A Federal Trade Commission study of the credit reporting industry found that one in five consumers had errors on one of their three major credit reports. In some of those cases, such mistakes could possibly lead to them paying more for products such as auto loans and insurance.
Sen. McCaskill told regulators she will ask them look into the “marketing schemes” for bureaus products such as “freecreditscore.com” websites and some that charge fees to obtain a report which Congress intended to be free.
Sen. Nelson told regulators they must fix the problem with the credit reporting agencies are reporting “short-sell” real estate transactions as “foreclosures”.
Maneesha Mithal, associate director of the FTC’s Division of Privacy and Identity Protection, told McCaskill’s panel that one in 20 credit reports “had errors that lowered their credit scores to the degree” that it would making it more expensive for them to get credit.
Corey Stone, an assistant director of the Consumer Financial Protection Bureau (CPFB), testified that his agency had also done a recent study about the accuracy and impact of credit reporting. That analysis concluded that only about one in five consumers look at their credit reports every year – a percentage that Stone suggested was far too low.
Stone said about a third of consumers’ dispute about credit reports relate to “collection” issues, and more than three quarters of the information in the databases used by credit reporting companies come from large banks and other firms in the “top 100” furnishers of credit data.
The results of the FTC study “make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk,” said Howard Shelanski, head of the FTC’s economics bureau, in a previous statement.
According to the FTC’s website, the Fair Credit Reporting Act (FCRA) requires each of the three major credit reporting companies — Equifax, Experian and TransUnion — to give consumers a free copy of their credit report, at their request, once every 12 months. (Click here for information on ordering a free credit report.)
The FTC study – which involved analysis of about 3,000 credit reports – had encouraged participating consumers to use the FCRA process to resolve any potential credit report errors. The main findings:
- One in four consumers identified errors on their credit reports that might affect their credit scores;
- One in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports;
- Four out of five consumers who filed disputes were able to spur some modification to their credit report;
- Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report; and
- One in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points.
About 60 percent of employers use credit checks to screen applicants, even though research has shown that people with damaged credit are not automatically poor job risks.
“It would be easy to use this hearing to argue about the numbers and the prevalence of errors in consumer credit reports, but at the end of the day, both studies show errors exist,” McCaskill said in her opening statement.
“We are talking about anywhere from 2 million to 10 million Americans with errors on their credit reports that could impact whether they can obtain credit, or how much they will have to pay for it. We are talking about 2 million to 10 million people who must turn to a dispute process that I have some serious concerns about.” -St. Louis Beacon