What’s Wrong with the Credit Reporting System

What’s Wrong with the Credit Reporting System

On September 10, 2014, the House of Representatives SubCommittee on Financial Institutions and Consumer Credit heard testimony on the current state of the consumer credit reporting system.

Mr Stuart Pratt, who is with the industry trade association, the Consumer Data Industry Association, testified that all was well with the system, except that there are too many class actions against his member companies.

Ms Chi Chi Wu, an attorney with the National Consumer Law Center, testified that the credit reporting system is neither fair nor completely accurate and as a result tens of millions of consumer suffer from poor credit histories and law credit scores that result from unfair practices, inaccuracies and fundamental flaws in the system. Ms Wu said the main problems with the system are as follows:

  • Medical debts credit negative marks on the credit reports of millions of Americans, even when the debts are the result of insurance disputes or billing errors by providers or is debt that is ultimately settled or paid off.
  • The use of credit reports by about half of employers. Credit reports create a fundamental “Catch 22” for job seekers. A loss of job may lead to unpaid debts that are reporting to the credit bureaus. The unemployed person then can’t get a job because of the reported debts. There is no evidence that credit history can predict job performance. Credit reports were never designed to be a basis for employment decisions. Use of credit reports especially discriminates against persons in low wage jobs and against African American and Latino job applicants. Congress should ban use of credit reports for employment purposes with limited exceptions.
  • Credit reports are plagued with inaccuracies. The FTC found that 21% of consumer had verified errors in their credit reports, 13% had errors that affected their credit scores, and 5% had errors serious enough to be denied credit altogether or would have to be higher interest rates.
  • The nationwide consumer reporting agencies, Experian, Equifax and Trans Union are in gross violation of the FCRA’s requirement to conduct reasonable investigations when consumers send them notices of disputes. Instead of hiring trained personnel to conduct real investigations, the CRAs do nothing more than ask the creditor that reported the inaccurate item in the first place if the report is accurate. If the creditor verifies the item as accurate, the CRA tells the consumers the report is accurate and refuses to make any changes.

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