해외자료 Credit Bureaus Battle Unfriendly Image, but Slowly Target Consumers_August 8, 2005 _The Dallas Morning News

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Credit Bureaus Battle Unfriendly Image, but Slowly Target Consumers

August 8, 2005

Pamela Yip

 

 

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, TransUnion 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."

Some employers and insurance companies insist there is a connection between a person's credit history and his or her worth as an employee or as customer.

But such an idea rubs many people the wrong way. The Texas Legislature passed a bill this year banning utilities from using credit scores to help set customers' bills.

How credit reporting moved into the realm of utility bills illustrates America's love-hate relationship with the industry. For years, consumer advocates argued that customers who paid their light bills on time demonstrated creditworthiness, even if they had no official credit history.

Eventually, lenders agreed. Last year, Fair Isaac Co., the California firm that developed the FICO credit score, began offering special credit scores based only on bill-paying history.

The result is more data being gathered and sold on consumers.

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 Web sites. Experian, for example, has Credit Manager, which provides unlimited viewing of your credit report, e-mail notification of changes to it, and tools and tips to optimize your credit history for $9.95 a month.

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 late November, offering a free credit report to every American for the month of December. Experian wanted to be the first to offer consumers 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.

"The customer service aspect didn't keep up with the great increase and the volume of activity," Sweet said. "Suddenly, consumers were finding they were getting turned down and they were having to write and request credit reports, and they were overwhelming the customer service of local credit bureaus."

The industry has since consolidated, said Norm Magnuson, spokesman for the Consumer Data Industry Association, which represents the Big Three.

"That was the market that existed 15 years ago," he said. "Now you've got larger entities in the credit reporting arena, and they don't have the wherewithal to provide customer service 24/7 to consumers who want to talk about their credit report."

Most consumers want to talk about why they were denied credit but don't understand that credit bureaus don't make lending decisions, Magnuson said.

However, the industry was required to answer calls from consumers who were disputing something on their credit report.

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.

"In the 800-numbers situation, there have been big improvements in their response times to consumers and just having live personnel available to consumers," said Sandra Farrington, an attorney at the FTC's Division of Financial Practices. She also said the free credit-report Web site, which the FTC monitors, is "going well" overall.

"It has been effective in providing consumers with their free report," Farrington said. "That is not to say there have not been from time to time some problems."

Ed Reece of Dallas discovered that when he tried in June to get his free credit report from www.annualcreditreport.com.

He and other consumers called The Dallas Morning News with the following complaints:

The credit bureaus are hawking their for-profit products alongside the federally mandated free credit reports.

The security arrangements on the Web site, meant to prevent identity thieves from stealing data, are clunky and often reject legitimate consumers' requests.

The free credit reports don't come with credit scores, which are key to the interest rate consumers are asked to pay on a loan. It usually costs $9.95 to learn your credit score.

After several troubling attempts to get his free credit report, Reece called the telephone number listed on annualcreditreport.com to talk to a representative but discovered it was an automated system designed to accept orders for credit reports.

"That drove me mad. I wanted to talk to somebody," he said. "No matter what number you tried, you always got an automated system."

Industry officials said they've come a long way in improving customer service.

"It's so much better, and so much effort has been paid to consumers that they don't really see how it's been done," Sweet said.

Officials cite credit-education programs established by the bureaus, more consumer-friendly formats for credit reports and more customer-service representatives available on the phone.

Much of the reason for the improved customer service can be attributed to the bureaus' seeing the profit potential in consumers. That is a recent development.

"During the 15 years I was involved, there was no doubt that the credit bureaus' customers were the creditors," said Davis, the consumer-credit executive who formerly worked at TransUnion. "They didn't want to consider the consumer as a customer because they were viewed as an expense. ... Every time there was a consumer who knocked on the door, we weren't getting any money from them."

Others say service improvements came about only because the government mandated them.

"The credit-reporting agencies have become more open to the public because federal regulation has forced it on them," said Warren, the Harvard law professor. "They have not done this voluntarily."

In a recent speech, Equifax chief executive Thomas F. Chapman reflected the industry's reluctance to give free credit reports under the 2003 FACT Act. Federal law already required credit bureaus to give free reports to those denied credit, the indigent, job seekers and anyone who suspected fraud.

Chapman said that although he understood Congress' latest intent to give consumers stronger tools to fight identity theft, he attacked the way it morphed "into legislation requiring my industry to give away its product, the credit report, every year forever."

"Now that's a new definition of the `free' enterprise system," Chapman said.

In the eyes of consumer advocates, the credit-reporting companies still aren't doing enough.

"The bureaus are like old dogs," said Ed Mierzwinski, consumer program director at U.S. Public Interest Research Group in Washington, a consumer advocacy group. "They have the same old tired tricks and cannot learn new customer service."

Mierzwinski said credit reports, scores and monitoring services should be free to consumers, with the cost borne by lenders.

"It's our personal information, and credit bureaus have a history of selling it into commerce full of mistakes," Mierzwinski said. "I'd like to see them have 21st century customer service, that they treat consumers like customers instead of subjecting consumers to voice-mail jails, instead of presuming that consumers are guilty and making it impossible for us to prove our innocence."

Warren said the current political environment makes it unlikely that Congress will put more pressure on the industry.

FTC officials said they do regulate the industry, but Warren questioned the agency's effectiveness.

"What you see from them is a tiny bit of regulation at the margin," she said.

Ultimately, the credit bureaus need more of an incentive to improve customer service, said Davis, the former TransUnion executive.

"My perspective has changed in that the bureaus need to have a greater consumer focus, and they're headed in that direction," he said.

"If they are driven by the consumers, by having the end consumers as customers, they will evolve to that, where they will pay greater attention to the individual needs of the consumers.

"But there has to be a money incentive for them, or the government has to dictate it."

Source: (c) 2005, The Dallas Morning News. Distributed by Knight Ridder/Tribune News Service.