It's Time To Clean Up Credit Reporting
Last June, Robert J. Corbey applied for a $2,000 loan to put vinyl siding on his Aspen Hill (Md.) home. To Corbey's amazement, his lender refused, citing unpaid mortgage bills on two homes in Virginia and an Internal Revenue Service lien against him and his wife, Ann. Corbey was furious. He had paid off his 30-year mortgage, he had never lived in Virginia, and he had never been married to anyone named Ann. The erroneous information, Corbey learned, came from his Equifax Inc. credit report. Computers at the credit bureau had confused him with another Robert Corbey. It took him more than eight months to clear up the mess.
Corbey is just one among thousands. The Federal Trade Commission disclosed last year that credit reports are now its biggest source of consumer complaints. In many cases, much more than vinyl siding is at stake: An error-ridden credit report can prevent a consumer from getting anything from a MasterCard to a job.
HILL SLIDE. Congress has long been promising to crack down on such abuse. For more than two years, it has been holding hearings and preparing proposals to overhaul the Fair Credit Reporting Act of 1970, which didn't foresee the exploding use of credit or computers. But instead of passing a reform bill, the House Banking Committee in March gave in to pressure from industry lobbyists and turned the bill against consumer interests.
There is one last hope. This month, a similar bill is scheduled to reach the Senate that could replace the failed House effort and quickly redress consumer concerns. But if a law doesn't pass this year, momentum is likely to subside, and consumers probably won't get any protection on a national level.
What consumers are hoping for are legitimate guarantees of privacy. That was the intent of strong legislation introduced last fall by Representative Esteban E. Torres (D-Calif.). The proposal called for quick corrections of mistakes on credit reports. It also gave consumers the right to a free yearly report to check their credit records. The three biggest credit bureaus, TRW, Equifax, and Trans Union, agreed that a new law was needed and even made a few changes on their own. But many businesses remained concerned that undue regulation would only bog down a system that enables U.S. consumers to buy 5,000 homes, 40,000 cars, and 300,000 appliances daily.
Behind the scenes, business groups pushed to weaken the bill. "The credit bureaus, the banks, and the retailers had armies of lobbyists on the Hill," says a congressional staff director working on the bill. "And they got very greedy." The free-report measure, for one, was scuttled. Also scrapped was an effort to ban credit bureaus from selling private financial data on consumers to direct marketers, even though the FTC considers this illegal. Worst of all, a last-minute amendment would have voided all existing and future state laws that have anything to do with credit reporting, including many that ensure privacy.
Consumer groups were outraged. "We can't accept a bill that gives consumers half a loaf and then ties state legislatures from filling in the gaps," says Michelle Meier, government-affairs counsel for the Consumers Union.
PANDERERS? Rather than allow the full House to vote on it, Banking Committee Chairman Henry B. Gonzalez (D-Tex.) escaped embarrassment by shelving the whole package. That riled industry groups. "We've given an all-American effort to get it passed," says D. Barry Connelly, executive vice-president of Associated Credit Bureaus Inc., the Washington trade group for companies that compile and sell financial data.
Now, it's up to the Senate. Senator Richard H. Bryan (D-Nev.) has introduced legislation similar to the Torres bill, and the Senate Banking Committee is set to vote on it this month. If the committee moves swiftly, a package could reach the President this year.
There's a risk that members of the Senate Banking Committee will do what their House counterparts did: pander to the industry. But the Senators may be less likely to cave in, if only because they are less beholden to key political-action committees. In 1991, the 20 members of the Senate Banking Committee accepted $118,065 in donations from banking, finance, and credit interests. Most of that money--$114,000--went to one man: Senator Phil Gramm (R-Tex.). In contrast, the 41 members of the House Banking Committee took about $600,000 from such PACs in 1991.
Contrary to industry claims, a pro-consumer bill needn't create red tape. Instead, it would allow people to cut through it--and to buy homes or get loans with some dignity. If there's any doubt, just ask Robert Corbey. After much haggling, he was forced to dip into his retirement savings to buy the vinyl siding. "Looking back," he says, "I think I would have been happier with a coat of paint."