Consumer Law

Why Is The Credit Reporting System Broken?

By M. Stan Herring

A recent Smart Money article by Anne Kadet lays out in a very clear manner what is wrong with the credit reporting industry (Experian, Equifax, and Trans Union). Rather than summarize this article, read it. Then read it again - its that good and important.

Here is an excerpt to show you why this article is critical:

So suppose there?s a whopper of an error on your credit report. Suppose it says you?re dead. That?s what Ken Clark, a financial planner in Little Rock, Ark., was told when he tried to buy his wife a minivan. The auto dealer called Clark a con man because his report was marked ?deceased.? When Clark called the credit bureaus to report that he was still breathing, he learned that the real authority on the matter was a Utah bank that issued him a credit card and later reported him dead. To fix the error, Clark had to send a notarized letter and a copy of his utility bill to the bank, which in turn assured the bureaus that he was alive.

Clark?s story sheds light on how the dispute process works. Credit bureaus say they usually need to check with the lender because 30 percent of disputes are filed by shady credit-repair companies that challenge all the negative information on a consumer?s report, regardless of its validity. Bureaus also have to deal with consumers who pull stunts like concocting official-looking statements on phony letterhead; one bureau says it recently got a letter from ?Banke [ed.-this ?typo? is intentional, replicating the original] of America.? To sort the good from the bad, the industry sends almost everything through the automated system e-OSCAR (Electronic Online Solution for Complete and Accurate Reporting), which forwards consumer disputes to lenders for verification.

Here?s where the trouble begins. Rather than call the lender or send it the consumer?s letter and supporting evidence, the bureaus zap the documents to a data processing center run by a third-party contractor. This system yields considerable savings. Equifax reduced its per-dispute cost from $4.50 to 50 cents by outsourcing the work to Costa Rica and the Philippines, for example. But consumer advocates say these workers are under enormous pressure to process disputes and forward them to lenders as quickly as possible. While the bureaus say quality is the overriding factor, employees deposed in civil suits describe a harried pace. One TransUnion manager testified that workers were expected to complete up to 22 cases an hour. An Equifax worker estimated she was allotted four minutes per dispute. To process the letters so rapidly, the workers summarize every complaint with a two-digit code selected from a menu of 26 options. The code ?A3,? for example, stands for ?belongs to another individual with a similar name.? The worker can also add a single line of commentary. The two-digit code and short comment is the only information the lender receives about the dispute.

To protect yourself, pull your credit reports, review them, dispute the errors, and if the errors remain file suit against the responsible parties. To learn more about the Fair Credit Reporting Act (FCRA), feel free to go to our website or contact us for a free consultation.

(Thanks to Denise Richardson for pointing out this great article to us and thanks to Anne Kadet for writing this!)

Full post as published by Alabama Consumer Blog on February 13, 2009 (boomark / email).