June 23, 2014 – In an article from the New York Times this weekend, a Mississippi woman tells of the arduous experience she faced clearing errors from her credit report and the consequences these mistakes can have for individuals.
Held Captive by Flawed Credit Reports
By GRETCHEN MORGENSON, June 21, 2014
When companies are found to have violated the law and harmed consumers, they typically pay a penalty to regulators and agree to reform their practices.
Whether or not they actually follow through on those vows, however, is another matter entirely.
The consumer credit reporting industry is a case in point. These companies collect and distribute information about consumers’ credit history to lenders, employers and others with an interest in these matters. The reports can make or break a consumer’s mortgage application, car lease or, in the case of military personnel, a security clearance.
But inaccuracies often show up in consumers’ credit reports, and these errors have real consequences, like increasing borrowing costs or barring people from financing a home or renting an apartment. And once an error is found, getting it fixed can take months of exasperating work.
Because of these problems, credit-reporting bureaus have been sued repeatedly by regulators and consumers and have paid millions in fines and settlements. And yet the inaccuracies continue, consumers and their lawyers say, making them wonder if these companies view the penalties they pay as simply a cost of doing business.
Patricia Armour, 73, of Olive Branch, Miss., said she spent two years trying in vain to correct information on her Experian credit report. A second mortgage that had been discharged when she filed for bankruptcy in 2007 popped up as an unpaid debt of around $40,000 in 2011, she said. Even though she repeatedly supplied proof of the discharge to Experian, she said, it refused to fix the error.
“I sent them everything, and I got nowhere,” Ms. Armour said in an interview last week. “They wrote a letter saying there was nothing they could do because their records were correct. I was at my wits’ end.”
Only after she called the Mississippi attorney general’s office did Experian correct her report.
The three largest credit reporting companies — Equifax, Experian Information Solutions and TransUnion — issue more than three billion consumer reports a year and maintain files on more than 200 million Americans. Under the Fair Credit Reporting Act, these agencies are supposed to have procedures assuring “maximum possible accuracy” of consumers’ information. The law allows consumers to check the reports for errors and requires credit bureaus to investigate consumers’ error claims. The agencies are also supposed to deliver to creditors all information relating to those errors so they can be corrected.
That’s what the act says, anyway. But in a lawsuit filed last month against Experian, Jim Hood, the Mississippi attorney general, said the reality was quite different.
“Experian has, over more than two decades, engaged in an unyielding pattern and practice of violating state and federal law,” the complaint said. The company has paid tens of millions of dollars in judgments and settlements to consumers across the country, the complaint added, but it has “refused to take the steps necessary to conform its conduct to the law.”
Officials in Mr. Hood’s office spent more than a year interviewing former employees and reviewing complaints about Experian from state residents. Investigators found that the company routinely mixed up reports of consumers who have the same name, allowed erroneous information to be included on credit reports and would not correct the errors that consumers had identified. The company also failed to investigate disputed data as required, the complaint said, and accepted creditors’ findings about the disputed information even if it was contradicted by canceled checks or other proof.
The results of these practices were dire for many consumers, the suit said. Some were denied credit or forced to pay higher rates for loans they did receive; others lost job opportunities.
A spokeswoman for Experian said the company rejected the allegations in the Mississippi lawsuit. “This lawsuit is clearly designed to be sensational,” the spokeswoman said in a statement. “To say we ‘knowingly’ — as the A.G. claims — put errors on reports is false. Contrary to the allegations, credit reports are used millions of times every day to accurately and quickly assess risk in lending and speed the process of making credit readily available to consumers.” She added that Experian believes its database is 98 percent accurate, and that it invests heavily to help improve the number.
That may be, but there is no doubt that erroneous information on credit reports remains an enormous problem. Last year, the Federal Trade Commission found that 5 percent of consumers — or an estimated 10 million people — had an error on one of their credit reports that could have resulted in higher borrowing costs.
The F.T.C., which oversees the industry along with the Consumer Financial Protection Bureau, has been busy bringing cases in this arena. Since 2000, it has filed 18 enforcement actions against reporting bureaus; 13 were district court actions that generated $25.7 million in penalties.
Consumers have also won in the courts, on occasion. Last year, an Oregon consumer was awarded $18.4 million in punitive damages by a jury after she sued Equifax for inserting errors into her credit report. But the fines, settlements and judgments paid by the larger companies are not even close to a rounding error. Experian generated $4.8 billion in revenue for the year ended March 2014, and its after-tax profit of $747 million in the period wasmore than twice its 2013 figure.
Examine these companies’ business models and it’s easy to see why they are resistant to change. For starters, consumers are not the primary source of revenue for the reporting bureaus — credit providers are. They pay for the information every time a consumer applies for a loan, lease or mortgage. Because consumers are not their true customers, the bureaus have little incentive to treat them well.
The Mississippi complaint says former Experian employees told investigators they were pressured to meet “production” quotas and given no more than five minutes to handle each consumer call. These employees also described internal competitions for speedy call-handling, bonuses for meeting quotas and probation for those with low production numbers.
Another barrier to better treatment: Consumers are captive to the Big Three credit bureaus, whose reports are ubiquitous. This means consumers cannot hold the rating bureaus accountable by choosing to do business with other companies.
The problems with this business model are identical to those of mortgage loan servicers, an industry that ran roughshod over borrowers for years and where companies have paid billions in regulatory penalties.
Thirty-three other state attorneys general are investigating the three major credit bureaus. And both the F.T.C. and the consumer protection bureau have rating companies on their radar screens. Rightly so. Companies that are recidivists can be liable for civil penalties of $16,000 a violation per day, according to the F.T.C.
But as long as the companies can shrug off such penalties and keep consumers in their grip, not much about the business is likely to change. As a result, regulators and other overseers will have to raise their game.
Read the original article at: http://www.nytimes.com/2014/06/22/business/held-captive-by-flawed-credit-reports.html?_r=0
