« The State Legislative Process: It’s no Fun Watching Sausage Being Made | Main | Which Consumer Financial Education Programs Are Most Effective?: Assuming a Fact Not in Evidence »

Two very Important FTC Studies, One on Credit Reports and One on Debt Buyers

posted by Nathalie Martin

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.




And, of course, there are likely class issues. Credit report errors and debt buyer issuers are not probably spread equally across the socioeconomic strata.

Do they sell debts to each other? I've got one ~$200 thing that I told the original company was bogus but they sent it to collections anyway. The collector was annoying so I wrote I letter using stuff from FDCPA and sent it. They immediately stopped, which was great. Then a couple of months later a different collector starts all over again. Printed them a copy of the letter sent to the first company and then a couple of months later a 3rd company starts yet again. Printing and mailing a letter isn't that bad, but there really should be a rule that ties a FDCPA "don't contact me" notification to the debt instead of to the company you notified.

The errors on credit reports are much higher. I see them everyday as a mortgage lender. They are a pain to get fixed as well even within the expedited channels we have as a lender. To put it simply, the credit bureaus don't give a damn. Dealing with them is worst than calling DMV.

I think there should be a regulation that requires the credit bureau and creditor to notify by certified mail/fedex PRIOR to any negative information being reported. Then you should have minimum 30 days to dispute. Now it seems they can report it and then you have to dispute it. Guilty until proven innocent.

The biggest issue is that most people don't even know about the negative item until they are applying for a mortgage, etc. Many times it is too late to do anything at that point.

After 50 years in the credit-collection-bankruptcy business, the same problem occurs. Credit reporting agencies say credit providers are providing inaccurate information and/or both say consumers should pull their credit reports and examine for accuracy. Who is kidding who? Anyone try to understand what is on the report? Anyone experienced notification of an error that still remains or best case, the error will be corrected but what if it hasn't?
Semper Idem and Bona Fortuna

It is going to take the combined effort of everyone involved to insure accuracy. Errors and mistakes happen, but it is not an unforgivable sin to just fess up to an error on someone's credit report and simply fix it. It really goes to show why consumers need to regularly check their credit report and not just before they plan to get a loan which makes it too late to correct anything.

I do wonder why both the credit bureaus and the reporting creditors think that it's my job to make sure the information they are reporting and collecting is accurate. The few errors I've found over the years have been harmless, but they are the result of complete irresponsibility on the part of the credit bureaus. In one case they attached a small business to my account that was, in fact, owned by the previous tenant at our address. The simplest check would have determined that it was not mine.

The reality is that the government is requiring that we subsidize what would be an unsustainable business model if they had to take normal business responsibility for the consequences of their errors.

The comments to this entry are closed.


Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.



  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless ([email protected]) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.