The Consumer Financial Protection Bureau has dropped the bombshell that two of the three big credit reporting agencies are in trouble for lying to consumers.
Creditors heavily depend on your credit score, and that’s pretty much dominated by the big three agencies, Equifax, Transunion, and Experian. Needless to say, these private companies hold your economic fate in their hands.
Unfortunately, as we’re now learning, Equifax and Transunion have been abusing their market power in the credit reporting space, and they’re facing fines from a federal agency in excess of 20 million dollars.
The government’s investigation
The investigation revealed that Equifax and Transunion claimed that consumers were receiving the same reports and scores that they provided to lenders, while the scores were actually different. A credit score is supposed to be consistent for all end-users, and consumers are supposed to be able to access to the same report that lenders do. As it turned out, the rating agencies were lying to customers about this.
The same investigation also revealed that these same agencies were also running afoul of rules that require them to provide one free report yearly to consumers through a website. While people attempted to access their free credit report, the agencies peddled their services, and duped many people into subscriptions through false advertising.
The case for reform
Way before this heaping serving of bad news confirmed our worst fears, there have been many calls for reforming the American credit score system. The problems are numerous: their proprietary and poorly understood formulas for determining our creditworthiness control our lives, their reports are riddled with errors, and fixing an erroneous report is a costly and time consuming endeavour. These problems are just the tip of the iceberg, as the scores that are so heavily relied upon to measure someone’s creditworthiness aren’t keeping up modern-day economic realities.
In fact, scores of Americans don’t have any credit history, and that hurts their lifestyle greatly. If they’re even able to access credit, they pay exorbitant interest rates. In sum, the poor suffer greatly under our current system, because it’s nearly impossible for them to build credit and fix mistakes without significant financial resources.
Takeaway: Fix it please
It doesn’t take a rocket scientist to figure out that our present system is extremely broken. Evidently, as this latest news shows, the credit reporting agencies seem to be running amok. Perhaps a little good, old-fashioned competition would help improve the marketplace of credit scores.
Any template for reform should promote more competition, and inspire the creation of new credit scoring methods by different credit ratings agencies. Needless to say, this is an area of American consumer life that is extremely ripe for disruption.
Have something to add to this story? Comment below or join the discussion on Facebook.
Header image: Shutterstock