Consumers? rights to accurate credit reports get boost
Supreme Court decision and proposed overhaul of credit reporting system hailed
Wrong information on your credit report can be devastating to your finances, housing choices and even your job prospects.
This week the push for safer credit reports got two important boosts:
- The Supreme Court rejected an argument that wrong information on a consumer report must result in actual damages to be worthy of court action, which would have undercut the right to an accurate report and other consumer protections.
- U.S. Rep. Maxine Waters (D-Calif.) introduced a wide-ranging proposal that would restrict the use of credit reports in employment screening, strengthen the error dispute process, and reform other aspects of the credit reporting system, marking the most ambitious push for higher standards since protections were initially set by the Fair Credit Reporting Act, which was enacted in 1970.
"I recognize that credit information is necessary for lending decisions," Waters, the ranking Democrat on the House Financial Services Committee, said in a press call announcing the bill Thursday. "But the growing reliance on credit information for noncredit decisions means that credit reporting and credit scoring have a significant impact on many aspects of consumers' lives."
It is hard to overstate the importance of credit reports. More than 200 million U.S. consumers are in the credit reporting system. Some 10,000 "furnishers" of information such as banks and debt collectors report on 1.3 billion consumer accounts every month.
The information is the basis for your credit score, but its importance goes beyond being approved, or denied, for credit cards or loans such as a home mortgage. Credit reports are also used by landlords to screen tenants, and by employers to evaluate job applicants.
In 2013 the Federal Trade Commission found that 5 percent of reports contained errors serious enough to result in denial of credit or a higher interest rate. The three big credit bureaus -- Experian, Equifax and TransUnion -- attract the most complaints about credit reporting filed with the U.S. Consumer Financial Protection Bureau.
The credit reporting industry says mistakes are rare, and the agencies are working to reduce them further. Given these strides, "we question the need for any additional law," said Stuart Pratt, CEO of the Consumer Data Industry Association, in an emailed statement.
Consumer advocates argue that errors are not nearly rare enough, given the size of the market and the harm that a mix-up can cause. HBO comedian John Oliver turned his caustic wit on credit report horror stories in a recent edition of "Last Week Tonight," citing people erroneously tagged as deceased, as sex offenders or even as terrorists.
Proof of harm needed?
Against this backdrop, the Supreme Court took up the question of whether Spokeo, the "people search engine," was liable under the Fair Credit Reporting Act for publishing wrong information about Thomas Robins, even though the error didn't cause the Virginia resident to miss out on a loan or cause some other concrete harm.
Consumer advocates were concerned that the company's case reached the Supreme Court, as many consumer protections provided by law do not require a consumer to show they lost money in order to get redress.
"This is important because many violations may not result in a concrete harm," said Chi Chi Wu, staff attorney at the National Consumer Law Center. "The risk of harm can be the concrete injury."
Laws regarding debt collection and telemarketing, as well as credit reporting, restrict practices regardless of whether or not they actually harm a consumer in a way that is substantive. You may not be able to show how you were harmed by telephone sales calls, or calls from a debt collector at 10 p.m., but you have a legal right not to receive them.
Spokeo wrongly published that Robins had a graduate degree and was married with children, among other details. The Supreme Court avoided a split decision by sending the case back to a lower court to be reconsidered. But its decision affirmed that people have the right to fight companies in court for violations of consumer protection law that cause them risk of harm, whether or not they suffer damages they can point to.
"Corporations took a shot at gutting America's privacy laws, and they missed," Paul Bland, executive director of Public Justice, wrote in a blog post on the ruling.
Bill would extend
While the Spokeo decision held the line against a rollback of protections, Rep. Waters' bill aimed to extend existing protections against unfair or inaccurate reports. Her sweeping list of specific proposals would heighten individuals' ability to dispute errors, increase regulators' power to push companies for more accurate processes, and reduce the harm that negative report entries, such as unpaid bills, can have on homebuyers, student loan borrowers and other consumers.
"These credit reporting reforms are urgently needed in order to ensure that consumers are treated fairly," said a letter signed by 19 worker and consumer advocacy groups.
Among the specifics:
- Employers could not consider the credit history of job applicants or existing workers, except under narrow exemptions to meet state or federal requirements or national security clearances.
- Borrowers of private student loans would get delinquent or default information removed from their report after making nine of 10 consecutive monthly payments, mirroring a protection for federal student loan borrowers.
- Furnishers that send negative information to a credit reporting agency would have to alert the affected consumer within five business days.
- Consumers could appeal a credit bureau's initial ruling after a dispute of negative information, and the furnisher would have to supply documentation for the demerit.
"Historically, the bureaus side with the furnishers" when negative information is disputed, Wu said. "They're like the judge that always rules in favor of the defendant."
Though even supporters say it is unlikely the reform package will be enacted as written -- a precursor with some of the same proposals that Waters introduced in 2014 did not reach a vote -- the introduction of the bill sets out a guide for action by the industry, regulators and state attorneys general, consumer advocates said. Examples of piecemeal reforms in recent years include CFPB rules for fairer medical debt reporting and court action by states that resulted in tighter processes by the big three credit bureaus to improve accuracy. One Waters provision, to provide individuals with free credit scores, is already been being widely adopted by financial companies, under prodding from the CFPB.
"It's all part of a process to get agencies to reform their practices," Wu said. "Some of this takes decades."
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