a dispute on their credit report than not. The report further noted several caveats for this finding, including that consumers with low credit scores may be more likely to experience errors in the first place, or that these consumers are more likely to monitor their credit reports frequently due to experiencing credit denials more often.
The report concluded that the results, “[w]hile providing some key facts, … also raise further questions.” One such question raised was “whether these patterns are driven by differences across groups and credit types in the type or frequency of the underlying issues that result in a dispute flag, or whether they are driven by furnishers’ practices for reporting dispute flags or responding to disputes.”
In its press release announcing the report’s findings, the CFPB emphasized its commitment to conduct further research on these issues and to investigate the underlying reasons for the demographic disparities revealed by the report.