Information Processing

CREDIT BUREAUS: CONSUMERS ARE STEWING--AND SUING

They're livid over error-ridden reports that deem them bad risks

It's been building for years. Consumers have been complaining that companies that collect and sell credit data have often been careless, callous, and uncooperative when it comes to cleaning up errors in their electronic files. A bad report can keep a consumer from getting a mortgage, a car loan, or sometimes even a job. And, consumers say, once erroneous information such as a false record of a missed loan payment finds its way into the data banks, it can be a hassle to erase it.

Now, the complaints have grown so loud that politicians are smelling votes. On July 9, six states brought two suits against Cleveland-based TRW Inc., which runs one of the three largest credit bureaus. The first, brought by Texas and joined by California, Alabama, Idaho, and Michigan, alleges that TRW fails to ensure the accuracy of its data and doesn't correct mistakes quickly enough. It also contends that TRW violates consumers' privacy by selling financial data about them to direct marketers.

A second suit in New York makes similar allegations. Both charge that TRW acts not as a mere repository of credit data on 170 million Americans but "secretly" rates them for "creditworthiness" and doesn't show them the ratings. TRW, which says the law doesn't require it to disclose credit scores to consumers, filed a motion for a declaratory judgment to nullify both suits.

BIG RESPONSE. But the TRW litigation is already drawing a big response from the public, says New York State Attorney General Robert Abrams, who is seeking the Democratic nomination to challenge Senator Alphonse M. D'Amato in 1992. "I can't remember a case that has caused so many people to stop and talk to me," he says. "It cuts a wide swath across the population."

Before more politicians pile on, some players in the $1 billion U. S. credit reporting industry are trying to head off a consumer backlash. On July 15, Atlanta-based Equifax Inc., another top credit bureau, announced plans to set up a toll-free customer service center staffed by more than 500 consultants who can resolve disputes quickly. The move will be costly: Equifax has already taken a $9 million charge against its first-quarter earnings to pay for the program. On the same day, TRW announced a less ambitious plan to set up an 800 number for consumers who have been denied credit. TRW says it already employs more than 500 service reps, up 50% from last year.

What's more, says John McGee, vice-president for marketing and business affairs at TRW Information Services, TRW adheres to every relevant fair-credit law. McGee says company officials spent hundreds of hours negotiating with law-enforcement officials, mostly in Texas, to head off the suits. "We responded, addressing each issue," he says. McGee adds that the Texas Attorney General's office has been unable to tell him specifically how TRW breaks the law: "Either they can't or they won't."

Whether the charges hold up in court, the suits have tapped a deep vein of consumer frustration. In Texas, Assistant Attorney General Stephen Gardner says his office has received more than 720 complaints about TRW since 1989. That's more than for any other ongoing business. "These are from people who have tried to solve problems with TRW not just one time, but a number of times," he says.

NAME GAME. Most complaints stem from TRW's alleged failure to fix damaging errors. Paul K. Jacques, a Wyoming resident, was unable to buy a car because negative information about his father, Paul J. Jacques, was in his credit report. When TRW failed to rectify the report over several years, Jacques charged gross negligence and won $290,000 in damages. TRW is appealing.

TRW concedes that it's difficult for its computers to distinguish between people of similar names and says it is working on new software to address that. The worst case, says McGee, is when two people at the same address have essentially the same name. "People can name their children whatever they want to, but they just need to understand the consequences of doing so," he says.

Many errors begin with simple mistakes. Take the case of Robert Tatum, a part-time college student in Dallas. Tatum's bank incorrectly reported that he was behind on his student loan. The bank had lost his application for deferred payments and quickly fixed the error. But it took TRW six months to update its records. In the meantime, Tatum says, he lost his full-time job because he couldn't get credit to buy a car to get to work. All along, TRW was unresponsive, says Tatum, who says he may sue. TRW says it can't comment on every complaint.

SELF-POLICING? The credit bureau issue has hit Washington, where consumer groups are pushing for more regulation (table, page 69). In response, the House Subcommittee on Consumer Affairs plans to introduce in September legislation to strengthen and update the Fair Credit Reporting Act of 1970.

On the other side is Associated Credit Bureaus, a Washington-based trade group that represents TRW, Equifax, Trans Union, and hundreds of smaller credit agencies. It argues that the industry should be left to police itself. "Anecdotal stories are being used as the basis for sweeping changes," says D. Barry Connelly, executive vice-president of the group. The industry says that the proposed reforms will increase their cost of doing business and bog down a system that helps U. S. consumers buy 5,000 homes, 40,000 cars, and 300,000 major appliances every day. "We're trying to strike the balance between consumer protection and the costs to the industry," says a congressional staffer who works for subcommittee Chairman Esteban E. Torres (D-Calif.).

But the controversy isn't likely to die down quickly. Consumers Union recently scoured 161 credit reports and found that 19% had errors serious enough to cause information buyers to deny credit, employment, or insurance. In June, the Federal Trade Commission said that credit reports are now its biggest source of consumer inquiries and complaints. And American Telephone & Telegraph Co.'s Universal Card unit recently became the first big credit grantor to urge the industry publicly to give consumers better service. With pressure like that, no wonder credit bureaus are trying to cool things down.

WHAT'S FAIR

IN CREDIT REPORTING?

Consumer groups are advocating the

following:

IMPROVE ACCURACY

Credit bureaus should take responsibility for correcting mistakes no matter where the data came from and should inform other credit reporters of errors

GRANT FREE REPORTS

Consumers should be entitled to a free copy of their credit report once a year, not just when they are denied credit

PROTECT PRIVACY

Consumers should be given a clear chance to prevent sales of personal data to marketers

IMPROVE SERVICE

Credit-denial notices should include a list of consumers' rights. Investigations of errors should take 30 days, tops

BETTER ENFORCEMENT

The Federal Trade Commission should be given more power to penalize credit reporters for violating the law

DATA: U.S. PUBLIC INTEREST RESEARCH GROUPEvan I. Schwartz in New York, with Zachary Schiller in Cleveland, Walecia Konrad in Atlanta, and Stephanie Anderson Forest in DallasReturn to top