The American Banker magazine has an article that asks “Can credit bureaus can finally be tamed?”
The article describes a “tough fix-it order” imposed by federal and state officials that was supposed to force the bureaus to clean up inaccuracies and better respond to consumer complaints. But that happened 25 years ago and the problems with the bureaus persist.
The article notes that lawyers, advocates and regulators agree that problems of accuracy and how disputes are handled continue to be problems. In 2012 the FTC found that one in four consumers have potential mistakes on their credit reports and one in 20 may have errors significant enough to negatively impact how much he or she pays for a loan, or whether credit is available. That means 11 million consumers have material errors on the reports that may affect whether they can get a mortgage loan, a car or even a job. In 2014, the Consumer Financial Protection Bureau received 45,000 complaints about the credit bureaus.
Consumers have a right to dispute inaccurate or misleading information on their credit reports. The problem is the process does not work very well for consumers. Chi Chi Wu of the National Consumer Law Center describes the dispute process as a “Kafkaesque.” Instead of conducting substantive investigations when consumers lodge a complaint, the bureaus have typically relied on an automated system that boils down concerns into two- or three-digit codes that are sent to the creditors and others (the furnishers). Those furnishers often do little more than check to see if the data in their systems matches what’s in the report and, to compound the problem, the credit bureaus typically accept whatever the furnishers say. This practice, known as “parroting” is contrary to the dictates of the FCRA.
The three credit bureaus makes tons of money selling consumers credit monitoring and education products. In this business, the bureaus profit from consumer insecurity about stolen credit information and identity theft. Those fears, along with general concerns about credit reporting errors, drive the sale of monitoring products, which go for as much as $19.95 a month. The products can provide a false sense of security because they only monitor certain kinds of fraud. Experian boasted in an investor presentation in May that consumer monitoring and identity protection accounted for 21% of revenue last year. Equifax, meanwhile, reported to the SEC in April that its “personal solutions” segment — products sold directly to consumers, including monitoring services — earned the company over $65 million, about 10% of total operating revenue for the first quarter of 2015. In this way, the agencies profit from their own inaccurate information.
A major change is that the industry now has oversight from the Consumer Financial Protection Bureau. The CFPB vows to force changes in the industry to protect consumers. One CFPB investigation is apparently underway concerning the industry’s sales of credit scores and credit monitoring products. Equifax disclosed to the SEC some months ago it received a civil investigative demand from the CFPB back in February 2014 “as part of its investigation to determine whether nationwide consumer reporting agencies have been or are engaging in unlawful acts or practices relating to the advertising, marketing, sale or provision of consumer reports, credit scores or credit monitoring products.” Experian told analysts last summer that it got a similar request.