Credit bureaus hurt consumers, need some major oversight
The Consumer Financial Protection Bureau is on a roll.
Not only did it smack down Capital One for its deceptive marketing practices, now it's going to provide a much needed level of oversight for credit reporting agencies.
Starting this fall, the CFPB will take a hard look at the operations of the 30 largest credit reporting agencies, including Equifax, Experian and TransUnion.
These companies collect consumer data about you, and information about your borrowing and repayment history, that's used to determine your credit score.
This oversight is needed for two very important reasons.
First, credit bureaus run extremely shoddy operations.
Second, they're very good at being very deceptive.
According to the U.S. Public Interest Research Group, 25% of credit reports have serious errors that could result in consumers being denied credit, and a whopping 79% of all credit reports have some kind of mistake.
Getting it right 20% of the time is far from acceptable, especially when the information that these companies report will determine what kind of interest rate you'll get on a loan -- or if you'll get a loan at all.
Letting the CFPB in to shine a light on these operations will hopefully make them more efficient, which will mean fewer consumers having to clear errors from their reports and fewer loans being denied because of reporting errors.
The credit bureaus have also done a bang-up job of using this information to sell products we don't need.
In 2005, Experian settled for $950,000 with the Federal Trade Commission over FreeCreditReport.com, which the company used to sell people credit scores through a service it marketed as free, even though it actually cost $79.95 a year if the consumer didn't cancel in 30 days.
TransUnion settled a lawsuit in 2008 over selling personal and financial information to marketing companies.
Equifax, too, was sued over allegations that it did not investigate consumers' claims that credit report information was wrong.
Instead, according to the suit, Equifax just sent back letters saying the incorrect information was correct without doing the legwork.
Sure, the credit reporting bureaus have gotten slaps on the wrist, but this hasn't stopped them continuing to try to use these vats of information for profit.
FreeCreditReport.com is still operating, for example. (To get an actual free credit report, go to AnnualCreditReport.com.)
And each tries to sell consumers things they don't need, like identity theft protection that does nothing to stop identity theft; credit scores separate from a FICO score, which is what most banks use to determine your creditworthiness; and credit score monitoring services that no one needs unless he or she is working to rebuild credit.
That's why we're glad the CFPB will step in.