As many as 40 million consumers have mistakes on their credit reports. As many as 20 million are significant enough to change their credit scores. These figures are supported by a new study issued the week of February 11, 2013 by the Federal Trade Commission. For the first time, the FTC considered all constituents of the credit reporting process, including consumers, lenders, credit reporting companies, and the Fair Isaac Corporation, purveyor of the FICO credit score, in looking at practices by the credit reporting industry.
According to the FTC report, one in five consumers had an error on at least one of their three credit reports. In addition, the FTC found that:
- One in four consumers identified errors on their credit reports that might affect their credit scores;
- One in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports;
- Four out of five consumers who filed disputes experienced some modification to their credit report;
- Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report; and
- Approximately one in 20 consumers had a maximum score change of more than 25 points and one in 250 consumers had a maximum score change of more than 100 points
The FTC report can be accessed here.
In anticipation of the release of the FTC report, the CBS News magazine 60 Minutes looked beyond the findings of the study to highlight the difficulties consumers encounter when they attempt to dispute items reported by major credit reporting agencies Experian, Equifax and TransUnion. You can access the 60 Minutes video segment here.
“The problem is not that they make mistakes, it’s that they won’t fix the mistakes. It really is a secret operation that’s so hard to crack,” says Ohio Attorney General Mike DeWIne, who is waging a frustrating battle against these abuses.
Steve Kroft, the 60 Minutes anchor reporting the story, thinks he knows why it is so difficult for consumers to resolve disputes. “It’s extremely unlikely that anyone with the authority to resolve your dispute will ever actually see it,” reports Kroft. Much of the dispute process takes place offshore in places like India, the Philippines and South America. He interviewed former CRA employees in Chile, who outlined the process — or rather lack of process — they undertook to “verify” the disputed information. They were functionaries with no power to directly communicate with the consumer or the creditor and no power to change the report. As one says, “We took for granted the word of the bank.”
With such rampant flaws in the system, and laws including the federal Fair Credit Reporting Act, not to mention oversight by watchdog agencies the Federal Trade Commission and the Consumer Financial Protection Bureau, wouldn’t the CRAs be eager to correct the problems that plague consumers? Not so, says Sylvia Goldsmith, a lawyer who sues credit agencies, “We can get a jury verdict for $1 million. That’s chump change to some of these bureaus. They would rather pay a verdict of $1 million than to actually go in and change the policies and procedures that they have, because that’s much more expensive to them.”
Does your bank get the same credit report that you do?
Not necessarily, according to the experience of at least one wronged consumer. Kroft featured the story of Judy Thomas, who, beginning in 1999, was repeatedly denied credit even though her credit reports were clean. Eventually, she discovered that the credit report supplied to a banker was markedly different from the one she received from the same CRA. The banker’s report included damaging information on a completely different consumer. She describes years of wrangling before she finally obtained satisfaction, but only after filing a federal lawsuit against the CRAs.
Credit reporting errors can have drastic effects beyond the cost of borrowing. Credit reports and credit scores contribute to hiring decisions and insurance rates as well as the cost of credit for individual consumers. Yet, the Consumer Financial Protection Bureau reported in December that less than one in five consumers obtains copies of their credit reports each year.
How to Fight Back
The first place to start is with the credit bureaus. Under federal law, you can obtain a copy of your credit report from each of the three major credit reporting agencies once a year for free through the website www.annualcreditport.com. This is the only site through which you can obtain the federally-mandated free credit report. Beware: other sites with similar names and cute commercials with catchy jingles are operated by the CRAs as marketing tools to sell products like credit monitoring and identity theft protection.
You can choose to obtain one, two or all three of the reports at once, or you can stagger them throughout the year. But, it’s important to get all three because they may report different accounts or different personal information.
Review all the information on the report, not just the items that the CRA may deem to be potentially negative. For instance, one CRA may mistakenly show that you lived in Montana, or that an account is still open even though you closed it years ago. Both of those items, although they may seem harmless, can affect your credit score.
All three CRAs provide for online disputing for line items on your credit reports. Under federal law, the CRA is required to provide that dispute to the credit furnisher for verification. If the 60 Minutes report holds true, and our experience as consumer attorneys supports that, the verification process is a sham.
So why go through the motions? Simply put, when your federal lawsuit is filed against the CRAs, the judge will expect to see that you made all reasonable attempts to allow the CRA and the lender to fulfill their obligations under federal law before ordering them to fix the problem and pay you damages.
Often times, just knowing that you’re represented by competent consumer credit attorneys will motivate the credit bureaus to cooperate, correct the errors and pay your damages. If the process of cleaning up your credit report requires a trip to the courthouse, federal law allows you to recover the following damages:
- Actual Damages
- Actual damages may include loss of employment, loss of credit, higher insurance premiums, fees for assistance with credit issues before filing suit, damages for emotional distress, and other costs.
- Punitive Damages; Attorneys’ fees; and The costs of the lawsuit.
Click here for more information on combatting illegal debt collection tactics and credit report errors. If you believe that your credit report contains inaccurate information, schedule an appointment now to speak with one of our knowledgeable attorneys.
Blog post written by Carron Nicks Armstrong of BK Law Clerk.