Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC Offers Testimony on Credit Reporting Industry, Warns Data Brokers of Fair Credit Reporting Act Obligations, (May 7, 2013)

By Jeffrey May, J.D.

The House Commerce, Science, and Transportation Committee's Subcommittee on Consumer Protection, Product Safety, and Insurance held a hearing this afternoon regarding the accuracy of consumer credit reports. Maneesha Mithal, Associate Director for the Division of Privacy and Identity Protection at the FTC, delivered testimony on the agency’s credit report enforcement and education efforts.

The hearing, entitled "Credit Reports: What Accuracy and Errors Mean for Consumers," was the subcommittee’s first hearing of this congress. Subcommittee Chairman Claire McCaskill (D, Missouri) opened the hearing by noting that the subcommittee intends "to serve as a watchdog for consumers with particular focus on misleading and deceptive marketing to consumers and practices of the financial products industry."

"I look forward to working with Ranking Member Dean Heller (R, Nevada) and other members of the subcommittee to hold scammers and others who prey on consumers accountable as well as ensuring that regulators are doing their jobs," McCaskill said.

Between two and ten millions Americans have errors in their credit reports, according to McCaskill. The number varies depending on whether you believe those offered by the regulators or by industry. Whether the number is two or ten million, there are "simply too many" inaccuracies, McCaskill said.

McCaskill also expressed concern about the data collection practices and questionable tactics of credit reporting agencies when offering free credit reports to consumers. She called on the regulators to consider the possibility that credit reporting agencies offer free credit scores along with the free credit reports to cut down on consumer confusion.

According to the FTC testimony, a recent FTC study of credit report accuracy showed that one in four study participants found a material error in one of their credit reports and filed a dispute with at least one credit bureau. In addition, one in 20 of the consumer participants had an error that lowered the participant's credit score to a degree that the error would likely make getting credit more expensive.

On the Fair Credit Reporting Act (FCRA) enforcement front, Mithal testified that the FTC had recently sued an employment background screening company, HireRight Solutions, Inc., for allegedly failing to ensure that information in its reports was accurate and reflected current updates. The agency also sued one of the nation's largest debt buyers, Asset Acceptance, LLC, for allegedly providing information to credit reporting agencies that it knew or had reasonable cause to believe was inaccurate. Both actions were resolved by consent decrees.

Warning Letters to Data Broker, Websites of Possible Fair Credit Reporting Act Liability

The FTC is taking steps to educate companies so that they understand that they will be subject to FCRA obligations if they are functioning as credit reporting agencies, according to the testimony. Mithal noted that the FTC earlier this week issued letters to 10 data brokers, warning that their collection, distribution, and sale of consumer information could violate the FCRA if the brokers failed to abide by FCRA requirements. Similarly, in April, the FTC issued warning letters to the operators of six websites that purportedly share information about consumers’ rental histories with landlords.

Earlier today, the FTC announced that it had sent the warning letters to the ten data brokers, reminding them to evaluate their practices to determine whether they are consumer reporting agencies, and if so, how to comply with that law. The agency staff contacted 45 companies in a test-shopper operation. Ten appeared to violate the FCRA by offering to provide the information without complying with the law’s requirements. Of the ten companies, two appeared to offer "pre-screened" lists of consumers for use in making firm offers of credit; two others appeared to offer consumer information for use in making insurance decisions; and six appeared to offer consumer information for employment purposes, according to the FTC.

Corey Stone, Assistant Director, Deposits, Cash, Collections, and Reporting Markets, at the Consumer Financial Protection Bureau (CFPB), also delivered testimony. McCaskill closed the hearing by calling for input from both the FTC and CFPB on "how to address the clear gaps that we have got in this consumer protection area."

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