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Credit bureaus willing to tolerate errors, experts say

Julie Miller sent more than 13 letters to Equifax to try and wipe errors from her credit report.

Steve Dykes for The New York Times

Julie Miller sent more than 13 letters to Equifax to try and wipe errors from her credit report.

Even after sending more than 13 letters to Equifax overtwo years, Julie Miller could not get the big credit bureau to remove a host of errors it inserted into her credit report.

That indifference should surprise no one who has ever tried to deal with any of the three big credit reporting agencies, Equifax, TransUnion, and Experian. “You feel trapped, like you are in a box,” said Miller, a 57-year-old nurse who works in a dermatologist’s office. “You have no control over this, and you can’t call them up and say, ‘You’re fired.’”

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So she tried suing. That worked. A jury in US District Court in Portland, Ore., last week awarded her a whopping $18.4 million in punitive damages, which, according to consumer lawyers, is the largest individual case on record.

If you think this has taught Equifax and the other credit reporting companies a lesson, you are a lot more optimistic than close observers of the industry. They say that despite the huge judgment, little is going to change for the millions of Americans who discover errors in their credit reports.

The credit bureaus are willing to tolerate these errors — and settle with consumers out of court — as a cost of doing business, according to credit experts and lawyers who work on these cases.

“Their business model is to keep doing the same thing over and over again,” said Justin Baxter, the lead lawyer on Miller’s case. “They can buy off a number of consumers with small dollar amounts and get rid of the vast majority of cases. To Equifax, that’s the cost of doing business.”

Miller made every effort to fix her report, exactly as consumers are advised to do. She initiated the company’s dispute process about seven times, and in most instances, Equifax would spit back a form letter saying it needed more proof of her identity. So she sent her pay stub and her phone bill. When that didn’t work, she sent her pay stub and her driver’s license. And when that failed, she sent her W-2 form and an insurance bill — at least three times.

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But nothing ever changed: Miller, a model financial citizen who once had the credit score to prove it, had become mixed up with another, much less creditworthy Julie Miller. After she was denied a line of credit from KeyBank, she discovered 38 collection accounts on her credit report, none of which belonged to her, along with an inaccurate Social Security number and birth date. Her financial life was no longer her own.

Mixed files, as they are known in the credit industry, most frequently involve people who share common names with individuals who have similar Social Security numbers, birth dates, or addresses. But these errors are notorious for being among the most difficult to fix, credit experts said, and require human intervention to untangle the mess. But given the huge number of disputes, the process to address them is largely automated. And that is the excuse the industry advances to consumers who get stuck in its web.

The bureaus often outsource thousands of disputes daily to workers overseas. Those workers, often overwhelmed by the sheer volume of cases, are largely told to translate the problem into a two- or three-digit code that defines the gist of the problem (account not his/hers, for instance) and feed it into a computer.

But that process won’t untangle a mixed credit report. The reason files become mixed to begin with can be traced back to the computer formula the bureaus use to match credit data to a specific person’s credit report. It allows credit data, say a late payment on a credit card, to be inserted into a person’s file even if the identifying information isn’t an exact match.

Partial matches aren’t always wrong, of course. Solid estimates on the number of mixed files are hard to find, though a 2004 study from the Federal Trade Commission said partial matches occurred in about 1 to 2 percent of credit files, citing data from the bureaus. That might not sound like much, but when you consider that there are 200 million individuals with credit files at each of the big three bureaus, that translates to 2 million to 4 million consumers.

Other estimates put the number of actual mixed files at less than 0.2 percent to nearly 5 percent. The FTC’s report said mixed files were not always harmful to consumers because most credit account information was positive. To that I say: Consumers with mixed files are supposed to take comfort in the fact that their credit report doppelgangers, on the whole, are likely to pay their bills?

There is a reason the bureaus operate this way. They would rather err on the side of including too much information in your credit report than leave information out, according to consumer lawyers and advocates.

“The bureaus would rather accept the possibility of some mixed-file risk rather than the possibility that a debtor who owes a debt gets away with it,” said Leonard Bennett, a consumer lawyer in Newport News, Va., who said he received 20 to 40 mixed-file cases a month.

The dispute process is supposed to catch the people who fall through the cracks. But as people like Miller can attest, it doesn’t always work. The Fair Credit Reporting Act, the law that governs the big bureaus, requires the agencies to provide a reasonable investigation. Miller’s lawyer said their litigation revealed that there was no investigation at all. (It’s worth noting that Miller had problematic credit reports at the other two bureaus, but those agencies resolved the matter.)

“They testified that they get something like 10,000 disputes a day, so they don’t have the time to look at each one,” Baxter said. “Whether it is because the person has too many disputes to process or they choose not to, that is where the system falls apart.”

What else could she have possibly done? I asked the credit bureaus for advice. Equifax declined to comment, and would only say that it was “very disappointed in the jury verdict” and was exploring its options, including an appeal. The other two agencies didn’t offer much guidance either, though TransUnion pointed out that the credit reporting industry resolved 70 percent of consumer disputes within 14 days.

It’s more likely, though, that the Consumer Financial Protection Bureau, which began overseeing the large credit bureaus in September, will have more impact. It has broad authority to perform on-site examinations, check records, and examine how disputes are handled. Consumer advocates have long suggested that the credit agencies tighten up the way they match up data with consumers reports and strengthen the dispute process.

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