Suits By Credit File “Rescorers” Challenge Dominance Of Three Giant Private Bureaus

Home buyers, Realtors and mortgage brokers all have stakes in two major class action lawsuits challenging the dominance of the American credit system by three giant private corporations. The private companies are Experian Information Solutions, Equifax, Inc., and TransUnion, LLC.

The suits — one filed in federal district court, the other in California Superior Court — are significant because they seek to preserve the key roles of local, independent credit agencies in correcting erroneous data in consumers’ national credit bureau files. Independent credit agencies developed and market “rapid rescoring” services for credit files — corrections of consumer credit data in the national files and revised FICO scores within 48 to 72 hours. By contrast, consumers who attempt to get the national bureaus to correct their files often find the process takes weeks or months — too long for most home purchase opportunities or mortgage applications.

The independent agencies charged the national bureaus with predatory pricing of credit report, and antitrust law violations designed to put them out of business. Experian and Equifax spokesmen declined comment on the suits. TransUnion did not respond to multiple requests for comment.

In the federal suit, filed in US District Court in Santa Ana, Calif., 23 independent credit agencies complained that the national bureaus have sought to “place a stranglehold on the consumer credit reporting market.” The national bureaus’ monopoly power is most evident in the home mortgage market, according to the suit, because they have complete control over the local credit agencies’ ability to offer lender clients the mandatory “triple-merged” credit reports using data from all three bureaus.

The independents must buy credit file data from the national bureaus because there are no alternative sources. But the nationals increasingly are pricing their data in a “predatory” manner, according to the suits, charging the independents more on a wholesale basis for credit reports and FICO scores than the bureaus charge small mortgage bankers and brokers for the identical products on a retail basis. Yet those banks and brokers are the independent agencies’ main customer base for mortgage credit reports and “rapid rescoring” services. If the independents are forced out of business, say the plaintiffs, home buyers will lose their most important resource for correcting bad data in the national bureaus’ files.

Terry Clemans, executive director of the National Credit Reporting Association (NCRA), the trade group representing independents and itself a plaintiff in one suit, said his members are a “safety net that has been built into the home mortgage system to provide the lender and the homebuyer an independent professional with the ability to quickly verify the accuracy of the (national bureaus’) data, to correct errors and fill in missing items, and to assure a complete and accurate credit report.”

Without intermediaries totally independent of the three national bureaus, Clemans said, “thousands of mortgage applicants will either be denied loans, charged higher rates than their true credit risk, or greatly delayed” in the home buying process.

One third omitted a mortgage account that had never been paid late.Two thirds were missing installment accounts that had never been paid late.43 percent contained conflicting information on whether a credit account had, or had not, been paid on time.

Credit scores on the same consumer varied significantly from bureau to bureau — often by enough to push home purchase applicants into higher cost loans than they deserved. The score variations were directly attributable to the conflicting or erroneous raw data in the files.

Overall, concluded the study, one in four consumers — 22 percent or 40 million Americans — are “at risk of misclassification into the sub-prime, higher priced lending market” because of bad data and omissions in their credit reports.