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Long Overdue: Credit Bureau Overhauls

Credit Bureau Overhauls

By now, most of us are well aware of the shocking 60 Minutes interview along with a new FTC report that shows 50 million credit reports have errors. Because the credit bureaus accept information not only from banks and credit card companies, but also provide that information to potential employers and leasing agents, it’s clear changes should be happening and when it comes to the three big players, there’s a lot of room for improvement.

FTC, CFPB Reports

The Federal Trade Commission’s study of credit bureaus along with a new report from the Consumer Financial Protection Bureau tells the tale and it’s wreaking havoc in Americans’ lives as the evidence reveals massive shortfalls in our credit system. Of those 50 million credit report errors, the FTC says more than 10 million of those errors could be costing consumers big money. They can affect how much interest a borrower is forced pay and those errors can also determine whether or not a job offer is extended. Further complicating matters is the Consumer Financial Protection Bureau’s own stats that show only 22% of American consumers pulled their reports last year to ensure accuracy.

Now, many are wondering if the entire credit system in the U.S. should be overhauled – specifically the procedures the credit bureaus incorporate and the lack of accountability lenders have in providing accurate information. There exists no due diligence on the part of either and often, consumers find themselves battling these problems alone.

Few Options

Basically, the way procedures are handled come down to just a couple of possible outcomes. If you dispute an account or other information on your report, the bureau will contact the original creditor to provide proof that a debt or account is real. If the lender doesn’t reply, the account is removed. If it does reply and provide some kind of proof that an account was real (even if doesn’t provide proof that there’s an outstanding balance), the account then stays on the consumer’s credit report. The “data furnisher” mindset is the Achilles heel as far many consumers and consumer advocates are concerned. The credit bureau doesn’t require a creditor to verify the accuracy of what’s being reported, just that an account was real at some point and that there may have been monies owed that weren’t paid. Fortunately, as part of the 2009 CARD Act, the Consumer Financial Protection Bureau is the new tool available for consumers. It’s now just a matter of rewriting the rules.

Difference in Reports

But what happens if a credit report looks accurate, but a consumer cannot get approved for a loan, mortgage or credit card? That happens often. It’s only been recently that it was disclosed that credit reports supplied to consumers can be very different from the ones companies see. In some instances, a consumer might see a shining credit history but when they apply for credit, the lender might see huge red flags, especially if two or more names have been co-mingled. It can take herculean efforts to get those errors removed and ensure they match the reports the consumer see when he or she requests a copy of their credit reports.

Even laws already in place are clearly not enough. The Fair Credit Reporting Act has definitive rules, including one that says a credit bureau must weigh what the consumer says and provides more than anything else. That rarely happens, though. Disputes are simply not given proper attention. Instead, each dispute is assigned a code number that is forwarded to a creditor. This system is known as eOscar and it’s antiquated and doesn’t lend for attachments, such as letters from the consumer or even police files when an identity has been stolen.

Antiquated Processes

There have been many recommendations, though the system really hasn’t changed since it began decades ago. One of the most obvious appears to be the one that meets the most resistance. Each dispute should be reviewed by a person versus issuing a number to it and sending it through some type of automated process. Further, when the creditor replies, that information should also be reviewed by a human versus a computer program that assigns outcomes. Not only that, but lenders and the credit bureaus should supply detailed information.

Remember, as consumers, we’re submitting pages of documentation when an error has been found and we try to remedy it. It’s only reasonable that the efforts on their parts rise to the same attention we give it. Remember, too, that these errors weren’t caused by the consumer who’s now having to sink considerable time into fixing them. There should be some type of sign off procedure as well that includes real signatures so that the consumer can reach those representatives if needed.

There’s another important truth that consumers learn as they try to dispute errors. Once the credit bureau issues its decision, it’s final. That should never have been allowed. If it takes a third party to step up to the plate, so be it. This is another area where the CFPB is working diligently to remedy. It could be that the government consumer watchdog group becomes that third party. Some say an ombudsmen should be put into place to represent consumers.

Tightening the Rules

Others say that there shouldn’t be two different reports in terms of what the consumer sees and what a creditor sees. As it is now, consumers simply don’t have access to those credit histories that lenders receive. That’s wrong – and it has affected countless consumers and their efforts of buying a home or even taking out revolving loan accounts such as credit cards. Here’s the surprising part though – the credit bureaus use “looser criteria” when compiling information about you to send back to those lenders. At minimum, if a consumer has been declined for credit and then requests a copy of his credit reports, he should see the exact documents that were forwarded to the lender who used it to decline their application for credit. As one consumer advocate said,

It’s the only way to find out if your identity’s been stolen, if information from another consumer with a similar name is showing up and if an erroneous foreclosure, judgment or bankruptcy is showing up.

So what’s the best of way of getting companies and the credit bureaus in line? For starters, lawmakers could take a page form CFPB’s rule book. Already, in its first few years, it’s ordered huge penalties and refunds from three of the nation’s largest banks and credit card companies. For those bureaus and lenders who refuse to remain in compliance, perhaps it’s time they too begin feeling the wrath of multi million dollar fines. Lawsuits are expensive and most consumers want to avoid that anyway – they just want the information that’s being provided regarding their credit habits to be accurate. No one is holding these credit bureaus accountable. For that matter, the lenders aren’t worried either and when disputes arrive from any of the credit bureaus, there exists little incentive for them to not drop the ball.

So what are your thoughts? Is it time for an overhaul in the credit bureaus and national reporting standards? Have you ever found errors on your credit report? If so, were you able to get them remedied right away?

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