How new rules could protect you from credit errors

In the past, the way credit rating agencies reviewed disputes or errors frequently hurt consumers. The nation’s three largest credit rating agencies have negotiated with the state of New York to change their review process, and to wait longer before posting unpaid medical debts. Judy Woodruff learns more from New York Attorney General Eric Schneiderman.

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    It's the biggest change for consumers and their credit ratings in more than a decade. The three largest credit rating companies, Equifax, TransUnion and Experian, have agreed to change the way they review errors, a process that until now has frequently hurt consumer ratings.

    Under an agreement with New York State, the agencies will use specially-trained employees to review information disputed by a customer. They will also be required to wait 180 days before posting unpaid medical debt to a report to allow insurance payments and conflicts to be resolved. The companies collect and provide information on more than 200 million Americans. And roughly 52 percent of all debt on credit reports is from medical expenses.

    The attorney general of New York, Eric Schneiderman, negotiated the settlement. And he joins me now.

    Mr. Attorney General, thank you for being with us.

    This report basically says that it's going to reform the entire industry, so that makes it sound like it's riddled with problems now. Is that the case?

  • ERIC SCHNEIDERMAN, Attorney General, New York :

    Well, we did — we started an investigation because we received in my office — and other offices have the same experience — many, many complaints from customers who — that there were mistakes on their credit reports, submitted documentation proving that the bad information should come off the report, but couldn't get anything done.

    So, what we discovered was the industry — and this agreement really transforms the way the industry operates — that the industry was just relying on the raw data it got from what are called data furnishers, who are the lenders. So they were relying on — if I took out a mortgage and I took out a car loan and I took out a credit card, and the lenders, the creditors said, I didn't pay, essentially, the credit reporting agencies were taking them at their word.

    And if a customer would send in documents showing that wasn't true, they just were passing them on to the creditors. And if the creditors came back to the reporting agency and said, we still think we were right, they weren't doing an independent investigation.

    So we now have changed the way they deal with this process and it is going to make the data better, because they're taking responsibility for making sure they have accurate information. And they going to be — they're committed to doing their own independent review of every customer complaint, regardless of what the lender or the data furnisher says.

    They have also agreed to assemble and fund a special team of people with expertise for complex issues, like identity theft or mixed files, which is what happens when two people with two similar names gets their files mixed up and a consumer sees on their credit report utility bills for a house they never lived in.

    So they're changing the way they deal with customer complaints. But really it's broader than that, because it changes their whole relationship to the creditors who provide the raw material for credit reporting. They're taking responsibility for monitoring it, for checking to see if there are some folks providing them information who constantly are having problems.

    This is going to not just help consumers correct bad reports. This is going to improve the quality of the data in credit reporting. And, as you mentioned medical debt is a huge issue. So, they also have changed the way they deal with that.


    If I could just ask you, you say that they're going to change the way they do things. Does this mean they are going to hire a lot more people? What exactly are they going to be doing differently and specifically when it comes to medical debt?


    Well, they have — the settlement agreement that closes our investigation is a very long, complicated document that has timelines. They have a whole series of a very specific requirements that they have to fulfill.

    And we will be continuing to work with them over a three-year period to make sure it's fully implemented. But, yes, they are going to have to hire people, they are going to have to train people and take more responsibility than they have in the past for the data that goes into their own credit reports.

    On the issue of medical debt, which is a huge burden — and it doesn't really reflect creditworthiness. There's a question about their use of that that bothered us a lot when we were investigating, because it's unexpected, it's huge, it often involves long fights with someone's insurance company that even if it's resolved in the consumer's favor, it shows up as a bad medical debt.

    So they have agreed to wait 180 days before they even put bad medical debt on a credit report to give people a chance to work things out with their insurance company. And they have agreed that if the dispute extends beyond then, as soon as the insurance company pays the debt, it's eliminated, it's not treated as a bad debt. And this is a huge problem for consumers all over the United States.


    Your office said this was the result of more than a year of working with these credit companies. You also said they worked cooperatively. If that's the case, why did it take so long?


    Well, we started the investigation and found the stuff that was very troubling. There are a lot of errors.

    The FTC has estimated that 10 million Americans have errors that are significant enough to affect the cost of borrowing. So, we were finding the cause of the errors and the way they managed their data. And to their credit, pretty — not too far into the investigation, they said, well, look, maybe we should try and negotiate some reforms to fix the way we do things going forward.

    And we kept raising issues, and they kept responding. So, they were cooperative in that sense. They really did enter into an agreement that creates the biggest overhaul of this industry in many, many years. And we have been working with our colleagues in the Consumer Financial Protection Bureau, who are also focused on this area.

    And I think people are going to see a lot of changes. Credit reports are going to be easier to get. There are going to be hyperlinks on their site so you can get a free credit report more easily. And if you have a complaint sent in and it is resolved in your favor, you will be able to get another credit report for free just to check to make sure they did it the right way.

    So, you are going to see consumers getting their complaints resolved, getting bad data off their reports. This is going to provide a huge relief to some of the 200 million Americans who are on credit reports when they're buying homes, when they're buying cards, when they're trying to get a credit card or trying to get a job. So this is a huge breakthrough in this area.


    Well, you just answered the question I was going to ask, which is, what are consumers going to see that is different? And you just described that.

    But, finally, let me just quickly ask you, what about people who have generally good credit? Are they going to see anything different?


    Well, sometimes, people who generally have good credit get bad information put into their credit reports.

    Unfortunately, a very small portion of Americans actually go online and get — which you can get it at — get a free credit report and check. I have been very surprised that we discovered some people who are very, very well off financially actually had bad credit reports, because there was, mistakenly, some bad information in there, because the data furnishers, who are the lenders, their data really wasn't being checked by the credit reporting agencies.

    And even when there were repeated complaints about one data furnisher, the agencies weren't taking looking at them at taking corrective action. So, now they're required to do so. We think it's going to make a very big difference in the system.

    But we will be monitoring it. We will be working with them to implement it and we will be working with our colleagues in Washington to make sure that it gets done the right way.


    Eric Schneiderman, attorney general for the state of New York, we thank you for talking with us.


    Thank you.

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