Since the turn of the century,
credit reporting agencies have been keeping track and selling
credit and financial information about American consumers.
The information in these files, which are compiled into credit
reports, has long played a significant role in lenders' decisions
to extend or deny credit to consumers. More and more these
credit reports are being used for other purposes as well. Employers,
insurance companies, landlords and other businesses all use
credit reports to determine individuals' eligibility for a
variety of financial and consumer services.
Credit Scoring is one of the most controversial
new uses of credit reports. Insurance companies
are using consumers credit information to decide
whether they will offer consumers' coverage and
at what price. The Consumers' Coalition has joined
an effort to Stop Insurance
Credit Scoring in Massachusetts. To learn
more about this issue, visit
our insurance credit scoring page.
Studies have shown that credit reports are often riddled
with errors. In 1998, a MASSPIRG
survey found that 29% of
credit reports contained errors that were serious enough
to cause the denial of credit, insurance, employment or other
benefits. A more recent 2002 examination of credit scores
completed by the Consumer
Federation of America found that
20% of consumers with credit histories would likely be
misclassified as "high risk" due to inaccuracies
in their credit files. Given these mistakes, it is no surprise
complaints to the Federal Trade Commission about the three
major credit bureaus increased by 75% last year, from 8,331
complaints in 2001 to 14,557 in 2002.
Massachusetts has a strong state Fair Credit Reporting
law that helps protect against some of these problems.
The law allows Massachusetts consumers free
access to their credit reports once a year so that
they can have a chance to check them for errors. It also requires
companies that furnish the information to the credit
bureaus to take certain steps to make sure that information
is accurate. These provisions
are much stronger than those in the Federal
Fair Credit Reporting Act.
Generally, states have the right to pass stronger consumer
protection laws as long as those state laws do not conflict
with federal laws. That's why Massachusetts has a stronger
credit reporting law than the national version. Other states
also have passed stronger financial privacy laws to protect
their citizens from credit reporting inaccuracies and theft
of financial identity. Right now those laws are under attack.
The financial services industry is working to get Congress
to change the federal Fair Credit Reporting Act so that it
would permanently prohibit states from enacting these kinds
of stronger consumer protection laws. They already have succeeded
in getting the House Financial Services Committee to approve
legislation (HR 2622) that would do just that. But, there
is a growing effort by consumer groups and concerned individuals
to get the Congress to strengthen the Fair Credit Reporting
Act and to uphold state efforts to protect consumers' financial
privacy. You can get involved by taking
action and telling
Congress to support federal legislation that protects consumers
from credit reporting errors and identity theft without preventing
states from passing even better financial privacy laws.