The Consumer Financial Protection Bureau (CFPB) took action against a nationwide credit reporting company, Clarity Services, Inc., and its owner, Tim Ranney, for illegally obtaining consumer credit reports. The company also violated the law by failing to appropriately investigate consumer disputes. The Bureau is ordering the company and its owner to halt their illegal practices and improve the way they investigate consumer disputes and obtain, sell, and resell consumer credit reports. The company and Ranney must also pay an $8 million penalty to the Bureau.
“Credit reporting plays a critical role in consumers’ financial lives,” said CFPB Director Richard Cordray. “Clarity and its owner mishandled important consumer information and failed to take appropriate action to investigate consumer disputes. Today, we are holding them accountable for cleaning up the way they do business.”
Clarity Services, Inc. is a Florida-based credit reporting company that focuses on the subprime market. Tim Ranney is the president, chief executive officer, and founder of the company. The company compiles and sells credit reports to financial service providers, such as payday lenders. 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 Fair Credit Reporting Act requires that access to consumer reports be limited to those with a “permissible purpose,” such as a lender making an underwriting decision about a consumer. Among other things, this protection helps to ensure that consumer reports are obtained and used appropriately and that consumer privacy rights are protected. When a lender requests to pull a credit report for a permissible use, the inquiry often appears on the consumer’s credit file.
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 a permissible purpose—for use in marketing materials for potential clients. The company also failed to investigate consumer disputes, including consumer disputes about unauthorized credit inquiries. The specific violations include:
- Illegally obtaining consumer reports without permission: Clarity and Ranney generated marketing materials for prospective clients by illegally obtaining tens of thousands of consumer reports from other credit reporting companies without a permissible purpose. Clarity and Ranney used personal consumer information from these reports to help market its products. 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.
- Failing to investigate consumer credit reporting disputes: 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.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions and individuals who violate the Fair Credit Reporting Act. Under the terms of the administrative order, Clarity and Ranney will be required to:
- End illegal credit reporting practices: Clarity and Ranney must cease their illegal business practices. These illegal practices include pulling consumer reports and selling or reselling consumer reports to users who lack a legal purpose, such as lead generators and those companies that are considering purchasing any service from Clarity or Ranney.
- Improve consumer safeguards: Clarity and Ranney must implement policies and procedures to ensure that users have a permissible purpose to obtain consumer reports and are appropriately credentialed. It must also require consumer data furnishers to provide accurate data and correct data inaccuracies.
- Fully investigate consumer disputes: Among other things, Clarity and Ranney must improve the way the company investigates consumer disputes. As part of this, the company is required to have strong policies and procedures in place to ensure investigations are conducted when Clarity is informed of a consumer dispute, including disputes about unauthorized credit inquiries. The policies and procedures must also not impose any impermissible precondition to investigation, such as a requirement that a consumer must complete a specific form or provide documentation or other evidence of the dispute before Clarity will conduct an investigation.
- Pay a civil monetary penalty of $8 million: Clarity and Ranney will pay an $8 million fine for the illegal actions.
The CFPB order is available at: http://files.consumerfinance.gov/f/201512_cfpb_consent-order_clarity-services-inc-timothy-ranney.pdf