Credit Report Accuracy and the Challenges of the Metro 2 Format
By Dennis Dang
Businesses that extend credit to businesses or consumers are often motivated to report customer data to one or all of the major consumer credit bureaus: Equifax, TransUnion, and Experian. Doing so helps maintain a healthy ecosystem. More comprehensive credit data decreases risk, reducing the cost of credit for everyone.
The Metro format was developed in the 1970s to ensure consistency in how data was reported. It was a resounding success. By 1996, more than 95% of all data received by nationwide credit reporting systems was in the Metro format. The following year, Metro 2 was introduced.
The goal of Metro 2 is to enable credit information that is accurate, complete, and timely. Put together by the Metro 2 task force, the format is designed to meet the requirements of the Fair Credit Billing Act (FCBA), the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), and all applicable state laws.
But proper implementation of Metro 2 has proven challenging for the financial services industry.
In 2012, the Consumer Financial Protection Bureau (CFPB) conducted examinations of data furnishers and found that “employees did not have sufficient training or familiarity with the requirements of FCRA to implement it properly.” As a result, some furnishers did not communicate appropriate and accurate information to the credit bureaus and failed to indicate when consumers disputed information. In some cases, the deficiencies caused financial institutions “to be unaware of and therefore repeatedly fail to respond to communications from consumers about their accounts.”
The Consumer Data Industry Association (CDIA), the industry’s trade association, responded in 2014 with a new Metro 2 remote learning training platform and online resources. The CDIA also offered new data furnisher compliance training.
But problems with accuracy continued. In 2019, the U.S. Government Accountability Office stepped in to look at the inaccuracies in consumer reporting data. The GAO recommended that the CFPB provide the credit bureaus with clearer guidance about how they can achieve maximum accuracy.
The conversation is now being driven by President Biden’s push to establish a government-run credit reporting agency. “Being able to obtain an accurate credit report and score is a critical step for homeownership,” Biden’s plan states. “But today credit scoring and reports, which are issued by just three large private companies, are rife with problems: they often contain errors, they leave many “credit invisible” due to the sources used to generate a credit score, and they contribute to racial disparities.”
The problem with the President’s proposal, from our perspective, is that it doesn’t address the infrastructure gap that contributes to inaccurate reports. The gap starts with the ledgers that financial institutions use to track loan payments and interest owed. It is well-known that most ledgers are not immutable — the records they hold can be changed in ways that are not always transparent. They are also not flexible enough to support modern lending constructs, like installment loans that convert to revolving lines of credit (for example, Buy Now Pay Later customers who fall behind on payment).
And then, there are the challenges of converting ledger records into Metro 2 files. The 356-page spec includes Metro 2 record layouts, field definitions, and detailed descriptions of the base segment, J1 segment (associated consumer — same address), J2 segment (associated consumer — different address), K1 segment (original creditor name), K2 segment (purchased from/fold to), K3 segment (mortgage information), K4 segment (specialized payment information), L1 segment (account number/ID number change), N1 segment (employment) and the trailer record.
Historically, financial institutions have turned to third parties to handle Metro 2 reporting for them. (Canopy handles Metro 2 reporting for its clients.) More recently, Moov offered an API that enables bidirectional conversion between plaintext and JSON formats. We are fans of Moov’s Metro2 project but found we need to do additional validation before delivering the files.
Validation is the key to credit reporting accuracy. If we distill the business rules and validation requirements documented in the spec into code and move to immutable ledgers, then we can dramatically increase the chance that credit bureau reports will be accurate for both simple and complex credit products. One company can’t solve the accuracy problem alone, but if the industry as a whole moves to more modern infrastructure, then we might see the problem begin to solve itself.
