$8 million penalty for sub-prime credit reporting company

The Consumer Financial Protection Bureau (CFPB) has slapped an $8 million penalty on a nationwide credit reporting company, Clarity Services, which provides auto lenders and others with data about sub-prime consumers, over claims it obtained consumer credit reports illegally.

The CFPB says the company also violated the law by failing to appropriately investigate consumer disputes. The agency has ordered Clarity Services and its owner, Tim Ranney, to stop the practices and improve the way they investigate consumer disputes and obtain, sell, and resell consumer credit reports.

Based in Florida, Clarity Services compiles and sells credit reports to financial service providers. Clarity purchases credit reports from other credit reporting companies, supplements these reports with alternative data, and resells the repackaged reports to be used in underwriting decisions. Companies that purchase Clarity’s consumer reports are often lenders making small-dollar loans to consumers who have thin credit files.

The CFPB found that Clarity and Ranney violated the Fair Credit Reporting Act by illegally obtaining the consumer reports of tens of thousands of consumers—without having the necessary “permissible purpose” as required by law —for use in marketing materials for potential clients. The company also failed to investigate consumer disputes, including consumer disputes about unauthorized credit inquiries.

For example, in one instance, although members of Clarity’s own staff objected to the illegal conduct, Clarity and Ranney illegally obtained over 190,000 consumer reports from another credit reporting company. As a result, consumers’ credit files wrongly reflected a permissible inquiry by a lender. When the lender learned of this and raised it with Clarity, Clarity and Ranney requested that the credit reporting companies delete evidence of the unauthorized pulls of information from the consumers’ reports.

The CFPB maintains Clarity failed to investigate consumer disputes, including disputes relating to credit inquiries, even though it was aware that some consumer files were populated with information from unreliable sources. Specifically, the company would not investigate a dispute if a consumer did not supply supporting documents.

Even when a consumer identified specific tradelines and the reason why the consumer thought the item was inaccurate or incomplete, Clarity would not reinvestigate unless the consumer provided specific documentation. Clarity also failed to investigate disputes related to identity theft and routinely failed to provide information to furnishers about consumer disputes.

Following the CFPB ruling, Clarity and Ranney must implement policies and procedures to ensure that users have a permissible purpose to obtain consumer reports and are appropriately credentialed. The company must also require consumer data furnishers to provide accurate data and correct data inaccuracies.

“While we do not agree with the CFPB’s allegations, the settlement allows Clarity Services to move beyond this distraction,” said Clarity Services president and CEO Tim Ranney. “We are focused on delivering innovative solutions and excellent service to our customers. The settlement will not affect that level of service or Clarity’s level of pricing, innovation or technology platform.”