Nearly 200 people complained to the Federal Trade Commission because a credit bureau claimed they were dead on their credit report, a 2012 study by the Columbus Dispatch recently found. Correcting a credit report should be easy: Make a phone call, submit a document and all clear. But a bureaucratic runaround is more typical. If Congress won't act, the Consumer Financial Protection Bureau and Federal Trade Commission should give consumers new legal rights when arguing over factual errors in credit reports.
An individual's credit score is determined by some mysterious formula that takes consumers' financial data as reported by lenders and crunches it to, viola, determine one's creditworthiness. These numbers have a huge impact on people's ability to conduct the business of daily life. Credit scores often dictate mortgage interest terms, access to credit cards and whether someone can borrow money to start a business. Employers will look up credit scores of potential employees. Landlords will do so on potential renters. This is the reason that the three largest credit bureaus have so much power.
With billions of pieces of information flowing into millions of credit files every month, errors are bound to occur. This year, the FTC reported that nearly 20 percent of consumers had a mistake in at least one of their credit reports. The investigation by the Columbus Dispatch found that 1,500 of 30,000 complaints to the FTC involved a credit report that mixed in someone else's information. For almost a third of those, the credit bureaus refused to correct the mistakes.
Consumers are left without the legal tools to force corrections. Federal law says that credit bureaus must conduct "reasonable investigations" when disputes arise. That vague language has allowed the companies to do very little to get at the truth. Credit bureaus have a financial incentive to take a lender's word at face value since they rely heavily on lenders to submit information on consumers and buy their products. Meanwhile, consumers have no power to prevent their financial information from being reported to the credit bureaus.
Congress should update the law to give consumers the power to demand accuracy in their credit reports. But given how difficult it is to get anything done in Congress, the job in the short run falls to the consumer protection bureau and the FTC. These government regulators could add teeth to current law by imposing higher standards for putting information into credit files in the first place. If matching Social Security numbers were required there would be less mixing of strangers' data. Also, a stronger definition for what constitutes a reasonable investigation should include steps beyond taking a lender's word for it.
No one should have to spend months or years proving that he is alive to a credit bureau so he can obtain credit. Current laws and rules have not done enough to give consumers power over their own information.