How America's Credit Reporting System Gets Away With 40 Million Mistakes

steve kroft

Consumer activists were rattled Monday after the FTC released a report on widespread credit reporting errors.According to the agency, as many as one in five consumers have errors on their credit reports that could hinder their ability to apply for new credit or stick them with sky high interest rates.  

The report was highlighted in a fascinating 60 Minutes segment by CBS’ Steve Kroft.

“Besides having financial consequences, the whole dispute process takes an emotional toll on people,” Kroft said in an extended interview.

“It’s just really hard sometimes to get these things fixed. You feel like you’re up against this machine and there’s no way to break through. After a while I think people sometimes start to question their own sanity…. so we decided to show the consumer what it’s like.” 

From what we’ve learned from his six-month investigation and two new reports on the credit reporting industry, it’s more evident than ever that consumers are in need of real change. 

In a controversial new '60 Minutes' segment, Steven Kroft, an award-winning investigative journalist in his own right, has tried for two years to correct an erroneous line on his credit report.

Like most consumers who call the 800 number on credit reporting agency websites, he spent 15 minutes on the phone with a representative from India and was told to fill out a dispute online.

The problem with asking consumers to file complaints electronically –– or often by snail mail –– is that they're rarely reviewed by the agencies themselves.

A Consumer Financial Protection Bureau report found that of more than 32 million disputes filed by consumers in 2011, CRAs only fielded about 15 per cent in-house.

Read the full CFPB report here.

The agencies send the lion's share of disputes off to an automated system called eOSCAR, which in turn passes them off to whichever creditor is responsible for the alleged error.

eOSCAR labels disputes with one of two codes depending on their content and just 26 per cent of disputes are sent to creditors with any sort of extra information.

Here's the problem with eOscar: It's not equipped to handle supplemental documentation consumers might send to back up their claim.

60 Minutes tracked down three former dispute handlers from Experian's headquarters in Santiago, Chile.

But the numbers don't lie. According to the FTC, between 20 million and 40 million consumers could have errors on their credit reports that could hurt their credit score.

Read the full FTC report here.

Kroft interviewed one consumer, Judy Thomas, who spent six years trying to convince credit reporting agencies that her identity had been stolen. She kept a clean paper trail and still had to take her case to court to get the issue resolved.

Like Thomas, an erroneous credit report could send consumer FICO scores –– the score most widely-used to determine credit worthiness –– spiraling. She couldn't get a car loan, co-sign her children's' student loans, or refinance her home while she disputed her claim.

Then she discovered the reason for the confusion: Her bank had received a different credit report than the one she got from CRAs. This often happens when CRAs issue reports to creditors and can be difficult for consumers to prove if banks are unwilling to reveal their report.

Turns out the bank's report showed another name for Thomas –– one she never went by. CRAs don't independently verify data supplied to them by creditors, including verifying whether their supposed customers actually do business with them.

She's not alone. Colorado grandmother Sandra Cortez made headlines in 2012 when she was detained at a car dealership after her credit report mistakenly flagged her as a suspected Colombian narcoterrorist.

Cortez's story was first reported by The Columbus Dispatch in Ohio. The state's Attorney General, Mike DeWine (right), told CBS he's opened his own investigation into credit reporting errors.

State attorneys general are one of the main lines of defence for consumers who strike out with CRAs or creditors, other than the FTC and CFPB. A pricey alternative: Hiring a private attorney to fight your battle in court.

Transunion runs Truecredit.com, which asks users to sign up for a paid membership to access their 'free score.'

The site consumers really need is www.annualcreditreport.com. From there, you can check your reports from all three agencies for free once per year. You can also dispute items online as well.

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