California Credit Law Blog

Last night, 60 Minutes aired a fine report on the failure of Experian, Equifax and Trans Union to comply with the FCRA's requirement that they investigate and correct errors in consumers' credit reports.

Steve Kroft of 60 Minutes traveled to Santiago, Chile where Experian employs most of its credit dispute employees. Three ex-Experian employees, who handled disputes sent by US consumers, told Steve their only function was to reduce the dispute to a two-digit code and forward it to the creditor that made the report and if the creditor said its report was correct, they verified the report to the consumer. They had no authority on their own to change the customer's report if the creditor said the report was correct. They never contacted the consumer to ask questions and had no way to do so. The were required to handle 90 disputes a day which means they spent about 5 minutes on a dispute!

After interviewing consumers who explained they were not able to get the bureaus to correct errors on their credit reports, Steve Kroft posed as a consumer and called Equifax' 800 number to resolve a dispute; he was connected to an employee in Mumbai, India, who admitted he had no authority to change a consumer's report if the creditor said it was correct.

The credit bureaus' method of dispute resolution saves them tons of money, but does little for consumers.

The 60 Minutes story was based in part on a FTC study released today that found that 21% of consumers had verified errors in their credit reports, 13% had errors that affected their credit scores, and 5% had errors serious enough to be denied or pay more for credit.

The FTC study, which took 10 years to prepare, found that the percentage of serious errors was about 10 times the percentage reported by a May 2011 industry-funded study, which had claimed that only 0.51% of credit reports had errors serious enough to cause the consumer to be denied or pay more for credit. The FTC Chairman said on 60 Minutes that the new study provided “pretty troubling information” and that the error rates were “pretty high”.

CreditCards.com has useful information on the credit bureaus and how they operate. Today's article is a good description on how the dispute process does not work in many cases.

To dispute an inaccuracy, the consumer must contact the credit bureaus directly. Let's say the dispute is a bit complicated. The consumer therefore has to explain the facts and may enclose documents proving that the current reporting is in error. What does the bureau do with the letter and documents? They compress it all into a two- to three-digit computer code and a 100-character summary, and send it electronically to the furnisher (usually a creditor or debt collector) via an automated system, where it may be reviewed solely by another computer or someone just looking at computerized, internal records.

However, under the FCRA, the credit bureaus are required to conduct "a reasonable investigation" into the disputed information and remove anything they can't verify as accurate. The reality, however, is that "the credit bureaus actually spend very little time -- only a few minutes, at best -- investigating a consumer's dispute."

On August 7, 2012, the Ninth Circuit issued a decision interpreting the Fair Credit Reporting Act that favors consumers (Drew v Equifax Information Services, LLC). One aspect of the opinion concerns the FCRA's statute of limitations--how long consumers have to file suit. The other aspect concerns what notice triggers a furnisher's obligations to investigate a disputed report. On appeal, the defendants in the case were Chase Bank and and FIA Card Services, a unit of Bank of America.

The FCRA has a statute of limitations of two years after the date of discovery by the consumer of the violation that is the basis of liability. The Court said that the statute starts to run when the consumer first learns that the credit reporting agency or the furnisher of information (such as a bank) had failed to comply with its duties under the FCRA.

In a typical case, this means the date the statute starts to run is when the consumer learns the credit reporting agency or furnisher had completed an insufficient investigation of an account that the consumer was disputing as inaccurate. (Previously, some courts have said the statute starts to run when the consumer learns there were inaccuracies in his or her credit reports, which in many cases would be months or years earlier).

In the trial court, the judge had granted Chase Bank's motion for summary judgment on the theory it had not been properly notified of the dispute by the consumer and that its proper reinvestigation insulated it from liability. Not so, said the Ninth Circuit: “What Chase disparagingly refers to as Trans Union’s “fraud block notification” was just that—a “notification” within the meaning of the FCRA § 1681i(a)(2). This notice triggered Chase's duties under the FCRA to rectify past misreporting and prevent future misreporting of information that is “incomplete” and “inaccurate.” Chase had reported Drew's credit card "lost or stolen" belonging to Drew when in fact, Drew was the victim of identity theft.

Experian, Equifax and Trans Union maintain lists of V.I.P.'s like politicians, judges and other influential people who get special help from employees here in the U.S. in fixing mistakes on their credit reports. Everyone else is herded into a largely automated system under which an employee spends about two minutes reading the dispute after which the dispute is categorized using a two or three digit code. The coded dispute is sent to the source of the inaccuracy, which may be a credit card company or debt collector.

A front page story by Tara Siegel Bernard in today's NY Times contrasts the V.I.P. treatment with the slipshod methods used to handle others' disputes. The story quotes Ms Chi Chi Wu of the National Consumer Law Center for an important point--when it comes to credit reporting, consumers cannot vote with their feet. They and we are all forced to do business with the three national credit bureaus.

Equifax has a judgment against it for more than a million dollars to a Bay Area man whose identity was stolen. While the consumer was hospitalized, an impostor used his identity to open fraudulent accounts. He found the fraudulent accounts on his credit reports from Experian, Equifax and TransUnion and disputed them. (See my blog on why to dispute in writing, Certified Mail, Return Receipt.)

Equifax went to trial. The identity theft victim told the jury about trying to get Equifax to correct his report. Other witnesses testified about his damages. His expert explained why Equifax's procedures fail to meet the requirements of the Fair Credit Reporting Act.

The jury agreed with the identity theft victim. It awarded him over $6,000 for economic damages, $315,000 for non-economic compensatory damages and $700,000 for punitive damages. The consumer does not have to worry about paying his attorney either. The Fair Credit Reporting Act makes Equifax liable for all his attorney's fees and court costs.

Equifax made post-trial motions to get out from under this verdict, but the trial court denied them all.

As I said before, mixed file and identity theft cases can be great cases. The verdict here proves that. If you have such a claim, give me a call.

Frequently people ask me how they can get the credit bureaus to correct inaccurate information on their credit reports. I always tell them to dispute inaccurate credit reports via letter sent Certified Mail, Return Receipt. Why do that, you ask, when I can dispute on-line or by phone? If you look at their websites, you know the credit bureaus encourage consumers to phone or email. It is almost impossible to find an address to mail a written dispute letter to.

There are COMPELLING REASONS to do your disputes in WRITING, Certified Mail, Return Receipt. If you have put it in writing and kept a copy and obtained a receipt you can prove exactly what information you provided and that they received it.

You want to provide the credit bureau with as much information as possible so it can conduct a thorough investigation. If you have names and phone numbers of people they should contact, provide them. If you have documents that prove your claims, enclose copies.

Sending a written dispute letter does not guarantee that they will fix your report, but if they don't you at least have solid evidence to support your lawsuit. Phone conversations and emails are hard to prove. You don't have as good a record and the credit bureaus can dispute what you said. Emails get lost. You don't get any proof that they received them.

Please keep copies of everything you sent with the dispute letter, including all enclosures and a copy of your signed letter. (Sometimes it is important for them to have your signature so they can compare it to the signature on the fraudulent account you are disputing.) Your file copy of the dispute letter should be an exact duplicate of what you placed in the envelope to the credit reporting agency.

If Experian, Equifax or TransUnion are reporting accounts that are not yours -- either mixed files or fraudulent accounts -- and they will not correct it, give me a call. Those are good cases.

Inaccuracies plague the credit reporting system. The FCRA established a process to enable consumers to dispute the inaccuracies and force the credit bureaus and companies that provide the data to investigate the disputes and make corrections. A new report from the National Consumer Law Center shows that the system is a travesty.

The three major credit bureaus conduct investigations in a perfunctory manner. The bureaus translate consumers' detailed dispute letters into two or three digit codes and send the codes to the companies that furnished the information. The bureaus fail to send supporting documentation to the companies in violation of the FCRA. The bureaus spend only trivial resources on the process. Trans Union and Equifax have established dispute centers in India, the Philippines, and elsewhere.

On February 8, 2009, the New York Times picked up on the NCLC report in an article, Faulting Credit Firms on Fixing Errors. SmartMoney Magazine has its own story on this same topic in its March 2009 issue, Why the Credit Bureaus Can't Get it Right.

The report, which is based largely on depositions of credit bureau employees, calls for amendments to the FCRA and more regulation by the FTC.

Consumers with poor credit naturally want to clean up their credit reports. But as Michelle Singletary reported in her Wahington Post column last week, there are credit repair scammers out there that are perfectly willing to take consumers' hard-earned cash and then fail to do anything useful. Worse, some of their "methods" can be unethical or even unlawful.

Consumers should look for these red flags in deciding whether a credit repair organization is legitimate. Beware of credit repair organizations that do any of the following:

1) The company requires an upfront fee. Under the federal Credit Repair Organizations Act, it is illegal for companies to charge consumers money before performing the promised credit-repair services

2) The company says it will dispute everything in the consumer's file including information that is correct. This seems like a no-brainer: disputing legitimate information is lying. If a company wants to lie, it's not reputable.

3) Before the consumer signs a contract, the company fails to provide them with a copy of the FTC's "Consumer Credit File Rights Under State and Federal Law," which outlines what ithe company can and cannot do.

4) The company tells the consumer not to directly contact the credit-reporting agencies. Sometimes this is the most efficient way to clear inaccurate information from consumer credit reports.

5) The company tells the consumer that it can get them a new credit identity by applying for an employer identification number (EIN) from the Internal Revenue Service. If the consumer doesn't own a business, this is not a legitimate way to repair the consumer's personal credit history. It is a federal crime to obtain an EIN under false pretenses.

Significant percentages of consumer credit reports include serious errors. What happens if the error is a misinterpretation of a court document? What happens if a consumer settles a dispute in court, but a credit reporting agency instead reports that the consumer has a judgment entered against him? What happens if that error results in credit denials for the consumer?

That happened to Los Angeles resident Jason Dennis, as Molly Selvin reports in today's Los Angeles Times. Mr. Dennis had a dispute with a landlord that resulted in a settlement: he and his landlord agreed that no judgment would be entered if he paid a settlement amount. He paid that amount and the court file showed that the parties filed a Request for Dismissal and that the case was dismissed. No problems, right?

Wrong. When Mr. Dennis tried to get credit to start a new business, he discovered that Experian was reporting a judgment against him--a serious "ding" on anyone's credit report. He disputed with Experian, and asked Experian to fulfill its legal obligation to "conduct a reasonable investigation to determine whether the disputed information was inaccurate." But, even though the court file showed that Mr. Dennis was right, Experian refused to change his report. Worse, after Mr. Dennis sued, the trial court entered judgment in Experian's favor, finding that Experian had met its obligation to reinvestigate.

Yesterday the U.S. Court of Appeal vindicated Mr. Dennis. It reversed the trial court and told it to enter judgment in Mr. Dennis' favor because "no rational jury could find that [Experian] wasn't negligent." The Court said "this case illustrates how important it is for Experian, a company that traffics in the reputations of ordinary people, to train its employees to understand the legal significance of the documents they rely on."

Although this case affects only Mr. Dennis, it sends a hugely important message to Experian and the other credit reporting agencies. We can only hope that they will take the Court's advice and do a better job on consumers' credit reports.

4 out of 5 credit reports contain an error, and a quarter of those errors cause serious problems, according to today's news from Washington. Yet the 2003 law that was supposed to make it easier for consumers to guard against identity theft and to freely access their credit reports is still not final.

The Fair Credit Reporting Act's 2003 amendments were supposed to make it easier for consumers to access and correct mistakes in their credit reports. But House Financial Services Committee members today criticized the FTC and the Federal Reserve for not implementing final rules from the 2003 law, according to Congress Daily. The FTC has still not implemented two of the 2003 provisions that gave consumers free access to their credit reports and permitted them to put a fraud alert on their file if there was a possibility of identity theft.

The Washington Post reported that as many as “79 percent of credit reports may contain an error, and 25 percent of errors lead to a denial of credit, according to a report by the U.S. Public Interest Research Group.” New York Rep. Gary L. Ackerman (D) “said at the hearing that the failure to implement the legislation has condemned consumers to ‘voice-mail hell’ as they try to navigate an opaque system.” The FTC and the Federal Reserve “cited the complicated nature of the regulations and massive bureaucratic hurdles as causing delayed enforcement of the mandates.”

According to the Los Angeles Times, Chi Chi Wu, staff attorney at the National Consumer Law Center, testified yesterday that “credit reporting companies continue to respond to disputes with only ‘perfunctory’ automated systems that tend to repeat errors rather than repair them.”

This is a distressing--and depressing--snapshot of our government at work. Or not.

Credit bureaus are required to correct errors in consumers' credit reports when the consumers dispute inaccurate items in their credit reports. The errors usually stem from inaccurate reports provided by credit card companies, debt collectors and retailers. Often, the credit bureaus' investigation of the disputed item is merely to ask the "supplier" of the inaccurate information if the information is accurate. Too often, the supplier tells the credit bureaus the information is accurate which leads to the credit bureaus refusing to correct the reports.

The Fair Credit Reporting Act (FCRA) gives the consumer the right to sue the credit bureaus and suppliers of the erroneous information for damages, injunctive relief and attorney's fees.

The FCRA is a complicated statute. The credit bureaus are skilled at defending their positions. Consumers should turn to attorneys knowledgeable in this area of the law. KABOB attorneys are available for consultation with consumers in California. For more information go www.kaboblaw.com.

On May 3, 2007, the 7th Circuit Court of Appeals held that credit bureaus such as Equifax, Experian & Trans Union must provide consumers credit disclosures that are not only accurate, but "clear." In Gillespie v Equifax, the plaintiffs requested their credit reports, which, among other things, listed the "date of last activity" on certain collection accounts. Depending on what event triggered the listing in this category, the report could lack clarity as to when delinquency had occurred. Having clarity on this point could be important to the consumer because, under FCRA, a consumer report may not include “accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.” 15 U.S.C. § 1681c(a)(4). Here's what the Seventh Circuit held:

We conclude that the consumer reporting agency must do more than simply make an accurate disclosure of the information in the consumer’s credit file. The disclosure must be made in a manner sufficient to allow the consumer to compare the disclosed information from the credit file against the consumer’s personal information in order to allow the consumer to determine the accuracy of the information set forth in her credit file. In writing § 1681g(a)(1), Congress requires disclosure that is both “clearly and accurately” made. An accurate disclosure of unclear information defeats the consumer’s ability to review the credit file, eliminating a consumer protection procedure established by Congress under the FCRA.