The three national credit bureaus have agreed to improve the way they handle consumers’ requests to correct inaccuracies on their credit reports. The bureaus will also change the way they report on unpaid medical bills.

The agreement is a result of an investigation by the New York Attorney General. Under the agreement, the bureaus will be required to use trained employees to review the documentation consumers submit when they believe there is an error in their files. If a creditor says its information is correct, an employee at the credit-reporting firm must still look into it and resolve the dispute. However, and this is a severe limitation, the new and improved investigations only apply to instances of fraud, ID theft and mixed files. Most errors do not fall into one of these categories. How well these changes will be implemented is an open question.

The way the bureaus handle the vast majority of cases is that they merely parrot whatever the creditors say thus perpetuating errors. The Consumer Financial Protection Bureau found that 85% of disputes were referred to the creditors meaning the bureaus did not conduct meaningful investigations as required by the FCRA.

The bureaus will say they will make changes in the way they report on unpaid medical debt.  The changes may be significant given that 43 million Americans have past-due medical debt on their credit reports and  52% of all debt on credit reports is from medical expenses according to a CFPB study. Collection agencies typically report medical debt to the bureaus on behalf of doctors and hospitals. In many cases, the debts are unpaid because an insurance company has failed to pay debts for which they are liable. Under the agreement, the credit-reporting firms will  wait 180 days before adding medical debts to consumers’ credit reports. During that period, consumers will have time to clear up discrepancies and catch up with other unpaid bills. When medical debts are paid by an insurance company, regardless of the time frame, they will have to be removed from the credit report soon after.  However, it is a pretty rare event for a medical insurance company to pay a debt over 6 months old.

 

 

FICO announced it will make up to 18 variations of consumers’ FICO scores available for the first time.

FICO publishes different scores based on the needs of the type of credit involved–car loans, mortgages, credit cards, etc. Before, FICO allowed consumers to see only their “base” FICO score at the firm’s subscription-based MyFICO.com site, or through the free FICO Score Open Access program used by some credit card issuers. Those scores are not the same scores used by lenders when they make credit decisions.

Now, the company will offer up to 10 additional FICO score versions — five will be based upon Equifax data and five will be based upon Experian data. Scores based on TransUnion data will be added later. “By making these scores available along with FICO Score 8, we have created the most complete consumer credit score product ever available, and set a new standard for consumer empowerment,” said Jim Wehmann, executive vice president for scores at FICO. The 18 FICO scores to be available are used in 92% of lending decisions using any FICO score according to the company. “In other words, if you are applying for any type of loan, the chances are overwhelming that one of these 18 scores is being used,” FICO spokesman Jeff Scott said.

The catch? Getting scores from MyFICO.com  requires a monthly subscription to the site  starting at $24.95 per month for a minimum of three months — or a one-time purchase for $59.85.

According to a post in today’s edition of Credit.com, consumers may be surprised to find variance among the scores — let alone surprised at the number of different “grades” they might receive for their credit history. Consumers can get two of their credit scores for free on the Credit.com site along with information on how your scores compare to the average American and personalized advice for improving it.

Most people are familiar with Experian, Equifax and Trans Union, but there are many more credit reporting agencies (CRAs) that are unknown to most people. The Consumer Financial Protection Bureau has published a list of all the CRAs. The publication lists the CRAs that provide free personal consumer reports with their latest company name and report request information, information consumers may use to link to the Bureau’s original content. It also provides names of parent and subsidiary companies so readers can research company names in the Bureaus Consumer Complaint Database.

The list has its own web page, and also appears in the following pages:

 

The Consumer Financial Protection Bureau (CFPB) released a report that reveals that over 1 in 5 consumers, or 43 million, have black marks on their credit reports for medical debts, and that medical debts constitute over half of debt collection items on credit reports.

Chi Chi Wu of the National Consumer Law Center said  “This report is another example of the powerful information revealed by CFPB’s groundbreaking research.”

Medical debt is different from other types of consumer debt. Medical debt is unique because the most vulnerable patients – the uninsured and underinsured – are often billed “chargemaster prices” which are much higher than prices charged to private and government insurers. Many of these may be eligible for charity care from a hospital or insurance coverage such as Medicaid.

Ms Wu said the CFPB should take steps to protect consumers from the harms caused by medical debt collection by:

  •  examining the  larger medical debt collection agencies;
  •  requiring debt collectors to give consumers a notice before placing or “parking” medical debt on their credit reports;
  •  require that consumers be given time to deal with insurance disputes or billing errors, or to apply for financial assistance or charity care, before a debt can be reported to a credit reporting agency;
  • preventing damage to a consumer’s credit score from medical debts that are disputed or result from billing errors; and
  • prohibiting debt collectors from dunning low-income consumers for inflated chargemaster prices.

Pending in Congress is a bill that would help the 43 million consumers facing medical debt, the Medical Debt Responsibility Act, H.R. 1767/S. 160. The bill would require credit reporting agencies to remove paid or settled medical debts from credit reports.

One helpful change is that the credit scoring developers FICO and VantageScore have made changes to their scoring models to reduce the impact of medical debt. One problem is that Fannie Mae and Freddie Mac require the use of an older FICO scoring model that does not include this change so currently those applying for mortgages who have medical debt on their credit reports won’t be helped. Consumer groups led by  NCLC advocates have asked the regulator for Fannie Mae and Freddie Mac to update their credit scoring formulas.

 

The January 2015 issue of Consumer Reports has an excellent article on credit reports. It is especially useful for any consumer who discovers a problem with his or her reports, but does not know how to begin to fix the problem. The article has specific advice on how to dispute errors in the reports. It also describes what goes into consumers’ credit scores and ways to rehab your credit score.

Last night, Michael Finney of Channel 7 in San Francisco interviewed our client Lisa Allen about her experience with the credit reporting agencies. When Lisa was just a child, the Social Security Administration mistakenly gave her social security number to the guardian of a another Lisa Allen who lived in another state. The mistake occurred because their names were the same and their birthdays were only ten days apart. As the two Lisas went through their teen years, Experian, Equifax and Trans Union mixed their credit files meaning the other Lisa’s credit files were mixed with Lisa of Fremont’s files.

To make matters worse, the other Lisa’s credit was terrible with a foreclosure, a repo of a car, and numerous bad debts. Beginning in 2008, Lisa of Fremont began asking the credit agencies to unmix her file. She got nowhere with Experian and Equifax. Trans Union unmixed her file but only after years of its report impacting her ability to get credit. The effect of all this mixing was that Lisa could not get credit in her own name. We filed the a  lawsuit in in the federal court in San Francisco alleging violations of the Fair Credit Reporting Act. The case settled in 2013. For the Channel 7 interview go to www.abc7news.com.

When a consumer applies to open a new bank account, the bank employee takes down information about the consumer. 80% of banks send the information a bank account screening agency, usually either Chex Systems or Early Warning Services (owned by Bank of America, Chase, Capital One, and Wells Fargo).

The agencies are databases with information on negative events such as having an account closed due to too many overdrafts or nonsufficient funds transactions (NSF), checks returned by retailers, and fraud. The vast majority of account closures reported to the agencies are due to overdrafts or NSF transactions. Many consumers are shut out of the banking system because they are said to have committed “account abuse” due to overdrafts.

These agencies are credit reporting agencies regulated by the Fair Credit Reporting Act. As such, consumers have a right to obtain a copy of their reports and to dispute errors in their reports. According to a study by the National Consumer Law Center, these agencies fail to conduct reasonable investigations upon receipt of disputes. In practice, the agencies merely defer entirely to the reporting bank’s response to the consumer’s dispute.

There are alternatives for consumers who the banks will not allow to open accounts. Some banks offer “second chance” accounts that require consumers to complete an educational course. Some banks offer a checkless bank account for consumers with negative history so long as no fraud was involved. Checkless bank accounts do not use paper checks and do not allow debit card overdrafts. Banks offering checkless accounts may or may not screen using a screening agency. GoBank  does not use screening agencies and is available at WalMart stores. Capitol One Bank will open accounts even if the consumer has a negative history at a screen agency, absent a history of fraud.

 

On September 10, 2014, the House of Representatives SubCommittee on Financial Institutions and Consumer Credit heard testimony on the current state of the consumer credit reporting system.

Mr Stuart Pratt, who is with the industry trade association, the Consumer Data Industry Association, testified that all was well with the system, except that there are too many class actions against his member companies.

Ms Chi Chi Wu, an attorney with the National Consumer Law Center, testified that the credit reporting system is neither fair nor completely accurate and as a result tens of millions of consumer suffer from poor credit histories and law credit scores that result from unfair practices, inaccuracies and fundamental flaws in the system. Ms Wu said the main problems with the system are as follows:

  • Medical debts credit negative marks on the credit reports of millions of Americans, even when the debts are the result of insurance disputes or billing errors by providers or is debt that is ultimately settled or paid off.
  • The use of credit reports by about half of employers. Credit reports create a fundamental “Catch 22″ for job seekers. A loss of job may lead to unpaid debts that are reporting to the credit bureaus. The unemployed person then can’t get a job because of the reported debts. There is no evidence that credit history can predict job performance. Credit reports were never designed to be a basis for employment decisions. Use of credit reports especially discriminates against persons in low wage jobs and against African American and Latino job applicants. Congress should ban use of credit reports for employment purposes with limited exceptions.
  • Credit reports are plagued with inaccuracies. The FTC found that 21% of consumer had verified errors in their credit reports, 13% had errors that affected their credit scores, and 5% had errors serious enough to be denied credit altogether or would have to be higher interest rates.
  • The nationwide consumer reporting agencies, Experian, Equifax and Trans Union are in gross violation of the FCRA’s requirement to conduct reasonable investigations when consumers send them notices of disputes. Instead of hiring trained personnel to conduct real investigations, the CRAs do nothing more than ask the creditor that reported the inaccurate item in the first place if the report is accurate. If the creditor verifies the item as accurate, the CRA tells the consumers the report is accurate and refuses to make any changes.

 

FICO, the creator of the most widely used credit scoring system, last week announced that  new version (FICO 9) available this fall will make changes beneficial to consumers. The new model will ignore previously paid collection items whereas the current and older FICO models scored paid and unpaid collections equally. For some consumers, even better news is that the new FICO version will put far less weight on medical debt that is the hands of debt collectors. This change will improve scores for countless consumers who have medical debt–medical debt accounts for about half of all unpaid collections on consumers’ credit reports.  One catch is that not all lenders will immediately adopt the FICO 9 version. Some mortgage lenders are not even using FICO 8 introduced in 2008. Unfortunately, mortgage companies often use even older FICO versions. Tara Siegel Bernard, a New York Times writer, has more at http://nyti.ms/1pF6Tq.

Many of you know you can get free credit reports once a year from Experian, Equifax and Trans Union by going to annualcreditreport.com (or you may call 1.877.322.8228 and use the prompts). But what you may not know is that there are quite a few other credit-related reports you may obtain that relate to your credit standing. These reports may be useful in checking for ID theft or the source of inaccuracies in your credit history. Some of the more useful reports are as follows:

1) Public Records. LexisNexis Personal Reports contain information on public records relating to property you have purchased or sold, criminal history, liens and bankruptcy. You may request a copy of your LexisNexis report by sending a request via www.personalreports.lexisnexis.com or you may call 1.866.312.8102 for information on how request your report.

2) Check Writing History. Banks report bounced checks to three companies. You may get your Chex Systems report by calling 1.800.428.9623 or go to ConsumerDebit.com.  You may get your Certegy Check Systems report, by calling 1.866.543.6315 or go to askcertegy.com. For TeleCheck call 1.866.543.6315.

3) Health Care. Call The insurance industry reports health related data to the Medical Information Bureau. To get your report, you may call 1.866.692.6901 For prescription histories call Milliman IntelliScript at 1.877.211.4816 or go to rxhistories.com or call Optum MedPoint at 1.88.206.0335.

4) Insurance Claims. LexisNexis has reports on auto and property loss claims, the Lexis/Nexis Comprehensive Loss Underwriting Exchange (CLUE). There is also a similar report available from Verisk-A-Report, 1.800.627.3487 or go to verisk.com (type “order free report” in the search box).

5) Rental History. CoreLogic has rental histories. Call 1.888.333.2413 or go to corelogic.com/landing pages/Safe-Rent-Consumer.aspx.

These companies are subject to the Fair Credit Reporting Act in many respects. Under the FCRA, they are required to give you your report at no charge once a year.

For a complete list of companies that produce speciality reports go to the Consumer Financial Protection Bureau’s website, cfpb.gov, and then search for “consumer reporting agencies.”