by Jeff Sovern
New York's Attorney General, Eric Schneiderman, announced a settlement with the big three credit bureaus, Experian, Equifax, and Transunion, which is intended to improve credit report accuracy. According to Scheiderman's release:
The agreement requires that the CRAs employ specially trained employees to review all supporting documentation submitted by consumers for all disputes involving mixed files, fraud or identity theft. The agreement also requires that, for all categories of disputes, when a creditor verifies a disputed credit item through the automated dispute resolution system, the CRA will not automatically reject the consumer’s dispute, but rather, a CRA employee with discretion to resolve the dispute must review the supporting documentation.
This seems quite promising, though long overdue. A 2012 FTC report found that more than a fifth of credit report mistakes contained errors, and other reports have also found what seemed like an excessive level of mistakes. When consumers complain of errors, the Fair Credit Reporting Act obliges the credit bureau to conduct a reasonable investigation. Credit bureau investigations, until 2013, often consisted of having a clerk boil down the consumer's complaint to a two-digit code, which was then forwarded to the lender. If the lender reported that the entry was erroneous, that took care of the problem, but lenders often reported that the complained-of entry was accurate. Starting in 2013, the credit bureaus began forwarding to the creditor the consumer's actual complaint and documentation, which undoubtedly facilitated the lender's investigation. Now it sounds like the credit bureaus will not assume automatically that lenders which verify entries are correct, but will conduct their own investigation. I wonder how often the credit bureau's investigators will uphold the creditor's determinations. Will this agreement affects the credit bureau's incentives? In 2013, Ira Rheingold and I wrote in the New York Times:
[T]he marketplace can penalize credit bureaus that investigate too aggressively. Credit bureaus are heavily dependent on lenders for both revenue and the information the bureaus package and sell; if a credit bureau presses a lender too hard, the lender could patronize a different bureau and withhold data about its customers.
* * *
For their part, lenders may benefit when credit bureaus report consumer defaults, even incorrectly, because such reports put pressure on consumers who wish to maintain good credit ratings to pay even disputed claims.
But because this settlement applies to each of the big three credit bureaus, lenders who are unhappy with credit bureau investigations will not be able to simply switch to a different one of the big three to avoid them. Will they still have some power to penalize credit bureaus who are investigate too aggressively? We will see.
