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Consumers suing to correct bad credit reports

Taking on credit bureausSome lawyers are proving that you can fight inaccurate reporting by the credit industry.

Few businesses arouse as much resentment as credit bureaus and the creditors who furnish information to them -- especially when they get something wrong.

If they make errors, chances are that a creditor -- such as a bank, mortgage company, credit-card company or department store -- furnished inaccurate information to a credit bureau.

Credit bureaus won't help you much under those circumstances. They'll continue to report what creditors tell them. It's up to you to work things out with the bank, mortgage company, credit-card company or department store that messed up your credit record in the first place.

You can have statements attached to your file disputing the information, but it still will turn up on your credit report. But that was pretty much assumed to be as far as a wronged consumer could go.

The Fair Credit Reporting Act, which governs credit reporting, says that only a state's attorney general can sue a creditor for furnishing inaccurate information. But if the creditor doesn't fix the inaccuracy permanently and in a reasonable time, you can sue, even though the Fair Credit Reporting Act doesn't explicitly give you that option.

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Going to the courthouse
The preferred way to go about it, says Clarksdale, Miss., trial lawyer Michael Lewis, is to sue for defamation. He should know. In 1998 Lewis won a $4.5 million verdict against the credit bureau TransUnion for a client who had been a victim of identity fraud and had been unable to clear his name. The case is under review by the U.S. Fifth Circuit Court of Appeals.

The recourse you have

What if you get "stuck in the computer" and no one will get you out? If months of repeated letters and phone calls don't resolve the problem, lawyer Michael Lewis advises you to do the following:

  • Notify the furnisher of the information in writing, preferably by certified mail. Avoid the phone -- they'll say they never heard of you." The furnisher has a duty to correct mistakes within 30 days.
  • You can request the credit bureau to include a brief (up to 100-word) explanation of your side of the story. But if a creditor "investigates" and reaffirms the inaccurate information, it will continue to be reported.
  • If the creditor continues providing incorrect information, sue for defamation.
  • If it is a case of identity fraud, also sue for "negligent enablement of identity fraud." Courts are beginning to recognize that term.
  • Suing isn't for everyone. The out-of-pocket expenses can be enormous without a guarantee of victory. Don't consider filing a lawsuit until you have made a good-faith effort for several months to clear up credit-reporting errors.

For residents of most states, suing a creditor under the Fair Credit Reporting Act for reporting false information is difficult or impossible (the congressional delegations for California and Massachusetts were able to push through exceptions for those states). Lewis and other critics of the Fair Credit Reporting Act say the law was amended in 1996 to appease the credit industry.

"The credit bureaus, in fact, have got their version of the Fair Credit Reporting Act passed that takes a bite out of the buttocks of the consumer," Lewis says.

Adds Ed Mierzwinski, consumer program director for the Public Interest Research Group: "Congress ignored strong evidence that banks and department stores are responsible for some credit bureau errors when it limited a consumer's right to sue creditors for errors in their credit reports."

But the Fair Credit Reporting Act doesn't prevent consumers from circumventing that law and suing for defamation or even something called "negligent enablement of identity fraud."

A crusade born out of frustration
Recently joining the ranks of legal combatants are Denise and Robert Richardson of Greenfield, Mass. In a lawsuit, they say Fleet Bank repeatedly told credit bureaus that the Richardsons had not paid their mortgage. In fact, the Richardsons contend, a bank had discharged the balance of the mortgage, roughly $20,000, to settle an earlier lawsuit and agreed to mark the account "paid as agreed."

Denise Richardson says that she and her husband were irritated when reports of the phantom default made it difficult to get credit cards and co-sign their children's car loans. Then a collection agency demanded payment of $21,832.12 to satisfy the nonexistent debt.

For 3 years, the Richardsons and their attorneys wrote at least 10 letters and made at least 13 phone calls to clear up mistakes. It was like getting on Santa Claus' "naughty" list and never getting off of it.

After being told that their only recourse was persuading the Massachusetts attorney general to file a lawsuit, the Richardsons found a pair of attorneys who argued that they could sue not only for defamation but for violations of the FCRA.

Their attorneys, Lawrence J. Farber and Allan Cook, pointed out that the FCRA allows Massachusetts residents to sue creditors under some circumstances. They were aware of groundbreaking federal lawsuits in Texas and Mississippi, in which consumers successfully sued credit bureaus that didn't clean up the records of innocent consumers who had been victims of identity theft. They believed that they could adapt some of the legal arguments used in those cases.

The Richardsons sued Fleet Bank, the big three credit bureaus (Equifax, Experian and Trans Union) and Portfolio Recovery Associates, the collection agency. The Richardsons' lawsuit in federal district court seeks at least $25,000 in damages from Fleet, unspecified actual and punitive damages from Fleet and the other defendants, and attorney's fees and court costs.

Attorneys and representatives for most of the defendants declined to comment on pending litigation. Megyn Kelly, attorney for Experian, called the Richardsons' accusations "absolutely false. This lawsuit has absolutely no merit and we expect it to be dismissed."

New role as consumer advocate
Such talk doesn't deter Denise Richardson, who has transformed herself into a consumer advocate who fields hundreds of e-mails from victims of inaccurate credit reporting and has lobbied members of Congress.

"Someone said I've turned into a crusader, but it was born out of frustration," she says.

What really frustrates her, she says, is that the bank, the credit bureaus and the collection agency have not explained how inaccurate information continued to be disseminated.

"I was told that it was unfortunate, unique, unintended," she says. "They didn't use the word mistake. Error -- that's the word they used. They minimized it. And it's not unique. How can it be unique when I'm sitting here with hundreds of letters from consumers?"

How credit bureaus investigate
When a creditor reports a problem to a bureau, the consumer challenges it and the bureau asks for a clarification, two things can happen, the credit bureaus say. First, the creditor can correct the information. Second, it can come back and say the information has been confirmed.

"The next recourse to the consumer is to deal with the credit grantor to arrive at a solution," says Anissa Yates, Experian's manager of corporate communications, speaking generally and not about the Richardson case.

The Richardsons say they tried to get Fleet Bank to set the record straight permanently, but had no luck. The credit bureaus didn't help.

"With these big corporations, you write to them and I can't tell you how many times I got reinvestigation forms back, saying they are reinvestigating my dispute, and the bank verified it as accurate," Denise Richardson says.

Allan Cook, an attorney for the Richardsons, says, "The source of the problem has been Fleet. They should not have been reporting the information."

An attorney for Fleet declined to comment. A spokesman for Fleet did not return phone calls.

Blame the computer?
Cook thinks Fleet will say that the inaccurate reporting was an oversight, a software glitch, "and from our perspective, it's irrelevant. It's not our problem. They have a duty not to report inaccurate information. I can't believe they could not find this information somewhere in their database system and not delete it permanently."

He says a credit bureau's typical investigation "consists of calling the creditor and saying, 'Is this a legitimate debt?' and they say, 'Yeah, it says it is here.' " Once the credit bureau has done this, it replies to the consumer that it has verified the information as accurate.

Generally, that's the way it's done, acknowledge representatives of the big three credit bureaus. That's why they tell you to deal directly with creditors when you're trying to resolve inaccuracies. While you're trying to clear up inaccurate information provided by a creditor, you can tell the credit bureau to provide a brief explanation of your side of the story and include it in the credit file. Explanations are limited to 100 words.

Equifax Inc. spokesman Dave Mooney says the credit reporting giant has a quality-control program that compares data provided by creditors with the previous month's data. If they're out of whack -- say, for example, June's default rate was 15 percent and July's was 23 percent -- "bingo, that's a red flag," Mooney says, and the creditor will be asked to check the information.

The credit bureaus won't venture forth to check public documents such as court judgments and county property records, but they will accept copies of supporting documentation from consumers. In rare cases they might even repair a consumer's credit record based on such documents, "but a month later we'll get the same old information from the credit grantor again," Mooney says.

A "shadow world" ripe for a fall
It's that kind of attitude toward the consumer that makes Lewis call the credit-reporting industry "a shadow world that is almost beyond the reach of the law and is certainly above and beyond the reach of the consumer."

And Lewis, who dreamed up the legal strategy that brought the tobacco companies to the negotiating table, has a plan to set up the credit industry for a fall.

If someone assumes your identity to obtain credit fraudulently, send certified letters to the credit bureaus demanding a personal identification number to be used whenever someone applies for credit in your name, Lewis advises. If the applicant doesn't know your PIN, the applicant doesn't get credit.

The credit bureaus won't give you a PIN. All three will add a fraud alert to the credit report "so when someone applies for credit, the credit grantor will see the statement and they'll know to be careful about granting credit," says Christine Hill, spokeswoman for TransUnion.

A PIN, says Yates of Experian, would be unnecessary, "just one more piece of identifying information," along with the name, address, Social Security number and maybe place of employment.

Lewis bets that there's a jury out there that would not buy that argument. He thinks that if someone asks for a PIN from the credit bureaus, then continues to get bad credit reports because of an impostor's fraud, a jury will throw the book at the credit bureaus.

The credit bureaus don't want to change their methods because they don't want to upset their clients who extend credit, he says.

"All the creditors around the country seem to operate their credit application process in the same slipshod way," he says. "It's not by accident. They don't want to do anything to impede the customer's impulsiveness."

-- Posted: Aug. 20, 1999

 



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