Black, Hispanic Neighborhoods See More Errors in Credit Reports

The Consumer Financial Protection Bureau (CFPB) has released a report finding that credit report disputes occur more commonly in majority-black and Hispanic neighborhoods than in majority-white neighborhoods. The CFPB’s new Director Rohit Chopra attributes this to low-quality credit reports, which Chopra believes may be preventing a minority consumer’s ability to recover from the economic hardships the pandemic has brought.

Under the Fair Credit Reporting Act (FCRA), if consumers discover what they believe to be an inaccuracy, they have the right to file a dispute with a credit reporting agency (CRA). The CRA is required by the FCRA to perform a reasonable investigation to determine if any inaccuracies are present and correct them.

This new report from the CFPB was the product of the agency’s desire to determine how these disputes arise, what type of consumers have disputes appear on their credit reports, and what happens to consumers’ accounts after inaccuracies are reported. This investigation looked into the percentage of student and auto loans as well as credit and retail card accounts that were opened from 2012 to 2019, in which a dispute flag appeared in the credit report of the applicant. After this, the report separated these statistics into demographic groups based on information obtained from census data obtained about the area where the consumers lived. The results of this investigation showed that credit disputes are much more likely to be filed by people living in neighborhoods that have large Hispanic or black populations.

Although the report did note that there is a connection between ethnicity and race and other factors, such as credit score, that may influence the probability of a credit dispute showing up on a consumer’s record. The report also stated that the census data may not indicate the actual race of the consumer with a dispute flag on their credit report. Additionally, the report found that younger people were more likely to have filed a credit dispute than older people. Also, according to the report, consumers that had a credit score of less than 619 were approximately twice as likely to file a credit dispute. The report notes that people with poor credit scores may be more likely to have errors on their credit reports, or they may check their credit reports more frequently due to credit denials.

In conclusion, the report stated that this study found some useful information but also brought up some questions about whether the patterns found in the study were due to differences among groups and credit types, the issues that might cause a credit dispute, or whether the differences were caused by the way the credit reporting agencies report or respond to disputes.

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