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<div class="">August 2, 2013</div>
<h1>An $18 Million Lesson in Handling Credit Report Errors</h1>
<h6 class="">By
<span>
<a href="http://topics.nytimes.com/top/reference/timestopics/people/b/tara_siegel_bernard/index.html" rel="author" title="More Articles by TARA SIEGEL BERNARD"><span>TARA SIEGEL BERNARD</span></a></span></h6>
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<p>
Even after sending more than 13 letters to Equifax over the course of
two years, Julie Miller could not get the big credit bureau to remove a
host of errors that it inserted into her credit report. </p>
<p>
That indifference should surprise no one who has ever tried to deal with
any of the three big credit reporting agencies, Equifax, TransUnion and
Experian. “You feel trapped, like you are in a box,” said Ms. Miller, a
57-year-old nurse who works in a dermatologist’s office. “You have no
control over this, and you can’t call them up and say, ‘You’re fired.’ ”
</p>
<p>
So she tried suing. That worked. </p>
<p>
A jury in Federal District Court in Portland, Ore., last week awarded
her a whopping $18.4 million in punitive damages, which, according to
consumer lawyers, is the largest individual case on record. </p>
<p>
If you think this has taught Equifax and the other credit reporting
companies a lesson, you are a lot more optimistic than close observers
of the industry. They say that despite the huge judgment, little is
going to change for the millions of Americans who discover errors in
their credit reports. </p>
<p>
The credit bureaus are willing to tolerate these errors — and settle
with consumers out of court — as a cost of doing business, according to
credit experts and lawyers who work on these cases. </p>
<p>
“Their business model is to keep doing the same thing over and over again,” said <a href="http://www.baxterlaw.com/attorneys/justin-baxter">Justin Baxter</a>,
the lead lawyer on Ms. Miller’s case. “They can buy off a number of
consumers with small dollar amounts and get rid of the vast majority of
cases. To Equifax, that’s the cost of doing business.” </p>
<p>
Ms. Miller made every effort to fix her report, exactly as consumers are advised to do. She initiated the company’s <a title="Article on how to correct credit report errors." href="http://bucks.blogs.nytimes.com/2011/05/17/how-to-dispute-credit-report-errors-2/">dispute process</a>
about seven times, and in most instances, Equifax would spit back a
form letter saying it needed more proof of her identity. So she sent her
pay stub and her phone bill. When that didn’t work, she sent her pay
stub and her driver’s license. And when that failed, she sent her W-2
form and an insurance bill — at least three times. </p>
<p>
But nothing ever changed: Ms. Miller, a model financial citizen who once
had the credit score to prove it, had become mixed up with another,
much less creditworthy Julie Miller. After she was denied a line of
credit from KeyBank, she discovered 38 collection accounts on her credit
report, none of which belonged to her, along with an inaccurate Social
Security number and birth date. Her financial life was no longer her
own. </p>
<p>
Mixed files, as they are known in the credit industry, most frequently
involve people who share common names with individuals who have similar
Social Security numbers, birth dates or addresses. These errors are
notorious for being among the most difficult to fix, credit experts
said, and require human intervention to untangle the mess. But given the
huge number of disputes, the process to address them is largely
automated. And that is the excuse the industry advances to consumers who
get stuck in its web. </p>
<p>
The bureaus often outsource thousands of disputes daily to workers
overseas. Those workers, often overwhelmed by the sheer volume of cases,
are largely told to translate the problem into a two- or three-digit
code that defines the gist of the problem (account not his/hers, for
instance) and feed it into a computer. </p>
<p>
But that process won’t untangle a mixed credit report. The reason files
become mixed to begin with can be traced back to the computer formula
the bureaus use to match credit data to a specific person’s credit
report. It allows credit data, say a late payment on a credit card, to
be inserted into a person’s file even if the identifying information
isn’t an exact match. In other words, the system might add a late
payment to the credit report of someone like Julie Miller even if the
Social Security number is off by two digits or a birth date is off by
two years, but enough of the other identifying information matches.
That’s roughly what happened to Ms. Miller. </p>
<p>
Partial matches aren’t always wrong, of course. Solid estimates on the
number of mixed files are hard to find, though a 2004 study from the
Federal Trade Commission said that partial matches occurred in about 1
to 2 percent of credit files, citing data from the bureaus. That might
not sound like much, but when you consider that there are 200 million
individuals with credit files at each of the big three bureaus, that
translates to two million to four million consumers. </p>
<p>
Other estimates put the number of actual mixed files at less than 0.2
percent to nearly 5 percent. The F.T.C.’s report said that mixed files
were not always harmful to consumers because most credit account
information was positive. </p>
<p>
To that I say: Consumers with mixed files are supposed to take comfort
in the fact that their credit report doppelgängers, on the whole, are
likely to pay their bills? </p>
<p>
There is a reason the bureaus operate this way. They would rather err on
the side of including too much information in your credit report than
leave information out, according to consumer lawyers and advocates. They
also need to account for typos and small errors that can cause the
credit agencies to leave out information — both good and bad credit
behavior. Financial services firms are paying the bureaus to receive the
most complete financial profile possible, even that means sacrificing a
bit of accuracy. (The F.T.C.’s report said that lenders might actually
prefer to see all potentially derogatory information about a potential
borrower, even if it can’t all be matched with certainty.) </p>
<p>
“The bureaus would rather accept the possibility of some mixed-file risk
rather than the possibility that a debtor who owes a debt gets away
with it,” said <a href="http://www.clalegal.com/our-firm/attorney-profiles/leonard-bennett-esq">Leonard Bennett</a>, a consumer lawyer in Newport News, Va., who said he has about 20 active mixed-file cases in any given month. </p>
<p>
The dispute process is supposed to catch the people who fall through the
cracks. But as people like Ms. Miller can attest, it doesn’t always
work. The Fair Credit Reporting Act, the law that governs the big
bureaus, requires the agencies to provide a reasonable investigation.
Ms. Miller’s lawyer said their litigation revealed that there was no
investigation at all. (It’s worth noting that Ms. Miller had problematic
credit reports at the other two bureaus, but those agencies resolved
the matter.) </p>
<p>
“They testified that they get something like 10,000 disputes a day, so
they don’t have the time to look at each one,” Mr. Baxter said. “Whether
it is because the person has too many disputes to process or they
choose not to, that is where the system falls apart.” </p>
<p>
What else could she have possibly done? I asked the credit bureaus.
Equifax declined to comment, and would only say that it was “very
disappointed in the jury verdict” and was exploring its options,
including an appeal. The other two agencies didn’t offer much guidance
either, though TransUnion pointed out that the credit reporting industry
resolved 70 percent of consumer disputes within 14 days. </p>
<p>
Ms. Miller, however, had to endure repeated phone calls from debt
collectors, who threatened to sue. She couldn’t co-sign a credit line
for her son who was in his freshman year of college, and she said she
put off refinancing her mortgage. It also meant that she couldn’t
co-sign a car loan for her disabled brother. And plans to build a
workshop on their property, which required a loan, would have to wait.
</p>
<p>
The jury’s giant award to Ms. Miller is generous and goes a long way
toward compensating her for those lost opportunities. But lawyers say
the initial awards are often reduced after being reviewed by the trial
judge. An out-of-court settlement for the typical mixed-file case might
be $50,000 to $250,000, depending on the case, while settlements for
other errors may be far less. </p>
<p>
Will Ms. Miller’s award have any lasting effect on the industry? Mr.
Bennett, the consumer lawyer, is one of the optimists. “This case will
change the calculus,” he said. “If they have to pay $2.5 million every
time one of these folks gets to court, they might have to reconsider
their procedures.” </p>
<p>
It’s more likely, though, that the Consumer Financial Protection Bureau,
which began overseeing the large credit bureaus last September, will
have more impact. It has <a href="http://files.consumerfinance.gov/f/201209_cfpb_Consumer_Reporting_Examination_Procedures.pdf">broad authority</a>
to perform on-site examinations, check records and examine how disputes
are handled. Consumer advocates have long suggested that the credit
agencies tighten up the way they match up data with consumers reports
and strengthen the dispute process. </p>
<p>
“Big punitive penalties may help force the bureaus to upgrade their
20th-century algorithms and incompetent dispute reinvestigation
processes,” said Ed Mierzwinski, consumer program director at the United
States Public Interest Research Group. “But C.F.P.B.’s authority to
supervise the big credit bureaus is one of the most significant powers
Congress gave it.” </p>
<p>
Nearly every expert I spoke with conceded that Ms. Miller had few options. “She had two choices, and they both stunk,” said <a href="http://www.johnulzheimer.com/">John Ulzheimer</a>, a <a href="http://www.smartcredit.com/blog/author/john/">credit expert </a>who
has served as an expert witness on more than 140 credit-related
lawsuits. “She could live with it, or she could hire an attorney.”
</p>
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<p>Kitty Bennett contributed reporting.
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