Buying homes, getting jobs and borrowing money will be easier after an agreement by the three biggest U.S. consumer credit reporting services with New York.
“This is huge,” Chi Chi Wu, an attorney at Boston-based National Consumer Law Center, said of the deal announced Monday by New York Attorney General Eric Schneiderman. “Consumers should be able to more easily get their errors fixed.”
Some consumers have spent years trying to rectify errors on their credit reports resulting from mistakes, fraud or mistaken identities. Removing black marks will save people money and time as credit bureaus have become gatekeepers to economic and employment success in the U.S., said Ed Mierzwinski, consumer program director at advocacy group U.S. PIRG in Washington.
Units of the three U.S. consumer credit reporting services -- Equifax Inc., Experian Plc and TransUnion Corp. -- said they would make changes to improve accuracy of reports and increase protection for consumers with medical debt in the agreement with Schneiderman. Combined, the companies maintain credit information on about 200 million U.S. consumers, and much of the deal will apply nationally.
“It’s a sea change in the way the credit bureaus treat complaints,” said Mierzwinski. “The credit bureaus have been run by computers for years now. They’re going to have to hire more people and actually verify that what a creditor said is true.”
The U.S. Consumer Financial Protection Bureau has received more than 35,600 complaints related to incorrect information on credit reports since it began collecting data in October 2012. About one in five complaints came from consumers who said information on their credit reports wasn’t actually theirs, according to a 2013 U.S. PIRG report that examined the complaints.
Credit-reporting companies resolve an average of 15 percent of items consumers dispute internally, the CFPB said in a 2012 report. The rest are passed to banks, credit-card issuers and other firms that reported information on borrowers’ behavior using a digit code. If the provider said there wasn’t an error, the bureaus accepted that through an automated process, said Wu.
“The dispute process at the credit bureaus has been broken for a long time,” said Ira Rheingold, executive director at the National Association of Consumer Advocates. “It’s been very frustrating for consumers because they haven’t been able to correct their reports.”
Under the agreement, the companies will have to hire humans to review consumer complaints about possible errors, fraud or identity theft. The additional step should make it easier for consumers to get errors fixed, Wu said.
“We are always looking for ways to improve our procedures, and this consumer assistance plan will allow us to do that,” the Consumer Data Industry Association representing the three credit bureaus said in a statement.
Schneiderman said at press conference in Manhattan the settlement “provides an extraordinary set of reforms that will impact the financial lives and financial security of hundreds of millions of families.”
Consumers with errors in their reports can lose access to loans, be charged higher borrowing costs, pay more on insurance policies or have trouble finding jobs. That’s because banks use credit information as a measure of worthiness in providing credit cards, mortgages and auto loans. Insurance companies use it to predict the likelihood of a claim and to determine pricing, and almost half of employers check credit reports when hiring, according to the National Consumer Law Center.
A federal judge awarded Oregon nurse Julie Miller $1.62 million last year in a dispute with Equifax over an error on her credit report.
Miller argued in a lawsuit that the credit bureau violated the Fair Credit Reporting Act by not following procedures to assure the information in her report was accurate and didn’t conduct a reasonable investigation. She sought damages for emotional distress.
A three-day jury trial in July 2013 revealed that Equifax had mixed up her identity with another person who had the same name and a similar Social Security number, which contributed to the errors in the report. Equifax appealed the judgment, and the case was settled last year for an undisclosed amount.
“She had great credit before she was mixed up with someone else,” said Michael Baxter, a lawyer who represented Miller. “After that, the first few pages of her credit report were collections and she couldn’t get anyone to do anything about it for years. It was terrible.”
The agreement with the New York attorney general also makes important strides in how medical debt is handled, consumer advocates said. About 43 million Americans have overdue medical debt on their credit reports, according to a CFPB report released in December. Many credit reports are negatively hit by reported delinquencies on medical bills resulting from delays by insurance companies or disputes with them over coverage.
Under terms of the agreement, the bureaus will institute a 180-day waiting period before medical debt is reported to permit time to resolve delinquencies related to insurance-coverage disputes or payment delays.
Ultimately the success of the agreement will depend on whether the credit bureaus live up to it and government agencies enforce it, Rheingold of the National Association of Consumer Advocates said.