Records on roughly one percent of outstanding auto loans in the United States were plagued last year by inaccuracies caused by a software company’s negligence.
Source code used by Conduent Business Services was buggy for years and the company knew it, according to details of a consent order released Monday by the Consumer Financial Protection Bureau.
The CFPB said that Conduent data last year alone was off for “over one million of the more-than 6.4 million consumer accounts” that the company oversees. Bureau officials noted earlier this month that there are currently “almost” 100 million outstanding car loans across the country.
Conduent was first made aware of its source code problem in 2011, after a client complained. An independent software developer used by the company also warned in 2012 of systemic errors.
But Conduent didn’t fix the problem until 2014—and it only made the correction for the one company that complained, Monday’s consent agreement stated. Conduent provides information services to five auto lenders in total.
“Furnishing Inaccuracies needlessly persisted for years,” the consent agreement stated. Conduent agreed to pay a $1.1 million fine as part of the deal, which was finalized late last week.
Buggy software meant that credit reporting agencies were regularly receiving shoddy information on key details about Conduent-administered accounts. Bad records included the wrong information on delinquency, payments, loan balances, and account status.
Troubled borrowers who voluntarily returned their cars, for example, were considered the same as involuntary repossessions by Conduent software. The company learned of the problem in September 2012, but didn’t bother telling its clients.
“Instead, Respondent only fixed the defect when each Lender raised the issue with Respondent,” the consent agreement states.
Regulators’ concerns about the stability of the $1 trillion auto credit market have grown in recent times, less than a decade after reckless subprime mortgage lending helped bring down the global banking system.
Earlier this month, the CFPB issued a report warning that auto lenders are increasingly relying on riskier products—loans that mature over the course of six years instead of five years.
The longer deals involve lower monthly payments, but higher financing costs “over the life of the loan,” the agency said. Borrowers who resort to six year loans have lower credit scores and are generally more likely to default.
“These longer-term loans increased from 26 percent of auto loans originated in 2009 to 42 percent of 2017 originations,” the CFPB said.
Regulators outside the agency have also fretted recently about systemic problems hounding the auto lending industry.
In June, then-Federal Reserve Vice Chair Stanley Fischer warned that delinquencies were on the rise, “indicating that underwriting standards in the auto loan industry may be deteriorating.”
Fischer had singled out car loans alongside troubled student loans in a speech about financial stability inn the US.
Though both markets are relatively small, Fischer cautioned against downplaying concerns about distress.
“[O]ne should remember that pre-crisis subprime mortgage loans were dismissed as a stability risk because they accounted for only about 13 percent of household mortgages,” Fischer stated.
