New Legislation Aims To Ensure Accurate Credit Reports, Provide Free Credit Scores

Even a small inaccuracy on a consumer’s credit report can have long-lasting negative affects. From the most simple computer error to mixing up individual’s data, credit reporting agencies have been known to be hard to work with when trying to fix incorrect data. But that could all change under legislation introduced today that aims to ensure issues like these don’t happen.

Today, Senators Brian Schatz of Hawaii and Sherrod Brown of Ohio introduced the Stop Errors in Credit Use and Reporting (SECURE) Act of 2014, which would require credit bureaus to follow tighter rules for ensuring credit reports are accurate and give consumers free access to reliable credit scores each year.

Credit reports and credit scores are often used by bankers, lenders, and others to determine a consumers’ creditworthiness and the rates they will pay for services. Today, the scores and reports are even used to determine a consumer’s employability.

A Federal Trade Commission study found that nearly one in five, or 40 million consumers, have had an error on one of their credit reports. Of those, nearly 5% or 10 million consumers had errors that would likely lead them to paying more for interest on a loan.

The problem is compounded by the fact that it’s difficult for consumers to prevent and correct errors on their credit reports. The SECURE Act proposes to revamp the current Fair Credit Reporting Act and make common sense fixes to the credit reporting industry.

SECURE establishes clear procedures for assuring accuracy of all consumer reports furnished by Consumer Reporting Agencies:

  • Requires CRAs to pass along documentation sent by consumers to data furnishers and requires data furnishers to consider the documentation in their re-investigation;
  • Requires CRAs to gather and report information on disputes and their resolution;
  • Directs the Consumer Financial Protection Bureau to establish minimum procedures that a CRA must follow to ensure maximum possible accuracy of consumer reports;
  • Prevents CRAs from ignoring new or additional information provided by a consumer that is relevant to an on-going dispute.

The act also sets legal recourse for consumers by including injunctive relief, which would allow consumers to seek relief when they sue for a violation of the FCRA.

Currently, consumers are limited to relief in the form of actual damages, and in the case of willful noncompliance, punitive damages. The addition of injunctive relief means consumers can ask the court to order the entity that violated FCRA to stop engaging in the practice that violates the law.

Additionally, SECURE lowers the standards that the FTC must meet to impose a civil penalty for a violation of the FCRA. Under the new act the FTC can impose a civil penalty for “negligent, willful, or knowing” violations. Under current law, FTC is required to prove a knowing violation. This is a higher burden than that imposed on individuals and state attorneys general, both of which can bring actions for negligent violations. This provision would enable the FTC to use enforcement actions more effectively to improve the accuracy of credit reporting..

Consumer advocates are championing the legislation, saying credit errors are too common and consumers have the right to find out their credit score at no charge; much like the once-a-year free credit report from Equifax, Experian and TransUnion.

“Maintaining an accurate credit report is absolutely critical for consumers in today’s economy,” Pamela Banks, policy Counsel for Consumers Union, says in a statement.  “But too often, credit reports contain errors and those mistakes can mean higher interest rates on loans, pricier insurance premiums, and even missed job opportunities.”

Today, our colleagues at Consumers Union released a new policy brief [PDF] investigating just how detrimental, and common, inaccuracies are on consumers’ credit reports.

The report, “ERRORS AND GOTCHAS: How Credit Report Errors and Unreliable Credit Scores Hurt Consumers,” shares the stories of consumers from around the country who have been affected by errors in their credit reports.

One of the most common errors on credit reports is the inclusion of information that didn’t belong to the consumer. Such was the case for Lisa in Pennsylvania.

“For a long time, our scores included information about another guy who—ironically—lived in the other side of our duplex with a similar mailing address and the same name as my husband—only his middle initial was different, and he wasn’t a junior. When we tried to get the problem cleared up, we were treated as if we were lying and had done bad things. We ended up having to wait a number of years for those things to fall off our credit [reports] because it was such a hassle to get it corrected. We only knew there were problems when we went to apply for credit.”

Another common inaccuracy faced by consumers results from the methods CRAs use to compile a credit report. Often issues arise when the CRA mixes together records from two different people who share similar identification, such as a Social Security Number that is one digit off, or the same first name. Such was the case for Frank from New York, whose credit history was combined with his son’s.

“My son and I have the same first and middle names. . . . So all of my son’s good and bad credit [information] always show[s] up on my report even though we obviously have different Social Security numbers. Many times I have tried to get these errors fixed, through the mail, phone and online, but to no avail. Recently I attempted to refinance my mortgage, same problem, low credit score due to erroneous data.”

The issue ultimately cost Frank the opportunity to get a good deal when he tried to refinance his mortgage.

Simple typographical and computer errors perpetrated by data furnishers can lead to big problems for consumers when a CRA fails to independently verify information reported by the furnisher. It was a simple computer error that led Aleta from Arkansas to a seven-month fight to correct her credit report.

“A bill was mistakenly issued to me because of a computer glitch. I tried to resolve it and was told everything had been taken care of. Then I was turned over to a collection agency. I called again and told everything had been taken care of. Instead it turned up on my credit report. I went thr[ough] the investigation process. That was useless! Then I asked and eventually got a letter from the creditor stating it was THEIR fault and it never should have been turned over to a collection agency in the first place. They also contacted the collection agency and told them it was a mistake. The collection agency contacted the credit bureaus and told them I did not and never had owed the bill. It was all a mistake. Well that was 7 months ago and IT IS STILL ON MY CREDIT REPORT!”

The issues Aleta, Frank and Lisa had in correcting their credit report inaccuracies are all too common. Consumers Union reports that the difficulty often faced by consumers comes down to fundamental problems with the way CRAs investigate disputes.

The CRAs devote limited resources to addressing errors, and the investigations conducted by furnishers are often inadequate. Unfortunately, the CRAs typically accepts the word of the furnisher in disputes, even if the furnisher has not provided evidence to validate the disputed information.

Additionally, communication problems between the creditor, collection agency and the CRA can make it challenging for the consumer to fix the problem—even if the creditor and collection agency are in agreement that a mistake has been made.

In 2011, consumers contacted the big three CRAs – Equifax, Experian, and TransUnion – nearly 8 million times with accuracy concerns. When those efforts failed to provide corrections, consumers turned to the the Consumer Financial Protection Bureau. In 2013, the agency received 24,200 complaints of credit reporting issues, of which 73% dealt with incorrect information.

Advocates have long said that consumers can be proactive about credit by obtaining the once-a-year free credit report. However, the CFPB reports that only one in five Americans actually take advantage of the service.

Without the regular review of credit reports, consumers run the risk of not noticing errors in the data or identity theft. While the credit reports don’t provide consumers with their credit score, the CFPB has taken steps to ensure consumers have access to that information.

In February, the CFPB urged the nation’s top credit card companies to make credit scores and related content freely available to consumers. Consumer advocates applauded the push for the free service.

“Consumers shouldn’t have to pay to find out their credit score,” Banks, the senior policy counsel for Consumers Union said in a news release at the time. “They deserve free access to the same scores lenders use to evaluate how much they pay for credit. Director Cordray and the CFPB got it right by focusing on free scores that are reliable and relevant to your finances.”

Currently, consumers can pay CRAs to view their credit scores, but often the scores provided are different than those used by lenders for evaluating creditworthiness. CRAs typically sell “educational” scores to consumers that are rarely used by lenders, and the difference is significant.

The CFPB found that the credit scores used by lenders compared to the scores typically sold by the CRAs would put consumers in a different credit reporting category 19% to 24% of the time.

“Consumers shouldn’t have such a hard time obtaining a reliable credit score,” Maureen Mahoney, public policy fellow for Consumers Union and author of the policy brief, says.  “Congress should give all consumers the right to get the same credit scores used by lenders at no cost every year.  Free credit scores are especially important for those without bank accounts or credit cards who don’t qualify for current voluntary programs.”

Officials with CU believe the newly proposed SECURE Act could be the answer to many of these problems.

“This bill provides a good framework for holding credit reporting agencies and creditors accountable for making sure credit reports are fair and accurate,” Banks says. “Giving consumers free access to their credit score will help consumers know where they stand with lenders and others when it comes to their credit record.”

In addition to the provision provided in the SECURE Act, CU made the following recommendations in their policy brief:

Hold CRAs Accountable for Accuracy: New rules are needed to clearly define the “reasonable procedures” CRAs are required to have in place to ensure credit reports are accurate. This could include requiring CRAs to match first and last name, date of birth, and other relevant information, where appropriate.

Hold Furnishers Accountable for Accuracy: To ensure information about consumers is accurate, creditors and other furnishers should be required to keep supporting documentation about an account that appears on a credit report, unless directed otherwise by law.

Improve the Dispute Investigation Process: Furnishers should not be able to dismiss disputes as “frivolous” if consumers provide information that is relevant to their complaints.  Furnishers should delete disputed information from a credit report if they cannot offer documents to support it.

Provide Consumers With Free Access to Credit Scores:  The CRAs should be required to provide consumers with their credit scores for free when consumers request their annual credit reports. These scores should be the same ones that are most often used by lenders to make credit decisions.

Stop Deceptive Marketing of Credit Reports and Scores: Regulators should crack down on deceptive marketing of credit reports and scores to protect consumers from unknowingly registering for unwanted credit monitoring or other expensive services.

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