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.”

The State of Mississippi has sued Experian alleging violations of the FCRA and its own state law. Among other problems,  the Mississippi lawsuit said, Experian provides no straightforward way for consumers to correct erroneous blemishes affecting their credit. When consumers file a dispute, Experian reflexively finds in favor of the bank or debt collector that reported the debt, Mississippi said. And when consumers call to complain, the lawsuit said Experian employees attempt to sell consumers credit monitoring products of questionable value.

Experian turns its failures to maintain accurate credit reports and its refusal to investigate consumer disputes into business opportunities according to the Attorney General.

An AP story on the lawsuit also reports that the State of Ohio led by AG Mike DeWine has demanded records from Experian, Trans Union, and Equifax concerning their business practices. These actions are noteworthy since they are the first actions by state AGs against the credit reporting agencies.

The Mississippi complaint alleges that even simple errors in Experian files — such as a credit file that wrongly stated that a Mississippi resident described in the complaint as “Consumer 5″ was dead — can prove nearly impossible to fix. “At first, Consumer 5 and his wife thought it was funny,” the complaint said. But months later, his unsuccessful efforts to fix the error cost him the ability to purchase a truck at a favorable interest rate. In another example, a lieutenant colonel in the Army National Guard was denied credit and forced to buy numerous credit monitoring services due to Experian’s failure to distinguish between his credit history and those of other people in his family.

The complaint also states, a fact well known to consumer attorneys, that when consumers dispute alleged inaccuracies in their credit reports Experian and the other agencies failed to conduct reasonable investigations concerning consumers’ disputes, instead, in many cases, failing to conduct any — let alone a reasonable — investigation of consumer disputes regarding their credit history or accounts.

 

 

On April 29, 2014, U.S. District Judge Claudia Wilken preliminarily approved the settlement of a class action against Experian Information Solutions in which our law firm represented the plaintiffs and the class. The settlement will resolve plaintiffs’ claims that Experian sold credit information to Finex, a debt collector that specialized in collecting on bills for towing and storage of vehicles.

Finex received more than 40,000 consumer credit reports from Experian that contained a “recovery score,” which ranks accounts based on the likelihood that the debtors will pay the debt they owe. Finex obtained the data after becoming one of Experian’s subscribers in the period January 2008 until November 2010

Plaintiffs alleged that that Finex did not have a permissible purpose to access credit information, which is generally defined as one in which the consumer initiated a credit transaction.

The towing and storage charges typically arose after the police initiated the tow of a vehicle abandoned on the street, parked illegally, or in an accident. After being towed, the owner failed to reclaim the vehicle resulting in the vehicle being sold in a lien sale. The tow companies assigned the claim for towing and storage charges to Finex, who sought payment of the towing and storage charges from the vehicle’s owner. Finex used credit data provided by Experian in the process of collecting the debts.

Under the terms of the Experian class action settlement, Class Members who submit valid claims will receive up to $375. Class Members include all consumers whose credit reports were provided to Finex stemming from Finex’s efforts to collect on a towing deficiency claim since Jan. 12, 2009.

The class action lawsuit was initially filed by plaintiff Roane Holman in 2011. It was later amended to include plaintiffs Narciso Navarro and Miguel A. Alvarez.

A third party administrator will send out claim forms and a notice of the settlement to class members in early June 2014.

Class Members will have until Sept. 2, 2014 to submit a claim. In filling out their claim form, class members must affirm that they owned a vehicle that was towed, that they did not initiate the towing and that the debt has not been reduced to judgment.

A hearing will be held on December 11, 2014, at which time the parties will seek final approval of the settlement and the plaintiffs’ attorneys will see an award of attorney’s fees and costs.

Andrew J. Ogilvie, Carol M. Brewer and Mark F. Anderson of Anderson Ogilvie & Brewer LLP and Balam O. Letona represented the plaintiffs and the class.

Holman v. Experian Information Solutions Inc., et al., Case No. 4:11-cv-00180, in the U.S. District Court for the Northern District of California.

 

Here are some of the most common myths concerning credit reports.

1) I haven’t done anything wrong so my credit reports must be OK. Your credit reports may have errors that affect your credit standing even if you did nothing to cause the errors. By some estimates, 70% of credit reports have errors. The errors may be lowering your credit score, which will mean you may have to pay a higher interest rate on credit. Morale to this story is to periodically download your credit reports and check for errors. If you find any errors, send dispute letters to the credit reporting agency.

2) Checking credit reports will hurt my credit score. You may check your own credit report as often as you like. There will be effect on your credit score. Confusion may arise from the fact that when you apply for credit and the creditor pulls your credit report, a hard inquiry will appear on your credit report. Excessive numbers of hard inquiries will lower your score somewhat. If you are shopping for a mortgage or car, you may end up with a lot of inquiries, but FICO, the leading source of credit scores, will count inquiries for a car or mortgage in any 30 day period as just one inquiry.

3) If you pay off a delinquent debt, a missed or late payment will be removed from your credit report. Paying off a debt will not remove negative history. The debt will fall off your report once 7 years is passed from the date for first delinquency. Do not believe credit repair companies that promise they can get negative accounts removed.

4) It will help my credit score if I make a payment on an old debt. Payment on an old debt or even paying it off is usually not a good idea. The negative history on the account won’t disappear from your credit report. Plus you risk restarting the statute of limitations in some cases. Paying off a recently incurred debt may make sense. While the history will not disappear, the balance due will reduce to zero which is a positive in terms of your credit score.

5) I need assistance of a debt settlement company. Don’t even think about it. These guys are scam artists. You will just be throwing money away. If you want to negotiate settlements with your creditors, do it yourself. Debt collectors will typically settle debts for some percentage of the debt.

6) It is a good idea to close a credit card account after paying it off. This can actually hurt your score–it eliminates some of your credit history, which is about 15% of your credit score. Plus, closing a credit card account means your utilization or debt to credit ratio will worsen. You can always cut up the card and not use it.

7) Keeping a balance on credit cards improves the credit score. Keeping a balance only costs you interest. Opening a credit card and keeping payments current can help build your credit history if you don’t have much credit history.

8) Daily credit monitoring is  good idea. Some people like daily monitoring, but it is expensive and you can check your own credit reports from Experian, Equifax and Trans Union once a year for free at www.annualcreditreport.com. You can download one of them every four months for free.

9) You cannot get credit if you file bankruptcy. You may be able to get some credit, but it will be costly.

10) All credit scores are alike. FICO is a company that provides the scores most commonly used by creditors. The scores provided by Experian, Equifax , Trans Union and many others are not used all that often by creditors. Which is why they are sometimes called “fako” scores.

Parents should periodically check their children’s credit reports. The reason is that fraudsters sometimes steal the kids’ identity. They know that children likely won’t notice their identity has been stolen and parents don’t typically check their credit reports. A good time to check is when a child is 16. At that point, there is time to take action to correct the reports.

Children should not have credit reports and so if there is a credit report it may be because someone has stolen the child’s identity. A research firm found that one in 40 households with children under the age of 18 had at least one child whose personal information was affected by identity theft.

According to Credit.com the reasons to be concerned about such identity theft include the possibility a debt collector may harass a child to pay a debt, a child might not be able to open a checking account due to negative credit history that does not belong to the child, or when the child applies for a driver’s license, the child may find someone else has obtained a license in the child’s name.

Medical debt is causing big problems for huge numbers of consumers. The New York Time reports that medical providers and their debt colletors are unfairly hitting consumers with reports to the credit bureaus they have have not paid medical debts.

One seemingly simple medical procedure may result in an avalanche of bills from hospitals, insurance companies and doctors. The bills themselves are often confusing as to what the consumer is supposed to pay and how long the consumer has to pay. Some medical providers charge huge amounts for simple procedures. Hospitals routinely overcharge for items like aspirin and supplies. Consumer are often not told in advance of obtaining treatment how much it will cost.

When an insurance company is slow to pay, the provider often bills the consumer. When the consumer wrongly assumes the insurance company will pay the bill, the provider may send the bill to a debt collector. The debt collector may promptly report the debt to Experian, Equifax and Trans Union knowing such reports are levers to exact payment.

A Texas mortgage initiator in Texaslooked at the credit records of 5,000 applicants and found that 40 percent had medical debt in collection, with the average around $400. Many applicants did not know about the debt.

Richard Cordray, director of the federal Consumer Financial Protection Bureau, has noted that half of all accounts reported by collection agencies now come from medical bills, and the credit record of one in five Americans is affected.

Just one medical bill reported to a credit agency may become a “millstone around your neck” said Mark Rukavina, principal at Community Health Advisors, a health care advisory service. He said mortgage brokers have told him ‘I have these people with great credit. They’ve refinanced before, but now they’ve got this medical bill and even though they’ve paid it off, I can’t get them a good rate..

The NY Times article points out the problem is greater worse. Insurance policies are requiring more patient payments of deductibles and co-payments. Many doctors work for large groups and hospital systems whose bills are generated by computer.

Consumer groups say legislation to needed to curb these unfair practices.

The Consumer Financial Protection Bureau today announced that If you’re trying to correct an error in your credit report at one of the nation’s largest credit reporting companies, there is some good news. Recently, Equifax, Experian, and TransUnion added a function to their online dispute-handling systems that allow consumers to upload supporting documents such as a paid bill, letters, a police report, or proof of identity information to help explain their disputes.

Millions of Americans dispute errors in their credit report. In 2011, Equifax, Experian, and TransUnion together received about 8 million requests disputing the accuracy of information in credit reports.

Upon receipt of your dispute, the credit reporting agencies are required to send dispute to the furnisher, such as a bank or debt collector that reported the credit information to the agencies. Both the furnisher and agency are required to conduct reasonable investigations in this process of the consumer’s dispute. .

Every heard of a Credit Privacy Number (CPN)? It is a nine-digit identification number that looks like a social security number (SSN) and may be used instead of a SSN, for certain purposes.

Consumers are often required to disclose their SSN to the IRS, employers, the DMV, when buying a gun, or applying for a federally insured loan. In certain circumstances, federal law allows consumers to legally use a separate identification number. CPNs are commonly used by celebrities, members of Congress, and witnesses in a federal protection program.

However, CPNs can be misused. Shady credit repair companies advertise the consumers can build a new credit profile to hide their bad credit history. They advertise they will give consumers a CPN to use instead of their SSN. A dishonest person may use a CPN to obtain credit he could not otherwise obtain.

Some credit repair companies tell buyers of CPNs to provide false information when using the number to apply for credit. They are told to use their real name and date of birth, but to avoid listing their current address, phone number, or any other personal information that may connect the new phony credit profile with their old credit record..

Once a CPN is validated that it does not belong to anyone with a credit profile, the credit reporting agencies may create a new credit file thus allowing the individual to apply for credit.
For more information on CPNs, go to Freddie Mac’s article.