WASHINGTON — Atlanta entrepreneur Mike Mondelli has access to more than a billion records detailing consumers' personal finances — and there is little they can do about it.
The information collected by his company, L2C, comes from thousands of everyday transactions that many people do not realize are being tracked, such as auto warranties, cell phone bills and magazine subscriptions. It includes purchases of prepaid cards and visits to payday lenders and rent-to-own furniture stores. It knows whether your checks have cleared and scours public records for your name.
Pulled together, the data follow the life of your wallet far beyond what exists in the country's three main credit bureaus. Mondelli sells that information for profit to lenders, landlords and even health care providers trying to solve one of the most fundamental questions of personal finance: Who is worthy of credit?
The answer increasingly lies in the "fourth bureau" — companies such as L2C that deal in personal data once deemed unreliable. Although these dossiers cover consumers in all walks of life, they carry particular weight for the estimated 30 million people who live on the margins of the banking system. Yet almost no one realizes these files exist until something goes wrong.
Federal regulations do not always require companies to disclose when they share your financial history or with whom, and there is no way to opt out when they do. No standard exists for what types of data should be included in the fourth bureau or how it should be used. No one is even tracking the accuracy of these reports. That has created a virtually impenetrable system in which consumers, particularly the most vulnerable, have little insight into the forces shaping their financial futures.
Arkansas resident Catherine Taylor didn't learn about the fourth bureau until she was denied a job at her local Red Cross several years ago. Her rejection letter came with a copy of her file at a firm called ChoicePoint that detailed criminal charges for the intent to sell and manufacture methamphetamines. The information was incorrect — she says the charges were for another woman with the same name and birth date — but it has haunted her ever since.
Taylor said she has identified at least 10 companies selling reports with the inaccurate personal and financial information, wrecking her credit history so badly she can't even qualify to buy a dishwasher at Lowe's.
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A credit score is like a financial driver's license. It serves not only as proof of identity and a certain competency behind the wheel, but also as a passport to a world beyond your doorstep. A home, a car, a college education — all are financed by lenders who use the score to decide who gets credit and how much they pay for it.
For most consumers, those scores are based on records of loans they have taken out in the past and how well they have paid them off. Information on credit cards, auto notes and mortgages are all housed in the Big Three national credit bureaus — Experian, Equifax and TransUnion.
Government regulators, financial firms and consumer advocates have launched extensive education campaigns in recent years to make sure that consumers understand what goes into their Big Three credit reports and how that affects the cost of a loan.
But little attention has been paid to the firms that target consumers outside the mainstream financial system. Often they are students, immigrants or low-income consumers who do not qualify for traditional loans or choose not to use them. Instead, they rely on a makeshift system of payday lenders, check cashers and prepaid cards — none of which show up in the Big Three. Without a paper trail, these consumers are virtually shut out of the traditional banking system.
Mondelli recognized this problem a decade ago during the telecommunications boom. Cell phone companies wanted to tap into this market but had no way to figure out who was risky and who was worth signing up.
"Credit bureau data alone is valuable but not the complete picture," he said.
LexisNexis, whose parent company bought ChoicePoint three years ago, handles background checks, tax assessments and criminal histories. Bounced checks can be tracked through Chex Systems, TeleCheck or SCAN. Payday lenders report to a company called Teletrack. Alliant Data compiles information on so-called "installment payments," industry jargon for recurring monthly fees such as gym memberships.
The National Communications, Telecom and Utilities Exchange collects account information for 63 of that industry's largest firms — although the group's director won't specify which ones.
These dossiers go into what the industry calls a "black box" — a veil of secrecy surrounding the origins of the information, how it is analyzed and who buys it. Consumers have no voice in those decisions.
Out of the black box comes a credit score that can be sold not only to lenders, but also colleges making tuition decisions, landlords choosing tenants or health care providers determining financial aid. Consumers cannot dispute the result.
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The Fair Credit Reporting Act, a law that aims to protect the personal information used to influence credit scores, requires the Big Three to give consumers a free copy of their report annually.
But the fourth bureau can charge consumers as much as $11 to access their own records.
The Big Three also must maintain a toll-free phone number and a website, annualcreditreport.com, to handle consumer requests. But firms that collect information on rental history, check writing, medical history, employment or insurance claims need only to create a "streamlined" system for consumer requests, although the law does not define what that is.
There is no registry of fourth-bureau companies, which makes tracking down all the firms that track you nearly impossible.
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Estimates for the number of files in the Big Three that contain errors have ranged from 1 percent to 25 percent, depending on the study. But no significant analysis has been done on fourth-bureau data.
Catherine Taylor said the errors in her files have persisted despite several attempts to correct them. Another woman with a similar name would miss a payment or commit a crime, and Taylor said she would suffer for it. When she tried to volunteer with her daughter's Girl Scout troop, she was rejected because a background check turned up a woman named Cathy Taylor charged with indecent exposure before minors.
LexisNexis did not respond to questions on Taylor's case.