US citizens continue to hire credit repair companies to fix their inaccurate credit reports. A consumer's credit reports have a huge impact on their overall financial well being. The credit scores calculated from the information contained on credit reports help to determine if an individual can qualify for a mortgage or loan, and if so, what that borrowed money will cost them.
The amount of interest charged on borrowed money is greatly influenced by the borrower's credit score. This is why it is so important for consumers to obtain copies of their credit reports annually. More and more Americans are now aware that the information being gathered about them - the information contained on their credit reports - may not be accurate. Even the vaugest statistics demonstrate that credit reporting errors happen far too often.
The National Consumer Law Center website states: "The credit reporting industry is big business: over 150 million Americans have credit files that are maintained by the major reporting agencies, and the largest three agencies generate more than one billion credit reports each year. Yet millions of these files contain outdated information and errors that can affect a consumer's access to home mortgages, car loans and other forms of consumer credit, housing, employment, and even insurance".(1)
Credit Reporting Agencies, called CRAs, are the businesses responsible for collecting and maintaining the information contained on American's credit reports. The CRAs are not government entities. They are huge, multinational corporations that make a profit every time a bank, landlord, employer, lender, or anyone else requests a copy of a consumer's credit report.
The U.S. Government Accountability Office (GAO) was called on in 2003 to determine the extent of credit reporting errors and found that: "Information on the frequency, type, and cause of credit report errors is limited to the point that a comprehensive assessment of overall credit report accuracy using currently available information is not possible". (2)
The situation remains largely unchanged today and some Americans are paying a huge price as a result. As Consumer Reports stated in a September 2009 article titled Big Brother is Watching: "Whether the data are accurate or not, misinterpretations can lead to higher costs for credit and insurance, or the denial of a job. They can also prevent you from renting an apartment or opening a checking account, and even from returning unwanted merchandise to stores".(3)
The problems inherent in the CRA's gathering of accurate financial information is partially due to the rules, or lack thereof, that govern those 'furnishers' of information, including banks, credit card companies, state and local governments, and so on.
The National Consumer Law Center, along with the Consumer Federation of America and other advocacy groups, addressed the Federal Trade Commission (FTC) and others in 2008 and pointed out: "There is no benefit to consumers from "voluntary" furnishing that is inaccurate, incomplete, unsubstantiated, or stale".(4)
Consumer groups argue that inaccuracies can be identified on over 25% of credit reports. Advocates for the CRAs and 'furnishers' of credit information believe the number is closer to 3%. Three percent of Americans translates to millions of Americans falling victim to the consequences of inaccurate credit reporting. These unlucky Americans pay more for everything through no fault of their own.
What is Credit Repair?
Credit repair is about the process of correcting inaccurate and outdated information on credit reports. Whether these credit repair efforts are taken on by individuals themselves or legal credit repair companies, the goal is the same - to identify and fix the errors and misinformation contained on their credit reports that is being sold by the CRAs, at a profit, to their potential lenders.
Individuals can repair their credit reports themselves. This involves complicated procedures and in-depth knowledge of the complicated laws that exist to "protect" consumers. These laws include the Fair Credit Reporting Act (FCRA), along with the Fair and Accurate Credit Transactions Act 2003 (FACT). Many Americans choose to hire credit repair services to fight for their good name and financial reputation. This is why there is now an entire industry devoted to credit repair services. The credit dispute process is fundamentally flawed.
Under FCRA rules, consumers must contact the CRAs to dispute information. The CRAs are obliged to contact the creditors with a notice to investigate the complaint, after which the creditors must respond back to the CRAs. This procedure is totally absurd.
As Chi Chi Wu, a lawyer with the The National Consumer Law Center pointed out in her testimony before the U.S. House Committee on Financial Services in June 2007: "Traditional competitive market forces therefore provide little incentive for CRAs to incur the costs to institute new procedures that ensure information is accurate or to undertake investigations to correct errors, since these activities primarily benefit consumers". (5) The CRAs work for, and make their profits from, creditors - not consumers.
The process itself is not only blatantly stacked against the consumer, but it's also very complicated. As reported by the New York Times, a representative for the Consumer Data Industry Association stated that 'consumers were partly to blame for the lack of detail about their discrepancies....55 to 60 percent of consumer disputes contained no supporting documentation....and most consumers who supply documentation include only standardized forms offered on a credit bureau's web site, rather than extensive documentation of their own'. The representative further stated: "Most consumers don't want to work too hard to have it taken care of".(6)
The bottom line is this. It's up to the consumer to spend huge resources of time and money to correct the errors that CRAs make. Until they do, those CRAs make huge profits from that very misinformation. This is such an outrage to consumer protection, rights and privacy that it's almost too hard to believe. Believe it. It's a fact.
Legitimate credit repair companies and professionals understand this fact very well. Legal credit repair services make no attempt to remove accurate, up to date information from a consumer's credit reports. They can't succeed at this because it's against the law to remove accurate information from any American's credit reports.
They don't need to. They have a huge, as yet barely tapped client base of unlucky Americans who have fallen victim to special interest groups and multinational corporations making money off their bad luck. They are the victims of politicians and government regulations that do not act to protect them. As these same politicians, government entities, and multinational corporations warn consumers not to fall victim to credit repair scams, perhaps it's incumbent on them to acknowledge that legal credit repair services do exist and their the very existence of the credit repair industry is the result of a fundamental lack of consumer protection for Americans.
(1) National Consumer Law Center website (consumerlaw.org)
(2) U.S. Government Accountability Office, Consumer Credit: Limited Information Exists on Extent of Credit Report Errors and Their Implications for Consumers, GAO-03-1036T July 31, 2003
(3) Consumerreports.org, Big Brother is Watching, September, 2009
(4) Comments on Notice of Proposed Rulemaking Pursuant to Section 312 of the Fair and Accurate Credit Transactions Act, August 2009, comment #543141-00006
(5) Testimony before the U.S. House Committee on Financial Services, Credit Reports: Consumers' Ability to Dispute and Change Inaccurate Information, Wu Chi Chi, June 2007
(6) New York Times, Faulting Credit Firms on Fixing Errors (February 8, 2009, p RE6)
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