State Farm Bank has been ordered to change its practices after the Consumer Financial Protection Bureau found it violated federal law by improperly obtaining consumer credit reports and failing to quickly correct bad information it was supplying to credit reporting agencies.
The CFPB’s Dec. 5 consent order with State Farm Bank will be in effect for five years. It requires State Farm Bank to submit a comprehensive compliance plan within 60 days showing how it will follow federal consumer protection laws.
State Farm Bank has over $16 billion in assets. Credit cards and vehicle loans compromise the majority of its business, according to the CFPB.
“(State Farm Bank’s) written policies and procedures regarding the accuracy and integrity of the consumer information that it furnishes to (credit rating agencies) were inadequate given the high volume and complexity of (State Farm Bank’s) furnishing activities and were not reasonable or appropriate given the nature, size, complexity, and scope of (its) activities,” the CFPB wrote in its consent order.
The CFPB found that State Farm Bank:
- Initiated vehicle-loan applications to solicit consumers, triggering a credit inquiry. Those consumers had not applied for a loan.
- Obtained credit reports for people who weren’t seeking an extension of credit. The bank had “no other permissible purpose” for the reports it obtained.
- Initiated credit applications for the wrong customer, something selecting the wrong person from a list of possible customers.
- Provided inadequate training and oversight of staff and agents on the permissible use and obtaining of credit reports.
A State Farm spokesperson said the company was communicating with employees and associates about the matter.
“Protecting customer information is important to State Farm and we took this matter seriously,” the spokesperson said. “The bank strengthened processes and training related to the concerns including the implementation of voice recorded customer consent and email consent options for customers. The concerns outlined in the consent order affected only a small percentage of credit card and vehicle loan applicants, and we are not aware of individual consequences to consumers.”
The CFPB consent order is signed by Mick Mulvaney, the former acting director of the bureau. New director Kathy Kraninger was confirmed by the Senate last week.
The CFPB is a watchdog agency, created by the government in 2011 to safeguard American consumers against some of the financial losses they suffered in the mortgage crisis and Great Recession. The Trump administration has worked to pare back that power from within, through appointing Mulvaney as interim director just over a year ago.
Consumer advocates criticized State Farm Bank for what they called “reckless behavior.” Christopher Peterson, director of financial services and senior fellow at the Consumer Federation of America, said it’s possible customers may have been rejected for credit, jobs, insurance or other benefits because of “false information” that State Farm did not move quickly enough to correct.
Peterson said no fines were imposed on State Farm Bank. The consent order and a related stipulation document signed by Bank President and CEO Joe Monk Jr. do not reference any fines.
“It is reasonable for a bank with over $16 billion in assets to pay a substantial fine and reimburse every customer harmed by the bank’s illegal practices. Instead, on his last day (at CFPB) Mick Mulvaney didn’t even slap the bank on the wrist,” Peterson said in a statement. “In over 200 CFPB enforcement cases, I cannot recall another case that was so obviously incomplete.”
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