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'Rapid rescoring' firms win round in bout with credit's Big 3
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Kenneth R. Harney, Washington Post Writers Group
May 29, 2005
WASHINGTON -- A recent federal court ruling in California could have
far-reaching effects on consumers nationwide who discover errors in their credit
reports while applying for a home mortgage.
The court turned down a request by the three dominant credit bureaus -- Equifax,
Experian and TransUnion -- to dismiss class-action suits charging them with
anticompetitive and predatory pricing practices in violation of federal
antitrust and state fair trade laws.
The suits were brought against the national bureaus last year by two dozen
small, independent credit agencies that specialize in "rapid rescoring" for
mortgage applicants. Rapid rescoring often can get erroneous negative
information removed from the national bureaus' files in 48 to 72 hours -- fast
enough for the loan applicants to raise their credit scores and qualify for a
lower interest rate and fees.
By contrast, when consumers try to correct misinformation directly with the
bureaus, the process can range from 30 days to several months. That is far too
long for lenders to hold open an application or for home sellers to wait for a
would-be buyer to obtain a loan.
The independent credit agencies charged in their suits that Equifax, Experian
and TransUnion conspired to put them out of business by sharply raising prices
for rescoring and credit data and by prohibiting the independent agencies from
directly charging consumers for rescoring services. In some cases, according to
the independents, the national bureaus charged them five times more for
wholesale credit file data than they charged the independents' own lender
customers directly on a retail basis.
The lender customers abandoned the independents in droves, forcing many to close
or be sold. Since the early 1990s, the number of independent credit reporting
agencies has plummeted from about 1,000 to about 200, according to industry
estimates.
By forcing them out of business or acquiring them, the independents claim, the
three big bureaus could essentially control virtually all phases of consumer
credit information, especially getting erroneous data in their files corrected
quickly enough for mortgage applications.
In a typical rescoring, a loan officer or broker pulls an applicant's three
national credit reports and credit scores. If erroneous negative information
drags the scores below what the applicant needs for a mortgage, the loan officer
might refer him or her to an independent credit agency for possible rapid
rescoring.
Rescoring is not "credit repair." It can move scores up only when negative
information, such as missed credit-card payments, student-loan defaults and the
like, is truly in error. If the mortgage applicant did stiff his lender on his
last loan, rapid rescoring won't help him get a new mortgage.
The U.S. District Court ruling, handed down May 12 in Santa Ana, Calif., did not
decide on the merits of the independents' charges. But it moved the litigation
to a trial or settlement. Preliminary discussions on a settlement have begun,
according to one participant.
The national credit bureaus declined comment on the ruling or did not return
phone calls seeking comment. Their national trade group, the Consumer Data
Industry Association, also declined to comment.
Paul Wohkittel, president of the independents' trade group, the National Credit
Reporting Association, was ecstatic.
"This is David against Goliath," said Wohkittel, who is also CEO of a
Baltimore-based independent credit agency, Lenders' Credit Services Inc. "We
think it is a huge victory."
Wohkittel, a plaintiff in one of the class-action suits, said rapid rescoring is
inherently staff-intensive, dealing with consumers who can't understand how or
why their national credit bureau files contain outdated, incorrect and
incomplete information. Independent firms such as his employ staffs of trained
personnel who can ferret out score-depressing information, then help speed the
process of getting it corrected or deleted.
The three big bureaus "are just not interested" in doing that, said Wohkittel,
but instead are highly automated information fortresses taking in billions of
bits of electronic data daily. Person-to-person service is not their forte.
"Call up any one of the [national bureaus] to get something in your file
corrected and see what happens," he said. "See if you can get a live person on
the phone. You won't" unless you claim identity theft.
"If the bureaus succeed in getting rid of us [small independents], you're going
to hang the consumer out on a branch. No one else will be looking out for them"
if the national bureaus run the entire industry.
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You can contact Kenneth Harney by e-mail at realestate@tribune.com or send
letters to: Kenneth R. Harney, Chicago Tribune, Real Estate section, 435 N.
Michigan Ave., Chicago, IL 60611.
Copyright (c) 2005, Chicago Tribune