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COMMENTS TO THE
FEDERAL TRADE COMMISSION
ON THE
HANDLING OF CREDIT REPORT DISPUTES
September 9th,
2004
by
Springboard Nonprofit
Consumer Credit Management
and
the
Institute for
Consumer Financial Education (ICFE)
The undersigned would like to
address you on 1) mechanisms
for handling consumer credit report
disputes, specifically the need
to expand the ability of legitimate
nonprofits to provide this service
to the public, and 2) our experience
with the accuracy of consumer credit
reports.
Legitimate nonprofits are now
able to access credit bureau systems
directly whereas most for profit
agencies are not. Nonprofit credit
counseling agencies such as Springboard
are able to obtain credit information
about the consumer to properly
identify consumer debt and public
record information such as bankruptcy,
tax liens and other consumer related
items. These items are name identifiers,
generation identifiers such as
Sr, Jr, III, and IV, present or
past employer information, and current
and past address information. These
credit profiles become helpful
tools that have enabled companies
such as Springboard and many other
counseling agencies to do ethical,
low cost credit correction in accordance
with the laws of the each state
we operate in and in which
the consumer resides.
Ethical credit correction has
often been confused with the unethical
and often predatory practice of
obtaining credit reports through
marginally legitimate means, such
as prompting a consumer to request
a personal credit report and providing
it to the credit correction service,
or some illegitimate means such
as misrepresentation of the permissible
purpose of the credit correction
service to the credit bureaus by
a third party company.
The actions of unethical companies
operating under the 501c3
tax exempt status for Debt Management
conferred by the Internal Revenue
Service have caused consumer
advocates and regulators to prompt
legislation that would go as far
to preclude us from attending to
the legitimate needs of the consumer
in the area of credit correction.
The possibility of broad and sweeping
legislative action to avoid any
further credit correction by all
companies operating under these
auspices would hold disastrous
consequences for many thousands
of consumers. To create such legislation
would be equivalent to the colloquialism
of "throwing out the baby
with the bath water." In this
case, ethical nonprofits are the
baby.
Damage has been done to the integrity
of the U.S. credit system by the
proliferation of for-profit operators
who have achieved considerable
results with fraudulent and illegal
methods of credit repair such as:
- “File Segregation”,
the practice of creating a new
consumer file with a different
Employer Identification Number.
- Filing deliberately false
disputes.
- Inundating and overwhelming
the credit bureaus with massive
amounts of dispute letters on a
consumer’s behalf to take
unfair advantage of the response
time rules.
Using these means, legitimate
credit items have been removed,
and in other cases completely new
credit identities have been established
for consumers that are in actuality
poor credit risks. Ethical credit
repair means not doing these mentioned
practices. Again, an important
resonating issue should be damage
that has already been done to the
integrity of the U.S. credit system
by the proliferation of for-profit
operators who have achieved considerable
results with fraudulent methods
of credit repair.
However, because these companies
exist does not mean that credit
correction is not a valid and much
needed service. Rather, their existence
speaks to the large vacuum of credit
correction assistance – a
vacuum that has been filled with
unethical operators. It also speaks
to the enormous need on the part
of the public for this type of
assistance.
Why is a Service That Assists
Consumers with Credit Correction
Needed?
For those agencies deeply engaged
in homeownership and other housing
initiatives, credit correction
is a much-needed adjunct to the
process of consumer credit counseling.
Springboard’s mission is
closely tied to helping consumers
achieve the American dream, and
encouraging homeownership in general
is an important public policy.
We provide consumers the help
of experienced, trained counselors
that have the true success of the
client at heart.
The Frequency of Errors
on Consumer Credit Reports
Our experience with consumer
credit reports over many years
confirms the results of the recent
Public Interest Research Group
(PIRG) study "Mistakes
Do Happen: A Look at Errors in
Consumer Credit Reports" (www.pirg.org)
in which it was found "one
in four credit reports contains
errors serious enough to cause
consumers to be denied credit,
a loan, an apartment or home loan
or even a job." In fact, we
have seen that the PIRG report
understates the occurrence of bankruptcy
public record items appearing with
still open charge-offs (see section
below “B ankruptcy & Open
Chargeoffs : A Common But Unrecognized
Problem. ”
This was further verification
of the results of the Consumer
Federation study in cooperation
with the National Credit Reporting
Association,
http://www.consumerfed.org/121702CFA_NCRA_Credit_Score_Report_Final.pdf This
2002 report was a comprehensive
review of the state of consumer
credit and the relationship to
credit inaccuracies, credit pricing
models, and the overall effects
of inaccurate negative credit items
on a consumer’s credit profile.
That report concluded that over
41% of credit files had incorrect
demographic identifying information,
and 20% were missing major credit
cards, loans, or mortgages. In
total, 70% of reports contained
an error of some kind and it’s
believed that this has been the
state of consumer credit reports
at the bureau level for years.
One may ask " Why can't
consumers just do it themselves?” The
answer to this is that often times
consumers need help to understand
and interact with systems of finance
for which they just do not have
the training or technical expertise
to utilize and yield discernible
results. Take for instance the
U.S. tax code. Some consumers can
and indeed do prepare their own
taxes. Some just ask the system
to do it for them, often leaving
out valuable deductions. Some complete
their returns with the aid of software
that has cost many millions of
dollars to make a user accessible
interface. Even then, costly errors
occur or valuable deductions are
not taken and using software programs
like these require a greater than
average computer literacy on the
part of the consumer. Some consumers
hire tax preparation help because
of the complications of the tax
code are such that no amount of
simplicity, software or other avenue
can suit their particular needs.
This is a direct corollary to the
reason that nonprofit credit counseling
agencies must be allowed to continue
the invaluable role of complete
credit counseling services for
needful consumers. To take away
choices for assistance would be
to take the benefits not from the
most capable of doing credit correction
themselves, but from the most needy
portion of our population that
is unable to often even comprehend
the process by which they
are entitled to do so.
No amount of self help books,
government pamphlets, or well meaning
30 second public service announcements
can take the place of a well trained
certified counselor who has
the consumer’s interest foremost
in mind while at the same time
charging a small reasonable
payment to insure that this service
is available to the next consumer.
Consumer choice should not be limited.
Credit correction is an obvious
adjacency move around the counseling
agencies’ core business of
credit education and debt management.
There is an enormous need on the
part of consumers for help in dealing
with their credit reports and scores.
We have found that many people
don't even know the difference
between the two. In fact, credit
score improvement and credit correction
can involve different strategies,
although of course there can be
overlap. Credit score improvement
may involve only strategies of
credit account establishment or
utilization in accordance with the
dynamics of the Fair Isaac Company
(FICO) scoring model. Credit correction
(done ethically, of course) is
the removal of stale items or the
correction of misreported items.
Who is Doing Credit Repair
Now?
Consumers are continually inundated
by various choices for obtaining
credit and in recent years, by
many choices for getting their
credit reports (“free on
this website!”) and fixing
them. Credit repair operators are
abundant on the Internet. There
are many licensed mortgage brokers
that do credit repair under the
table as a method to improve the
prospects of the successful loan
application of their prospective
mortgage clients. Some mortgage
brokers are obtaining credit under
the guise of mortgage credit-related “permissible
purpose” and then selling
credit correction services as a
supplemental income to their businesses.
This is in clear violation to their
agreements to obtain credit reports
from the bureaus and the bureaus
aggressively pursue these brokers
to stop these practices. The broker
would say that he is only doing
what the client needs to make them
more creditworthy so what trust
is being violated? However, some
brokers take advantage of some
consumer’s lack of understanding
and these come to light as examples
of why brokers should not be involved
in the process. They have a direct
relationship to a greater monetary
reward in the form of commissions
on loan procurement.
There are attorneys who have
aggressively pursued the market
for credit correction services.
In many state, attorneys are exempt
from credit repair laws, giving
them an advantage over other purveyors
of this consumer activity. Lexington
Law (www.lexingtonlaw.com)
is a large, well established example
of this business model. The
fees tend to be high in the attorney
model. What’s commonly done
is that the law firm sets the client
up on a monthly payment system
with a set up fee, the total of
which can add up to several hundred
dollars.
Nonprofits are also exempt from
credit repair laws in many states,
yet most of the counseling industry
has ignored the public’s
need here, preferring instead to
chase the more lucrative Debt Management
Plan business. It must be added
that many traditional counseling
agencies have been hands off due
to the credit granting and bureau
interests frowning upon the activity
of credit correction. Credit grantors
are of course the primary funders
of the counseling industry. The
nonprofit credit counseling sector
is already under fire from consumer
advocates and competitors for being
in thrall to the interests of creditors
and credit bureaus. What’s
more disturbing is they also charge
that regulators and legislators are
also in thrall to credit industry
interests by promoting certain
counselors over others (“Nonprofits
in Service to One of America’s
Most Profitable Industries: A Report
on How Creditor Control of the
Credit Counseling Industry Hurts
Consumers and the Need for Fundamental
Reform” posted July
2004 at www.responsiblecredit.com).
What Is To Be Done?
The movement on the part of consumers
to take control of their own credit
scores/reports will only intensify
and counseling agencies can play
a positive role by mediating fairness
for consumers while protecting
the integrity of the U.S. credit
system. The escalating crime
of identity theft, a complex subject
in and of itself, is another reason
why this service should not be
limited.
Prohibiting counseling services
from performing credit correction
would give critics of our industry
yet more reason to protest that
regulators, legislators and the
agencies themselves are subservient
to the interest of creditors and
credit bureaus. The data furnishers
and the credit bureaus would be
in favor of this, as it would leave
them and attorneys as the only
entities that would be able to
take on consumers’ issues
with credit correction. This would
literally create a system where
the creators of the problem could
monopolize and profit from providing
solutions. Though we have no intention
to infer that this would be done,
to state another colloquialism,
it would be "leaving the fox
to tend to the hen house." This
would not be good public policy
and consumers need more choices. Accredited
nonprofit credit counseling agencies
are among the best in class as
a solution.
Again, good regulation should
encourage ethical providers of
credit correction who can compete
against profiteers, saving consumers
money as well as mitigating damage
to the U.S. credit system.
The market has spoken and consumers
need help resolving and managing
their credit issues. Credit report
correction and credit score improvement
is high on their list of priorities.
Credit correction as a valid and
a needed service and we request
that the FTC undertake efforts
to expand the ability of nonprofits
to provide this service.
Thank you for your consideration
of these issues,
Respectfully,
Dianne L. Wilkman
President/CEO
Springboard Nonprofit
Consumer Credit Management
And
Paul Richard, RFC
Executive Director
Institute for
Consumer Financial Education
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