[Vision2020] An $18 Million Lesson in Handling Credit Report Errors

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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August 2, 2013
An $18 Million Lesson in Handling Credit Report Errors By TARA SIEGEL
BERNARD<http://topics.nytimes.com/top/reference/timestopics/people/b/tara_siegel_bernard/index.html>

Even after sending more than 13 letters to Equifax over the course of two
years, Julie Miller could not get the big credit bureau to remove a host of
errors that it inserted into her credit report.

That indifference should surprise no one who has ever tried to deal with
any of the three big credit reporting agencies, Equifax, TransUnion and
Experian. “You feel trapped, like you are in a box,” said Ms. Miller, a
57-year-old nurse who works in a dermatologist’s office. “You have no
control over this, and you can’t call them up and say, ‘You’re fired.’ ”

So she tried suing. That worked.

A jury in Federal District Court in Portland, Ore., last week awarded her a
whopping $18.4 million in punitive damages, which, according to consumer
lawyers, is the largest individual case on record.

If you think this has taught Equifax and the other credit reporting
companies a lesson, you are a lot more optimistic than close observers of
the industry. They say that despite the huge judgment, little is going to
change for the millions of Americans who discover errors in their credit
reports.

The credit bureaus are willing to tolerate these errors — and settle with
consumers out of court — as a cost of doing business, according to credit
experts and lawyers who work on these cases.

“Their business model is to keep doing the same thing over and over again,”
said Justin Baxter <http://www.baxterlaw.com/attorneys/justin-baxter>, the
lead lawyer on Ms. Miller’s case. “They can buy off a number of consumers
with small dollar amounts and get rid of the vast majority of cases. To
Equifax, that’s the cost of doing business.”

Ms. Miller made every effort to fix her report, exactly as consumers are
advised to do. She initiated the company’s dispute
process<http://bucks.blogs.nytimes.com/2011/05/17/how-to-dispute-credit-report-errors-2/>about
seven times, and in most instances, Equifax would spit back a form
letter saying it needed more proof of her identity. So she sent her pay
stub and her phone bill. When that didn’t work, she sent her pay stub and
her driver’s license. And when that failed, she sent her W-2 form and an
insurance bill — at least three times.

But nothing ever changed: Ms. Miller, a model financial citizen who once
had the credit score to prove it, had become mixed up with another, much
less creditworthy Julie Miller. After she was denied a line of credit from
KeyBank, she discovered 38 collection accounts on her credit report, none
of which belonged to her, along with an inaccurate Social Security number
and birth date. Her financial life was no longer her own.

Mixed files, as they are known in the credit industry, most frequently
involve people who share common names with individuals who have similar
Social Security numbers, birth dates or addresses. These errors are
notorious for being among the most difficult to fix, credit experts said,
and require human intervention to untangle the mess. But given the huge
number of disputes, the process to address them is largely automated. And
that is the excuse the industry advances to consumers who get stuck in its
web.

The bureaus often outsource thousands of disputes daily to workers
overseas. Those workers, often overwhelmed by the sheer volume of cases,
are largely told to translate the problem into a two- or three-digit code
that defines the gist of the problem (account not his/hers, for instance)
and feed it into a computer.

But that process won’t untangle a mixed credit report. The reason files
become mixed to begin with can be traced back to the computer formula the
bureaus use to match credit data to a specific person’s credit report. It
allows credit data, say a late payment on a credit card, to be inserted
into a person’s file even if the identifying information isn’t an exact
match. In other words, the system might add a late payment to the credit
report of someone like Julie Miller even if the Social Security number is
off by two digits or a birth date is off by two years, but enough of the
other identifying information matches. That’s roughly what happened to Ms.
Miller.

Partial matches aren’t always wrong, of course. Solid estimates on the
number of mixed files are hard to find, though a 2004 study from the
Federal Trade Commission said that partial matches occurred in about 1 to 2
percent of credit files, citing data from the bureaus. That might not sound
like much, but when you consider that there are 200 million individuals
with credit files at each of the big three bureaus, that translates to two
million to four million consumers.

Other estimates put the number of actual mixed files at less than 0.2
percent to nearly 5 percent. The F.T.C.’s report said that mixed files were
not always harmful to consumers because most credit account information was
positive.

To that I say: Consumers with mixed files are supposed to take comfort in
the fact that their credit report doppelgängers, on the whole, are likely
to pay their bills?

There is a reason the bureaus operate this way. They would rather err on
the side of including too much information in your credit report than leave
information out, according to consumer lawyers and advocates. They also
need to account for typos and small errors that can cause the credit
agencies to leave out information — both good and bad credit behavior.
Financial services firms are paying the bureaus to receive the most
complete financial profile possible, even that means sacrificing a bit of
accuracy. (The F.T.C.’s report said that lenders might actually prefer to
see all potentially derogatory information about a potential borrower, even
if it can’t all be matched with certainty.)

“The bureaus would rather accept the possibility of some mixed-file risk
rather than the possibility that a debtor who owes a debt gets away with
it,” said Leonard
Bennett<http://www.clalegal.com/our-firm/attorney-profiles/leonard-bennett-esq>,
a consumer lawyer in Newport News, Va., who said he has about 20 active
mixed-file cases in any given month.

The dispute process is supposed to catch the people who fall through the
cracks. But as people like Ms. Miller can attest, it doesn’t always work.
The Fair Credit Reporting Act, the law that governs the big bureaus,
requires the agencies to provide a reasonable investigation. Ms. Miller’s
lawyer said their litigation revealed that there was no investigation at
all. (It’s worth noting that Ms. Miller had problematic credit reports at
the other two bureaus, but those agencies resolved the matter.)

“They testified that they get something like 10,000 disputes a day, so they
don’t have the time to look at each one,” Mr. Baxter said. “Whether it is
because the person has too many disputes to process or they choose not to,
that is where the system falls apart.”

What else could she have possibly done? I asked the credit bureaus. Equifax
declined to comment, and would only say that it was “very disappointed in
the jury verdict” and was exploring its options, including an appeal. The
other two agencies didn’t offer much guidance either, though TransUnion
pointed out that the credit reporting industry resolved 70 percent of
consumer disputes within 14 days.

Ms. Miller, however, had to endure repeated phone calls from debt
collectors, who threatened to sue. She couldn’t co-sign a credit line for
her son who was in his freshman year of college, and she said she put off
refinancing her mortgage. It also meant that she couldn’t co-sign a car
loan for her disabled brother. And plans to build a workshop on their
property, which required a loan, would have to wait.

The jury’s giant award to Ms. Miller is generous and goes a long way toward
compensating her for those lost opportunities. But lawyers say the initial
awards are often reduced after being reviewed by the trial judge. An
out-of-court settlement for the typical mixed-file case might be $50,000 to
$250,000, depending on the case, while settlements for other errors may be
far less.

Will Ms. Miller’s award have any lasting effect on the industry? Mr.
Bennett, the consumer lawyer, is one of the optimists. “This case will
change the calculus,” he said. “If they have to pay $2.5 million every time
one of these folks gets to court, they might have to reconsider their
procedures.”

It’s more likely, though, that the Consumer Financial Protection Bureau,
which began overseeing the large credit bureaus last September, will have
more impact. It has broad
authority<http://files.consumerfinance.gov/f/201209_cfpb_Consumer_Reporting_Examination_Procedures.pdf>to
perform on-site examinations, check records and examine how disputes
are
handled. Consumer advocates have long suggested that the credit agencies
tighten up the way they match up data with consumers reports and strengthen
the dispute process.

“Big punitive penalties may help force the bureaus to upgrade their
20th-century algorithms and incompetent dispute reinvestigation processes,”
said Ed Mierzwinski, consumer program director at the United States Public
Interest Research Group. “But C.F.P.B.’s authority to supervise the big
credit bureaus is one of the most significant powers Congress gave it.”

Nearly every expert I spoke with conceded that Ms. Miller had few options.
“She had two choices, and they both stunk,” said John
Ulzheimer<http://www.johnulzheimer.com/>,
a credit expert <http://www.smartcredit.com/blog/author/john/>who has
served as an expert witness on more than 140 credit-related lawsuits. “She
could live with it, or she could hire an attorney.”

Kitty Bennett contributed reporting.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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