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Beware the Credit Reports You’ve Never Heard Of?

November 30, 2012 Leave a comment

Bloomberg Businessweek has an article up today about how you should Beware the Credit Reports You’ve Never Heard Of.  What are those reports?  Essentially, reports from an consumer reporting agency other than the “big three” credit reporters: Experian, Equifax, and Trans Union.

I write to make just one point about the article.  Its author, Karen Weise, cites Persis Yu of the National Consumer Law Center for the proposition that criminal background reports are “riddled with errors.”  You see claims like this a lot, and they almost always turn out to be unsupported.  That’s the case here.  Let me explain:

First, the National Consumer Law Center is, per its own website, an advocacy organization:  it advocates for consumers and against businesses.  That’s fine; I’m an advocate too, and I respect advocacy.  But it’s important to note – which Ms. Weise never does – that the NCLC is biased against the consumer reporting industry.  It’s not a neutral observer.  It wants the government and consumers to hold the industry’s feet to the fire.  So it’s not a neutral source for whether or not criminal background reports are “riddled with errors.”

Second, Persis Yu’s report never claims that criminal background reports are “riddled with errors.”  To make a claim like that, you would have to look at 10, 100, or 1000 criminal background reports, compare them to the actual criminal records of the persons in question, and then determine which of the reports had errors.  It would probably help to obtain some reports from a wide variety of report providers.  If a certain percentage of all of these reports had errors – and I don’t claim to know what that percentage would be, but I think it would have to be high – you might be able to say that these reports generally are “riddled with errors.”

Ms. Yu doesn’t do anything like this in her report.  Instead, she identifies a few mistakes that a criminal background reporter might make in the course of creating a report, and then points to at least one example of a reporter that made such a mistake.  She then says that reporters “routinely make mistakes” because “[a]dvocates from across the country report that they repeatedly see reports” that contain them.  But she doesn’t say who the advocates are, or how many reports they saw, or how many mistakes each caught.  If a hypothetical advocate sees 100 hypothetical reports and sees the same mistake three times, then I suppose that advocate has “repeatedly seen reports” that made a mistake.  But I don’t think we would conclude that the reports were “riddled with errors”:  only 3% of them contained mistakes.

I don’t fault Ms. Weise or Ms. Yu for bringing the some issues in the criminal background reporting industry to the world’s attention.  But I don’t think it’s fair to say that we need to “beware” these reports or to assume that they are “riddled with errors.”  I’m not aware of any comprehensive study, done by a neutral organization, which has tried to figure out how common or uncommon errors in criminal background reports might be.  To the extent that Ms. Weise suggests that Ms. Yu’s report is such a study, I think she’s mistaken.

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Thanksgiving Holiday

November 23, 2012 Leave a comment

I’m taking this week off.  See you next week.

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FCRA is constitutional

November 9, 2012 Leave a comment

As someone who defends consumer reporting agencies for (some of) a living, I must confess that it had never even occurred to me to wonder whether the FCRA, which regulates the information that CRAs provide to businesses about consumers, is constitutional.  But another defense lawyer recently asked the question by arguing that the FCRA is unconstitutional:  the argument was that a CRA’s statements to its business clients are private commercial speech, and that governmental regulation of such private speech is subject to “strict scrutiny.”  As a result, the regulation will be found unconstitutional unless it is narrowly tailored and attempts to achieve a “compelling” government interest.

The Eastern District of Pennsylvania recently rejected this argument and found that the FCRA is in fact constitutional.  The court held that the kind of private speech at issue here gets “intermediate scrutiny,” not strict scrutiny, and that the FCRA meets the intermediate scrutiny test:  it directly advances a governmental interest without placing excessive restrictions on free speech.  The court found that the FCRA does both these things:  it balances the government’s interest in protecting consumer privacy while at the same time giving business a right to provide consumer reports to businesses.

It’s possible but unlikely that this ruling will get appealed.  For now, though, the FCRA appears to have survived its first-known (to me, anyway) constitutional challenge.

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CFPB now taking complaints about consumer reports

November 2, 2012 Leave a comment

The (relatively) new Consumer Financial Protection Bureau is a federal agency that has more or less taken over the administration of the Fair Credit Reporting Act from the Federal Trade Commission (FTC).  The CFPB is supposed to be a sort of consumer watchdog that keeps Joe and Jane Sixpack from being taken advantage of in the financial markets.

Consistent with both its mission and its transfer of power from the FTC, the CFPB is now offering consumers a free service:  it will accept consumer complaints and, for free, attempt to work with the consumer reporting agencies (CRAs) to resolve them.

Like many of the CFPB’s new undertakings, there are a lot of details to be fleshed out.  To give just one example, it appears that this service is NOT like the service that the EEOC provides in discrimination complaints.  A person who believes he or she has been discriminated against MUST go through the EEOC before filing a complaint in court.  But here, it looks like a consumer who is unhappy with a CRA can EITHER ask the CFPB for help OR just go ahead and sue the CRA.  This still raises the question of whether it behooves consumers to seek help from the CFPB first and only then file a suit in court.  If a consumer does that, does the fact that the CRA failed to respond to the CFPB help the consumer’s case?

As always, time will tell.  But it’s worth noting that the CFPB is open for business in this area.

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