The credit reporting industry has vast reach and power. The information it gathers and sells is used to determine eligibility for credit cards, mortgages and even some jobs. Federal regulators haven’t had the authority or the means to protect consumers who have been victims of inaccurate reports. The new Consumer Financial Protection Bureau will have that authority. It has a big job ahead.
Reporting agencies gather consumer payment histories from creditors that are sometimes less concerned with accuracy than they should be. Those aren’t the only problems. As the agencies sometimes merge the credit records of people with similar names and Social Security numbers.
Estimates of the error rate in credit reports vary anywhere from 3 percent to 25 percent. But even 1 percent would mean that two million people could be saddled with erroneous credit histories that cause them to pay higher interest rates or to be denied credit altogether.
Judy Johnson of Louisiana told The Times about how a credit reporting company confused her records with those of another woman. She tried for nearly seven years to get a credit bureau to correct errors in her record, finally suing the reporting company after being denied a credit card. She has since reached a settlement, but a sheriff recently showed up at her door to serve her papers for a debt she says she does not owe.
The Times also reported that the major reporting agencies give influential people – celebrities, politicians and others – special help, swiftly correcting their errors. The less-well-connected are shunted into a mainly automated system where workers spend an average of two minutes processing the complaint. As the National Consumer Law Center said in a scathing 2009 report, “investigators” then check the data with the creditors who submitted it but fail to conduct independent reviews. That means that no one ever investigates the substance of the consumer’s complaint. People who find errors in their reports are caught in a trap in which they must prove that they do not owe the debt but are ignored when they try.
The Consumer Financial Protection Bureau needs to rewrite the rules so consumers have a way of exonerating themselves without hiring lawyers and going to court. That means requiring credit reporting companies to intensively investigate both the consumer’s complaint and the creditor’s response to it. It also means forcing those same companies to develop accessible appeal processes. Finally, it means holding the reporting companies and the creditors who feed them data accountable for accuracy.