The heavyweight companies that keep credit files on about 200 million U.S. consumers are patting themselves on the back for unveiling steps to improve the accuracy of their records.
This would be laudable if it weren't so laughable.
The reality is that credit-reporting firms have been required for decades to ensure the accuracy of consumers' files.
They're not doing us a favor. They're just finally saying that they'll follow the law.
"For years, the credit-reporting agencies have scoffed at the law," said Scott Maurer, a law professor at Santa Clara University. "What's different now is that someone has said they're going to enforce it."
That someone is the New York attorney general, whose investigation into the credit-reporting firms' practices since 2012 led to a settlement last week with the industry.
As part of the deal, the top three credit firms — Experian, Equifax and TransUnion — agreed to streamline their procedures for resolving errors in their credit files. They also said they'd have human beings, rather than automated systems, handle dispute resolution.
Perhaps the most significant change for consumers is a new six-month waiting period before medical debts show up on credit files.
Many people have seen their credit scores drop as a result of medical bills that insurance companies have dawdled in paying, often causing doctors and hospitals to turn over bills to collection agencies. Now there will be extra time to accommodate insurers' foot-dragging.
"Credit reports touch every part of our lives," New York Atty. Gen. Eric Schneiderman said. "They affect whether we can obtain a credit card, take out a college loan, rent an apartment or buy a car — and sometimes even whether we can get jobs."
Congress gave the credit firms a green light to collect information on consumers under the Fair Credit Reporting Act, originally passed in 1970. However — and this is important — the law made clear that it was the responsibility of the industry, not the consumer, to ensure the accuracy of records.
Here's the exact wording of the law: "Whenever a consumer reporting agency prepares a consumer report, it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates."
Maximum possible accuracy. Not best guess. Not pretty good effort.
Stuart Pratt, head of the Consumer Data Industry Assn., a trade group, offered a "Kumbaya" take on things.
On the same day Schneiderman announced the settlement, Pratt unveiled what the industry calls a national consumer assistance plan that "builds on years of work by the credit reporting agencies." Coincidentally, the industry's plan contains the same terms as the settlement.
The plan, Pratt said, "will enhance our ability to offer accurate reports and make the process of dealing with credit information easier and more transparent for consumers."
He said credit-reporting companies "are always looking for ways to improve our procedures, and this consumer assistance plan will allow us to do that."
Points for chutzpah.
"They're trying to spin it as positively as they can," said Kurt Eggert, a law professor at Chapman University. "The reality is that they were facing a threat of sanctions."
Don't forget: Not one consumer has been asked by the companies to let them turn a buck by compiling and selling records of people's finances. The credit firms just do it.
Of course, such a system makes credit more available to consumers by giving lenders easy access to people's borrowing history. But the playing field has been tilted since the beginning in favor of creditors, not consumers.
The modern credit-reporting industry originated with a Tennessee grocer named Cator Woolford, who drew up a list of customers in 1898 for a local grocers' association. It included a description of each customer's creditworthiness.
Soon other merchants expressed interest in buying Woolford's list, and the business grew from there. In 1979, Woolford's Retail Credit Co. changed its name to what we know today as Equifax.
TransUnion was born in 1968 as the holding company for Union Tank Car Co., which leased rail cars to other businesses. Experian was created after Britain's leading credit-reporting company purchased TRW's U.S. credit business, then based in Irvine, in 1996. It's now based in Dublin, Ireland.
Last week's settlement is a step in the right direction. But it doesn't go far enough.
"These companies still have a lot of power," said Jeff Sovern, a law professor at St. John's University in New York. "The Fair Credit Reporting Act favors credit-reporting agencies and creditors over consumers."
Richard Cordray, the head of the federal Consumer Financial Protection Bureau, said last month that his watchdog agency plans to exert greater regulatory control over credit firms. This will include regular reports on how often consumers dispute the contents of their credit files, he said.
The agency can do more. Along with requiring that credit firms step up the accuracy of their records, the bureau should insist that the industry create a single website that consumers could visit to review their files and correct any errors.
As it stands, credit records must be requested from each firm, and correcting one company's file won't necessarily address errors in the other companies' files.
Consumers also should be given free access to their credit scores and clear explanations of how individual transactions affected their financial standing. They should be instructed on what steps could be taken to improve their score.
Chapman's Eggert pointed out that improving the quality of the credit firms' records isn't just in consumers' best interest.
"If you're a lender, why would you pay top dollar for a credit file if there was a risk that it contained lots of errors?" he said. "Improving their files is necessary to maintain the trust of lenders."
The profit motive — now there's something the credit firms can understand.