After 100 years, the credit-reporting industry is leaving the shadows and moving into more direct dealings with consumers.
Up to now, these encounters have not been happy.
As Americans come face to face with a $3 billion-a-year business that can influence their ability to get a loan, land a job and buy insurance, they’re confronting an industry that long considered consumers commodities and financial institutions its paying customers.
The result is an uneasy, changing relationship that experts predict will result in continued consumer aggravation and calls for more government regulation.
Led by the Big Three credit bureaus – Experian, Equifax and TransUnion – the industry positions itself as a consumer-friendly service provider that lets lenders offer easy, equitable credit.
“We’re the foundation in many ways of the American economy, for the achievement of the American dream,” said Colleen Tunney, Trans Union spokeswoman. “Without a credit report, you don’t drive off in a matter of minutes with your new car.”
In treating consumers as a set of numbers, the bureaus also discourage discrimination.
“Prior to the automation of credit bureaus, it was necessary to have that face-to-face relationship” with a lender, said Jeff Davis, director of business development at Consumer Credit Counseling Service of Fort Worth, Texas. “It was tough to get loans unless you were a white male.”
The trade-off is that every American is subject to an industry that collects all the data it can on you, sells that data to almost anyone, would prefer to charge you to see it, and can be slow to correct mistakes.
Elizabeth Warren, an author and Harvard University professor, sums up credit bureaus’ relationship with consumers this way: “I have no doubt that they’re customer-friendly. They’re just not friendly to you and me.”
How the industry resolves that friction could determine how successful it will be in expanding its direct-to-consumer sales and minimizing future government regulation.
Born as collections of merchants sharing information about deadbeats, credit-reporting companies now sell data for nonfinancial purposes such as weeding out job candidates and setting insurance rates.
“Credit reports are now being used as indicators of character and of fitness for jobs, for insurance, and for other nonfinancial dealings,” Warren said. “No one’s sure whether any of those inferences are right. Many employers simply won’t hire people who have bad credit records.”
After decades of treating consumers as mere vessels of information, in recent years the Big Three began to see them as a potential profit source. Attention increased on the importance of credit scores and the threat of identity theft.
The big bureaus offer several levels of credit monitoring on their websites.
The 2003 Fair and Accurate Credit Transactions Act legislated more direct interaction with consumers.
The law requires each of the Big Three to provide every American with a free credit report at least once a year so consumers can check their information for accuracy and signs of identity theft.
That program went into effect for many on June 1. Tens of thousands of Americans have gotten their free credit reports at www.annualcreditreport.com since the program was rolled out on the West Coast on Dec. 1.
It also gives bureaus a chance to offer their retail credit products to consumers at the same time, something consumer advocates were concerned about.
But an interesting thing happened a few days before the staggered west-to-east rollout began: Experian beat TransUnion and Equifax to the punch in November, offering a free credit report to every American for the month of December.
Experian wanted to be the first to offer its other products for sale.
The break in ranks signaled a big change: The major credit bureaus are now aggressively competing for consumers’ attention.
But the industry is carrying a lot of baggage into this budding relationship. Its reputation for serving consumers is not good.
Maxine Sweet, vice president of public affairs for Experian, pegs the origins of the industry’s bad reputation to the deregulation of the banking industry in the 1980s and the subsequent credit explosion.
In 2000, Equifax, TransUnion and Experian agreed to pay a total of $2.5 million to settle allegations by the Federal Trade Commission that they violated the Fair Credit Reporting Act by failing to maintain adequate staffing for their toll-free telephone numbers.
The agency said the companies “blocked millions of calls from consumers who wanted to discuss the contents and possible errors in their credit reports and kept some of those consumers on hold for unreasonably long periods of time.”
In 2003, the issue resurfaced when Equifax agreed to pay $250,000 to settle FTC allegations that its blocked-call rate and hold times violated the 2000 consent decree.
Since then, the credit bureaus have done much better, FTC officials said.
Much of the reason for the improved customer service can be attributed to the bureaus’ seeing the profit potential in consumers.
Others say service improvements came about only because the government mandated them.
Q&A
Q: What is a credit score?
A: It’s a complex mathematical model that evaluates many types of information in a credit file. Generally, the higher the score, the less risk the person represents.
Q: How can I get my credit score?
A: You can purchase a credit score from one of the nationwide reporting companies – Equifax, Experian and Trans Union. You can also purchase a score when you request a free annual credit report – required under federal law – through annualcreditreport.com.
Q: Am I entitled to a free credit report under state law?
A: If you live in Colorado or one of six other states, yes.
Source: www.annualcreditreport.com
Bureau timeline
1803: First known credit bureau is formed by a group of London tailors who compile information on customers who don’t pay bills.
1869: First U.S. credit bureau is formed in Brooklyn, N.Y.
1906: National Association of Retail Credit Agencies is formed.
1969: Chicago-based TransUnion joins the industry by acquiring Credit Bureau of Cook County.
1970: Fair Credit Reporting Act is passed.
1971: Retail Credit Co. trades on the New York Stock Exchange, later changing name to Equifax.
1982: The Garn-St. Germain Act allows savings banks to issue credit cards.
1989: Dallas-based Chilton Corp. Credit Bureau is acquired by TRW Information Systems & Services, which later changes name to Experian.
1999: Gramm-Leach-Bliley Act further deregulates the financial industry.
2003: Fair and Accurate Credit Transactions Act is passed.
2005: Credit bureaus are a $3 billion-a-year business.
Source: Consumer Data Industry Association
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