Consumer Protection Reports
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Executive Summary
The most valuable thing we have is our good name. The most common
reflection of our reputation as a trustworthy consumer is our credit
report. Unfortunately, the information contained in our credit reports,
which are bought and sold daily to nearly anyone who requests and pays
for them, does not always tell a true story.
Credit bureaus
collect and compile information about consumer creditworthiness from
banks and other creditors and from public record sources such as
lawsuits, bankruptcy filings, tax liens and legal judgments. The three
major credit bureaus—Experian, Equifax, and Trans Union— maintain files
on nearly 90 percent of all American adults.[1] Those files are
routinely sold to credit grantors, landlords, employers, insurance
companies, and many others interested in the credit record of a
consumer, often without the consumer's knowledge or permission.
Several
studies since the early 1990s have documented sloppy credit bureau
practices that lead to mistakes on credit reports—for which consumers
pay the price. Consumers with serious errors in their credit reports
can be denied credit, home loans, apartment rentals, auto insurance, or
even medical coverage and the right to open a bank account or use a
debit card. Consumers with serious errors in their reports who do
obtain credit or a loan may have to pay higher interest rates because
the mistakes falsely place them in the sub-prime, high-cost lending
pool.
We asked adults in 30 states to order their credit reports and complete a survey on the reports’ accuracy. Key findings include: - Twenty-five
percent (25%) of the credit reports surveyed contained serious errors
that could result in the denial of credit, such as false delinquencies
or accounts that did not belong to the consumer;
- Fifty-four
percent (54%) of the credit reports contained personal demographic
information that was misspelled, long-outdated, belonged to a stranger,
or was otherwise incorrect;
- Twenty-two percent (22%) of the credit reports listed the same mortgage or loan twice;
- Almost
eight percent (8%) of the credit reports were missing major credit,
loan, mortgage, or other consumer accounts that demonstrate the
creditworthiness of the consumer;
- Thirty percent (30%) of the
credit reports contained credit accounts that had been closed by the
consumer but remained listed as open;
- Altogether, 79% of the credit reports surveyed contained either serious errors or other mistakes of some kind.
States
have long taken the lead in protecting consumers’ privacy and ensuring
the accuracy of credit reports. In 1992, Vermont was the first state to
pass a law providing a free annual credit report on request, followed
by Colorado, Georgia, Maine, Maryland, Massachusetts, and New Jersey.
California adopted other comprehensive reforms in 1994 and later became
the first state to require disclosure of credit scores.
Congress
eventually followed the states’ lead, adopting some credit reporting
reforms in 1996 and criminalizing identity theft in 1998. In December
2003, Congress passed the Fair and Accurate Credit Transactions Act
(FACT Act). With the FACT Act, the financial industry won its primary
goal: permanent preemption of stronger state credit and privacy laws.
The FACT Act also included several modest consumer reforms, borrowing
from state laws already enacted, including the right to a free annual
credit report on request. Although these consumer reforms came at the
unacceptable price of a state’s right to protect its consumers, the law
includes a number of provisions designed to enhance the accuracy of
credit reports.
Despite recent federal action, we need to do
more to protect consumers’ financial privacy and ensure the accuracy of
credit reports. Policymakers should:
- Strengthen a consumer’s
private right of action to seek redress through the courts when a
credit bureau or a creditor fails to protect personal information or
comply with an investigation.
- Limit or prohibit the use of a
consumer’s Social Security number for transactions, credit
applications, or on drivers’ licenses and other identification.
- Give
consumers more control over who has access to their credit reports and
when, better information about when their reports are accessed or when
negative information is added to their reports, and the right to
control the use of credit scores for insurance purposes.
- Give identity theft victims more power to easily clear their names.
Consumers should:
-
Order their credit report every year from the three national credit
bureaus (Equifax, Experian and Trans Union) to identify and correct
inaccurate information before it causes problems.
Notes
[1]
This report is based on files held by these so-called “Big Three”
credit bureaus, which are also referred to as the “national
repositories.” There are numerous other local credit bureaus. These
either sell their data to or license their data to these national
repositories. When a consumer credit decision is made in the United
States, even if the creditor initially contacts a local bureau,
information from one or more of the repositories is generally used.
There are also numerous specialty credit bureaus, some affiliated with
the repositories, others affiliated with other companies. For example,
the Medical Information Bureau collects information about insurance
claims history. Tenant screening bureaus work on behalf of landlords.
CLUE, a division of the Equifax spin-off Choicepoint, is an auto and
home insurance rating bureau. Numerous check verification and guarantee
bureaus also exist. One distinction is that many of the specialty
bureaus only collect and sell negative information, while the national
repositories report on both positive and negative payment history. All
are regulated under the federal Fair Credit Reporting Act, 15 USC 1681
et seq. The act uses the terms “consumer reporting agencies” and
“consumer reports” instead of the more common “credit bureaus” and
“credit reports.”
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