Two very Important FTC Studies, One on Credit Reports and One on Debt Buyers
A recent FTC study of errors in credit reports is getting a lot of press. According to the most recent in a number of studies of the accuracy of credit reports, about 5% of U.S. consumers have an error on their credit report that is serious enough to increase their cost of credit. Although the credit industry is arguing that this is a small percentage (and I agree that this is a lot smaller than I expected), the head of the FTC does not consider it small. "These are eye-opening numbers for American consumers," said Howard Shelanski, director of the FTC's Bureau of Economics. "The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don't, they are potentially putting their pocketbooks at risk." The industry quickly noted that the errors in the other 95% do not affect people’s credit.
All studies on the topic of credit reports have indicated that it is difficult for the majority of people who find errors on their report to fix these errors, which has been my experience as well. Right now, I am working with a woman whose credit is trashed because of medical debts that all agree should have been paid by insurance but were not. She has signed up for one of those credit watch programs at $15 a month, that has been more trouble that it is worth. She has been notified several times of new errors that were not errors at all. She is scared and trying to buy a safer car, to no avail.
This redit report study comes on the heels of the most important and comprehensive study of debt buying ever completed. This FTC study found a huge growth in debt buying in recent years. The FTC receives more consumer complaints about debt collectors, including debt buyers, than any other single industry. For this study, the FTC obtained information about debts and debt buying practices from nine of the largest debt buyers that collectively bought 76.1% of the debt sold in 2008, with six of these debt buyers providing the information the Commission used in most of its analysis. The study found that buyers pay an average of 4 cents a dollar for the debt they buy, much of which is sold and sold and resold numerous times.
Buyers typically receive very little information about the debt they are buying and many do not receive the paperwork they’d need to prove the debt in court. The buyers do typically get the name of the original creditor and the original creditor’s account number, among other things (like debtor’s social security numbers), but do not always share this creditor information with consumers.
So what is the relationship between these two new FTC reports? The debt debt buyer’s buy (say that three times fast) appears to be filled with misinformation according to this FTC study. As a quick example, a second woman with whom I am working, a student, is being collected upon through cell phone calls to her mother and brother, for debts she did not incur. Someone else used her social security number. The collection company admits it is true (it’s not her debt) but cannot seem to stop having other people in their agency call her. I will report later on how the debt buyer ultimately handles this situation and how much work is involved for the student, but here is the $10,000 question. Will this hit her credit score? Right before the bar? Credit slips readers will get to find out.