Credit Reporting

2. Credit Reporting CWAGAnnual Meeting July 21, 2015 Washington, DC ۰ New York ۰ Philadelphia ۰ Chicago ۰ Denver ۰ Florida www.cohenmilstein.com

3. Credit Reports Matter • Access to/cost of credit • Employment • Security clearances • Identity theft/data breaches • FTC study found that nearly 20% of consumers had confirmed errors on their credit reports • for 13% the error was significant enough to change their credit score • Only tells part of the story -- “confirmed errors” = errors changed by the credit bureaus • 70% of study participants believe that at least one piece of previously disputed information still inaccurate after going through dispute process 3

4. Credit Reports Matter • Interviewed consumers who couldn’t: • refinance their mortgages • get credit cards • sign a lease • convince the credit bureaus they weren’t deceased • Impenetrable cycle of error • confusing,” “frustrating,” “hopeless” • Chip Reeves mixed with Charles E. Reeves.  7 of 9 SSN digits match and last two were transposed.  Dispute not addressed and filed suit.  Settled and NCRA deleted incorrect info.  Reappeared; lawyer called and deleted. Two years later, when applied for a loan, information was back; lawyer wrote again.  Two years later, buying a Christmas gift, was denied credit.  Requested his credit report and file again mixed • Some errors inevitable, but has to be escape hatch 4

5. History of Enforcement Actions • Have been issues with credit reports for almost as long as there have been credit reports • Experian 1991 FTC and AG consent orders • problems with mixed files, lack of reasonable procedures to assure maximum possible accuracy, problems with reinvestigation when consumers file disputes • Equifax 1992 and 1996 • TransUnion 1983 and 1992 • 2000 FTC Consent Order • service levels at call centers, including blocked calls and average speed of answer 5

6. Federal and State Laws • Fair Credit Reporting Act, 15 U.S.C. § 1681, requires that credit bureaus: • Take reasonable steps to ensure the maximum possible accuracy of consumer credit reports • Reasonably “reinvestigate” consumer disputes • Furnishers must conduct their own reasonable investigations • Provide free credit reports every 12 mos (or after adverse action, identity theft, or if unemployed or on public assistance) • Restore Online Shopper’s Confidence Act, 15 U.S.C. § 8403 • For negative option sales, requires online merchants to disclose clearly all material terms, obtain consumer's express informed consent, and provide simple means for the consumer to cancel. • UDAP statutes bar unfair and deceptive conduct • May also reach conduct prohibited by federal law 6

7. 2015 Multistate Settlement • Announced in May 2015 • Important progress on issues relating to accuracy of credit reports and investigation of consumer disputes • Maximum possible accuracy: • Collection furnishers to report original creditor and creditor classification codes • Delay medical collections reporting until 180 days • Collection furnishers remove or suppress medical accounts reported as paid by insurance • Working group to establish standard re. collection of public records data 7

8. 2015 Multistate Settlement • Consumer dispute process: • Must accept dispute without credit report or ID number • NCRAs to share dispute information re. deceased indicators, mixed files • Enhance AnnualCreditReport.com to include clear and noticeable hyperlinks to each NCRA’s online dispute website, instructions re. how to initiate dispute • Enhanced consumer educational content on NCRA websites and AnnualCreditReport.com to improve understanding of credit reports, dispute process (such as what kinds of proof documents to submit) • Improved notifications re. reinvestigation results, including contact information for furnishers and post-dispute options • Additional free annual credit report to consumers following reinvestigation • Escalated dispute handling – mixed files, fraud, identity theft • Review supporting dispute documentation submitted by consumers 8

9. 2015 Multistate Settlement • Other: • Cannot market direct-to-consumer products to disputing consumers until dispute portion of call has ended • Communicate disclosures to consumers regarding products including pricing structure, nature of products, rollover features, and cancellation rights • “National Credit Reporting Working Group” to (1) catalogue and share best practices for monitoring furnishers; (2) identify and establish data quality metrics; and (3) share/compare information to identify further actionable data quality and accuracy initiatives 9

10. Mississippi Attorney General Lawsuits • Mississippi Attorney General filed suit against Experian (May 2014) and TransUnion (May 2015) • Lawsuits include several issues that were not covered by the multistate settlement • Confine my comments to issues within 4 corners of Mississippi’s complaints and other non-confidential information 10

11. Maximum Possible Accuracy 11

12. Data Quality • NCRAs maintain that they’re libraries • Simply report information provided by furnishers • Both furnishers and NCRAs have duty to reasonably ensure maximum possible accuracy • Beyond technical screening, little evidence that NCRAs remediating or excluding inaccurate data, e.g., • High dispute or deletion/correction rates • Subject to enforcement actions, like Asset Acceptance (FTC sued AA for reporting inaccurate information; at least one NCRA continued to include AA data in credit reports) • Problems identified in their own reviews 12

13. OFAC Alerts • NCRAs offer service to creditors to alert them to Blocked Persons/Entities and Specially Designated Nationals who appear on the OFAC list (terrorism, trafficking, etc.) • Ineligible for credit • Allegations only partial “name only” matching • Problem for common names or Latino names • Mr. Sergio L. Ramirez applied for an auto loan at a Nissan dealership and was denied because the report TransUnion sent the dealership contained an OFAC alert. Names on credit report were James Sergio Humberto Ramirez Aguirre and Sergio Alberto Cedula Ramirez Riveria. • Questions about whether consumers even put on notice of OFAC match 13

14. Consumer Disputes 14

15. Reasonable Reinvestigations • High volume of consumer disputes indicates problems and generates significant volume for NCRAs to address • Dispute agents assign a code to a consumer’s dispute and send it on to creditor • Letters, cancelled checks, payoff statements, birth certificates, etc. provided by consumers boiled down to “not mine” or “never late” • August 2014, NCRAs began transmitting proof documents consumers sent • Still make no effort to conduct their own investigation • Virtually whatever furnisher directs, credit bureau implements -- “parroting” • If error in consumer record, may continue to verify • No validation of creditor’s response 15

16. Reasonable Reinvestigations • What does reasonable reinvestigation mean? • Particularly where some indicia of problem – consumer’s documents or creditor’s track record • Somewhere between not doing anything and conducting full investigation required of creditor • Contacting third party sources? • Pulling public records? • Examining for red flags, like multiple SSNs? 16

17. Access • Difficulties in obtaining free credit report • Consumers have complained that it can be nearly impossible to pass authentication screen to get a free credit report that allows them to identify potential errors • Problems reaching call center agents • Can’t get telephone number, which changes or isn’t on website • Long waits to reach an agent, hang-ups, etc. • Make it difficult for consumers to identify, file disputes 17

18. Deceptive Marketing 18

19. Credit Monitoring Subscriptions • Sale of credit monitoring subscriptions makes up significant portion of NCRAs revenues • Consumer credit monitoring and identity theft protection services = 22% of Experian’s $4.8B revenue in 2014. • $15-$20/month until cancelled • Consumers report: • not knowing they’d signed up • thinking they were getting free credit score or $1 credit report • not realizing the cost • not being able to cancel • I did what everyone else did and gave my information to pay for a $1.00 charge. Transunion began charging my account $17.95 every month for about three months before I caught it. I am no dummy and they tricked me, so I am heartbroken for the elderly and less fortunate people who are being taken advantage of every month . . . • Search for “free credit report” or “free credit score” on Google directs consumers to TransUnion website 19

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24. Legislative efforts to improve the credit reporting process • Free annual access to credit scores • Strengthen prohibitions against deceptive marketing of free or low-cost credit reports, scores, and services online • Making injunctive relief and costs and attorney fees available in consumer lawsuits • Requiring furnishers to review documents submitted by consumers with their disputes • Requiring NCRAs to implement a “credit inquiry alert” to immediately notify consumers by phone or email anytime access to their credit is requested • Law in some states entitle residents to two free credit reports annually from each NCRA • Require creditors and debt buyers to report to credit bureaus when a consumer’s debt has been extinguished through bankruptcy and to ensure the report shows a zero balance 24