TRW Moves to Halt Credit Unit Lawsuits : Litigation: The firm contends that federal law prohibits states from bringing legal action against its controversial credit-reporting business.
TRW Inc., in two suits filed Tuesday, said federal law prohibits attorneys general in six states from bringing legal action against its besieged consumer credit business.
The company named as defendants the attorneys general of New York and Texas. TRW, one of the nation’s largest credit agencies, said it meets “not only the letter but the spirit” of the law.
On Monday, the attorneys general from Texas, California and three other states sued TRW in Dallas, accusing the company of illegal practices that damaged the credit of thousands of consumers. New York’s attorney general filed a similar suit on Tuesday in Manhattan.
The suits maintained that TRW’s Credit Data division invaded the privacy of thousands of consumers by selling credit-derived information to junk mailers. The suits also alleged that TRW damaged the credit of many consumers by failing to promptly correct errors on credit reports.
TRW maintains that the suits are improper because the federal Fair Credit Reporting Act supersedes state laws. In a statement, the company said the lawsuits “followed months of discussions with both attorneys general’s offices. The discussions have unfortunately reached an impasse.”
The company said it would “protect its rights to provide consumer credit information to its customers” so that they “may serve the needs of consumers.”
The lawsuits against TRW come as the credit-reporting industry faces increasing scrutiny for allegedly poor record-keeping that has cost consumers loans, credit cards and even jobs. Congress is reviewing five proposals to strengthen the Fair Credit Reporting Act, and the California Legislature is considering ways to tighten the state’s laws.
Meanwhile, TRW is appealing what is believed to be the largest damages award in credit-reporting lawsuit. In April, a Wyoming jury awarded $290,000 to Paul K. Jacques, who said he was denied an auto loan because TRW confused him with his father, Paul J. Jacques. Industry analysts said it is probable that TRW will be hit with other suits from consumers, especially in wake of the suits by the six attorneys general. But these analysts said the suits probably will not have a large financial impact on TRW, an aerospace and defense contractor with $8 billion in annual revenue. Its consumer credit business, though highly profitable, accounts for about $300 million in annual revenue.
Eli S. Lustgarten, an analyst who follows TRW for Paine Webber in New York, said the lawsuits probably will force TRW to tighten its controls and to slow the growth of its credit-reporting business, which had been expanding 10% to 15% a year.
Lustgarten said TRW has an interest in providing accurate information. “If it’s not accurate, it’s not worth anything,” he said.
Howard A. Rubel, an analyst with C. J. Lawrence Inc. in New York, said the attorneys general were politically motivated. “It plays well,” he said of the lawsuits. “I think in the end we will find that TRW is an ethical company.”
TRW’s shares rose 37.5 cents on the New York Stock Exchange on Tuesday, to close at $42.50. In an interview, New York Atty. Gen. Robert Abrams said his staff is also investigating several of the other large credit-reporting agencies. But he said the New York attorney general’s office singled out TRW for action first because “our office was deluged with complaints of various kinds” about the company.
One of the chief allegations in both lawsuits is that TRW used a secret system to rate consumers’ credit-worthiness. The suits said about 30% of consumers were assigned point scores. A score of 100 signified the most credit-worthy consumer.
The suits say consumers were never told that the scoring system existed, a violation of various state laws. In addition, the suits said, reports given to consumers were more complicated and harder to decipher than reports given to department stores, car dealerships and other TRW customers.
The suits by the attorneys general don’t say how many consumers have been hurt and do not specify damages. A representative of the New York attorney general said thousands of consumers were affected; a California representative said the attorney general reviewed hundreds of cases obtained from the Federal Trade Commission through a Freedom of Information Act request.
