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McCaskill bashes credit reporting firms for errors hurting consumers

This article first appeared in the St. Louis Beacon: Every time a consumer applies for a mortgage or car loan – and, in many cases, signs up to rent an apartment or applies for a new job – a major factor in the decision to accept or reject the application is their credit report.

But one recent study estimated that one or more of the credit reports for one of every five American consumers has errors. And those mistakes, says U.S. Sen. Claire McCaskill, D-Mo., can affect loan rates or career advancement for people whose credit records are unfairly reported.

“Given the huge impact that credit reports can have, it is imperative that credit reports are accurate and, if they aren’t, that consumers can easily and successfully dispute errors in their credit reports,” McCaskill told a Senate Commerce Committee panel on Tuesday.

“Errors can mean the difference between obtaining a car loan or not, or paying a higher price for a mortgage. Errors can result in credit issuers, like a small town bank, declining credit to a potentially valuable customer, or issuing credit to a riskier customer than intended.”

The hearing by the Subcommittee on Consumer Protection, Product Safety and Insurance – which McCaskill chairs -- featured testimony by credit industry officials, a victim of credit reporting errors, and federal regulators.

It also was a platform for McCaskill and two other senators to report inaccuracies in their own credit reports over the years. The Missouri senator, who is worth millions, said that when she applied for a refinancing in December, the credit report mentioned a problem. “It turned out that it was somebody in Houston” who was confused with her, McCaskill said.

Another committee member, U.S. Sen. Bill Nelson, D-Fla., told the panel that he and his wife had been victims of an erroneous credit report that threatened to hold up their home mortgage. “If this is happening to me, what does it do to the average citizen on the street?” Nelson asked.

The ranking Republican on the panel, U.S. Sen. Dean Heller, R-Nv., said that credit reporting firms are performing an important service but emphasized that “ensuring that this information is accurate is needed.” U.S. Sen. Amy Klobuchar, D-Minn., said her office had received many complains about inaccurate credit reports and the time it can take to correct the problem.

“It’s a ridiculous situation,” said Klobuchar, citing years of delays in correcting minor credit information.

Missouri woman struggles to correct false report

Credit reports seek to summarize an individual’s financial behavior and distill that identity into numerical credit scores.  The scores of some consumers are mistakenly low because of errors in reporting.

As an example, McCaskill cited the plight of Brenda F. Campbell, 56, of Nixa, Mo. – a city just south of Springfield – whose credit report was marred by mistaken links to credit problems of unrelated women with the same name. It took years and thousands of dollars in legal fees for Campbell and her husband to get the errors corrected.

“The ‘real’ Ms. Campbell tried to correct these obvious mistakes using the credit bureaus’ dispute processes, but was unsuccessful,” McCaskill told the subcommittee.

“She had trouble obtaining credit, received calls from collections agencies, and at one point received a notice of wage garnishment – all because the wrong Brenda Campbell’s information was in her file, and no one would help her.  She ultimately had to hire a lawyer and sue to get this fixed – but it took, quite literally, years and tens of thousands of dollars to do it.” 

Judy Thomas, an Ohio woman whose credit was falsely linked to that of another woman with a different last name, told the panel that it took her years to straighten out the erroneous credit report. “I have fought to be Judy Thomas for the past 14 years,” she said.

While a representative of the credit reporting industry acknowledged some mistakes, he said the percentage of errors is relatively low – and the industry is working to make errors scarcer.  “We want to get it right,” said Stuart Pratt, who heads the Consumer Data Industry Association, which represents credit reporting firms.

Pratt told the panel that 95 percent to 98 percent of credit reports are accurate and about 95 percent of consumers report being satisfied with how their disputes with credit reporting firms are handled. Even so, he said the industry has set up a working group to find ways to improve what he called “the re-investigation process” in response to disputes filed by consumers.

But Ira Rheingold, executive director of the National Association of Consumer Advocates, complained about “an unreasonable credit report dispute process” as well as what he described as “systemic errors“ in the credit reporting system.

While Pratt defended the accuracy and satisfaction record of the credit reporting companies, Klobuchar pointed out that, even if only 5 percent consumers are not satisfied, that represents 10 million Americans.

And McCaskill grilled Pratt on the fact that millions of Americans are negatively impacted every year by mistakes in credit reports. “You have a big problem,” she said.

Federal regulators look into credit reporting issues

A Federal Trade Commission study of the credit reporting industry found that one in five consumers had errors on one of their three major credit reports.  In some of those cases, such mistakes could possibly lead to them paying more for products such as auto loans and insurance.

Maneesha Mithal, associate director of the FTC’s Division of Privacy and Identity Protection, told McCaskill’s panel that one in 20 credit reports “had errors that lowered their credit scores to the degree” that it would making it more expensive for them to get credit.  

Corey Stone, an assistant director of the Consumer Financial Protection Bureau(CPFB), testified that his agency had also done a recent study about the accuracy and impact of credit reporting. That analysis concluded that only about one in five consumers look at their credit reports every year – a percentage that Stone suggested was far too low.

Stone said about a third of consumers' dispute about credit reports relate to “collection” issues, and more than three quarters of the information in the databases used by credit reporting companies come from large banks and other firms in the “top 100” furnishers of credit data.

The results of the FTC study “make it clear that consumers should check their credit reports regularly.  If they don’t, they are potentially putting their pocketbooks at risk,” said Howard Shelanski, head of the FTC’s economics bureau, in a previous statement. 

According to the FTC's website, the Fair Credit Reporting Act (FCRA) requires each of the three major credit reporting companies — Equifax, Experian and TransUnion — to give consumers a free copy of their credit report, at their request, once every 12 months. (Click here for information on ordering a free credit report.)

The FTC study – which involved analysis of about 3,000 credit reports – had encouraged participating consumers to use the FCRA process to resolve any potential credit report errors. The main findings:

  • 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 were able to spur 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
  • One in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points.           

About 60 percent of employers use credit checks to screen applicants, even though research has shown that people with damaged credit are not automatically poor job risks.
“It would be easy to use this hearing to argue about the numbers and the prevalence of errors in consumer credit reports, but at the end of the day, both studies show errors exist,” McCaskill said in her opening statement.

“We are talking about anywhere from 2 million to 10 million Americans with errors on their credit reports that could impact whether they can obtain credit, or how much they will have to pay for it.  We are talking about 2 million to 10 million people who must turn to a dispute process that I have some serious concerns about.”

Rob Koenig is an award-winning journalist and author. He worked at the STL Beacon until 2013.