Consumer rights group demands 'extensive, deep-reaching reforms' to error-prone credit reporting industry

A major non-profit organization dedicated to protecting Americans from predatory practices is demanding immediate action from the United States Congress to address major outstanding issues that violate citizens' rights and damage their economic well-being.

Among the chief subjects that cause substantial strife to the public are credit reports and the impact that they have. On Wednesday, the National Consumer Law Center published a brief asking regulators and lawmakers to implement "extensive, deep-reaching reforms" that it believes are necessary to ensure equity throughout the complex American financial apparatus.

While credit scores and reports are not unique to the US, their structures vary depending on the country.

READ MORE: The Biden administration moves to end noncompete agreements and worker exploitation

"In the United States, your credit score feels like an objective judgment of your financial competence. As a result, people ascribe so much significance to them that it can affect their self-esteem. Roughly 46% of Americans with poor credit scores report feeling ashamed, and 49% actively hide their scores from those around them," FinMasters, a website that provides expert financial advice and analysis, pointed out in October. "However, our credit scoring system is a pretty arbitrary way to assess borrower risk. Americans only invented credit scores in the late 1980s," the writers explained, highlighting how quickly the disproportionate weight of the private, for-profit American credit scoring model has amassed.

FinMasters' summation underscores the prime directive of the NCLC's January 18th press release.

"Credit reports and scores, tenant and employment screening reports, and other background checks all impact fundamental necessities in a consumer’s life: the ability to rent an apartment or buy a home, obtain insurance, find a job, or obtain fairly priced credit. Yet each one of these categories of 'consumer reports' has serious systemic problems, and the consumer reporting agencies (CRAs) that traffic in our information are in need of reform," the NCLC wrote.

"Credit reports are the top source (more than 50%) of complaints to the Consumer Financial Protection Bureau (CFPB). They are full of errors, penalize consumers for far too long, include harmful information such as medical debts and rental debts, and reinforce racial disparities. The dispute system used by the Big Three credit bureaus (Equifax, Experian, and TransUnion) is entirely dysfunctional, inappropriately automated, and fundamentally biased against consumers," the NCLC continued. "Background check and tenant screening reports are also problematic and full of inaccuracies. They often tag the wrong person with an eviction or criminal record; include sealed, expunged, or obsolete eviction or criminal records; include eviction complaints that did not lead to a judgment; misclassify criminal offenses, or omit information about the disposition of a criminal or eviction case. Tenant screening companies also issue questionable scores or recommendations and include credit report information, which can shut out low-income andminority renters from decent housing. Tenant screening is especially problematic given the recent spikes in rent and shortage of affordable housing, since it can prevent renters from obtaining the little affordable and safe housing that is available."

READ MORE: Lindsey Graham advocated using credit card company 'technology' to throw out absentee ballots in Georgia

Indeed, the rejection of housing applications has denied countless residents access to necessary dwellings. New York, for example, has attempted to remedy this. During the COVID-19 pandemic, the Department of Homes and Community Renewal issued new guidance that forbade discrimination solely based on credit reports.

"A housing provider/landlord cannot automatically deny your application to state-funded rental housing based solely on your credit score or history," the DHCR stated in December 2021. "If you have a low credit score or negative credit history, you must be provided with the opportunity to present additional information to explain or refute the findings."

The Empire State has a vast consumer protection network as well, similar to the federal CFPB. And it is that agency that the NCLC is lobbying to do more to shield consumers from industrial harm.

"Credit and consumer reporting systems need extensive, deep-reaching reforms to ensure fairness and accuracy, and to promote economic stability by ensuring access to affordable credit, housing, and jobs," the NCLC said. "Some of these reforms can be accomplished using the administrative authority of the CFPB, which has announced a possible rulemaking under the Fair Credit Reporting Act (FCRA). Other reforms will require Congress to pass legislation."

The NCLC requested that the CFPB create "a rule under Section 1033 of the Dodd-Frank Act that gives consumers full and meaningful control over their data from deposit accounts, credit accounts, and other covered products and services."

The NCLC also asked Congress to adopt the Comprehensive Credit Reporting Enhancement, Disclosure, Innovation, and Transparency (CREDIT) Act of 2021, which was reintroduced in the House of Representatives by Congresswoman Ayanna Pressley (D-Massachusetts) following its passage in 2020.

That bill contains updated rules and regulations governing the management of consumer credit reports. Notably, the CREDIT Act places significantly enhanced responsibility on the credit bureaus to guarantee that the information furnished to them is accurate:

A consumer reporting agency may not refuse to conduct a reinvestigation under this subsection because the agency determines that the dispute was submitted by an authorized third party, unless the agency has clear and convincing evidence that the third party is not authorized to submit the dispute on the consumer’s behalf. If the consumer reporting agency refuses to reinvestigate a dispute for these reasons, it shall provide a clear and conspicuous notice to the consumer explaining the reasons for the refusal and describing the specific information the consumer is required to provide for the agency to conduct the reinvestigation.

This is due to the extensive history of errors that appear on credit reports, which often go unfixed and can have life-altering ramifications for the people who are victimized by them.

Although Equifax, Experian, and TransUnion provide free dispute forms that customers can submit, their internal investigations frequently fall short of correcting mistakes, and subsequent attempts to remove the derogatory marks are subject to immediate dismissal. Consequently, when disagreements arise between creditors and clients over what defines an "accurate" item under the Fair Credit Reporting Act, the bureaus typically default to the discretion of the lending institutions. It bears mentioning too that banks can forgive unintentional missteps, like a one-off late payment that arose from extenuating circumstances. They are not, however, obligated to perform acts of mercy.

Nevertheless, the Brookings Institution released a report in 2017 decrying the "astounding number of errors in the credit reports that are the result of misaligned economic and legal incentives," and emphasized that "more than one in five consumers have a 'potentially material error' in their credit file that makes them look riskier than they are."

This is a major problem that has led to numerous class action lawsuits. In fact, all three bureaus have shelled out huge penalties – totaling over half a billion dollars – after settling cases filed by the millions of people who were affected by either lapses in digital security or credit report flaws.

Equifax:

• Agreed to pay $425 million in January 2020 for a massive 2017 data breach that resulted in erroneous data being sent to lenders.

Experian:

• Agreed to pay $22.45 million in August 2022 after it was sued for "putting out credit reports that contained inaccurate and/or obsolete information."
• Agreed to pay $16 million in conjunction with T-Mobile in December 2022 over a data breach.
• Sued in December 2022 for failing to "properly investigate and correct certain credit report information disputed by accountholders, in particular debt information provided by Investigative Recovery Services."

TransUnion:

• Agreed to pay $13.9 million to affected persons and $3 million in civil penalties in January 2017 after it was caught employing deceptive marketing techniques.
• Busted again by the CFPB in April 2022 for its "dark practices" and breaking "additional consumer financial protection laws."
• Agreed to pay $9 million in July 2022 for "failure to take reasonable steps to ensure people weren’t falsely identified as potential terrorists."

READ MORE: Federal agency proposes program to expose companies that screw over customers