COLUMN ONE : Losing Faith in Credit Files : Consumers have flooded regulators with complaints about the credit reporting industry. Congress is considering several bills that would overhaul the firms’ practices.

A credit card scam left Bonnie Guiton feeling that she had been victimized twice--first by forgers and then by one of the nation’s largest credit bureaus, TRW Credit Data Division.

Canceling the forged Visa card and having $5,000 in fraudulent charges erased was simple enough, but she says her anger flared anew when she found that the incident had ruined her TRW credit report.

“Why should the consumer have the responsibility of smoking out all the credit bureaus?” Guiton asks.

Guiton’s credit horror story is one of the thousands recited annually to authorities in calling for reform of the credit reporting industry. While Guiton’s troubles are not unique, her title is: she is California’s top consumer affairs official and formerly was President Bush’s liaison to Congress in trying to reform the law that governs credit bureaus.

The attorneys general of six states, including California, had cases like Guiton’s in mind when they filed suit two weeks ago against TRW. Two separate lawsuits accuse TRW of failing to adequately prevent the mixing of incorrect information into the files of credit-worthy consumers, failing to promptly investigate and correct errors and invading privacy by selling individuals’ credit-derived data to junk mail firms without permission.

The lawsuits are the latest in a wave of attacks on the nation’s credit reporting industry, 90% of which is controlled by TRW and two other corporations. Consumers have flooded regulators with complaints about botched credit records, and Congress is considering several bills that would overhaul industry practices.

“The problems we are seeing are inexcusable,” said Evan Hendricks, publisher of a Washington-based newsletter on privacy and credit issues.

Consumers have a huge stake in the way the credit reporting industry handles its files. A bad credit report has become the scarlet letter of today’s just-charge-it society. A blemished credit history can stand in the way of a home loan, a car loan, obtaining a credit card, renting an apartment or being hired for certain jobs.

Officials of TRW and other credit bureaus deny that their records are fraught with errors and are fighting back. TRW filed a countersuit against the attorneys general of Texas and New York, claiming that states have no jurisdiction over the federally regulated credit bureau industry.

“We’re not out to abuse consumers,” said John McGee, a vice president for TRW Credit Data Division, based in Orange. A few errors are to be expected, he added, because “people occasionally fall through the cracks.”

Most consumers don’t check their credit records unless they are turned down for credit. Then they are likely to head to a local office of one of the Big Three of the industry: the TRW Credit Data Division of Cleveland-based TRW Inc., Equifax Inc. of Atlanta, or Trans Union Corp. of Chicago. Each maintains computerized files on more than 150 million Americans, covering virtually anyone who has ever applied for credit.

Of the 9 million people who look at their credit reports annually, about 3 million say they find errors, according to Associated Credit Bureaus, an industry trade association. Because the three major credit bureaus together have more than 450 million credit reports, the association says their error rate is less than 1%.

Consumer activists contradict that claim. Consumers Union, a nonprofit consumer advocacy group based in Mt. Vernon, N.Y., reported two months ago that nearly half of the credit records it studied from the nation’s largest credit bureaus contained some inaccuracies. About one-fifth contained serious mistakes that could cause denial of credit.

Another study, the results of which are hotly disputed by the credit bureaus, found instances of incorrect or outdated information that delayed mortgage loan approvals for 43% of the 1,500 metropolitan New Yorkers whose files were checked. Conducted two years ago by a Flanders, N.J., firm that conducts in-depth credit history investigations, the study listed Equifax as having 60% of the errors, followed by TRW with 24%, and Trans Union with 16%.

“Every day, we are uncovering substantial numbers of errors on a credit consumer’s file,” said James R. Williams, chief executive officer of the New Jersey company, Consolidated Information Systems.

The California Public Interest Research Group released a study last month that sampled 155 complaints to the Federal Trade Commission. Nearly two-thirds of the consumers who complained said they had contacted the credit bureau five times or more without remedy. About one-third said the bureaus refused to fix errors.

Consumer advocates say credit bureaus have little financial incentive to care about consumers. The customers for the bureaus’ data are credit providers--store owners, car dealers and the like--who pay a fee each time they check a credit record. Those same creditors supply updated information about bill-paying and delinquency habits to the credit bureau. Consumers are largely excluded from the process.

“It is very, very hard for someone to argue against a computer tape and it is very difficult to fight something you don’t know is occurring,” says Janlori Goldman, an ACLU attorney in Washington.

Maria Elena Acosta of Orange, for instance, requested a copy of her TRW credit history six years ago because she could not figure out why her applications for new credit cards were being rejected. Her record indicated that she was married, had two Social Security numbers and that her telephone bill was past due. In fact, she is single, has one Social Security number and says she always pays her bills on time.

It took several months, but she was able to prove the truth to TRW officials. They vowed to fix her report and explained that her data had become intertwined with that of another person with the same name.

But last year, the name of a yet another mystery husband cropped up on Acosta’s TRW credit report. “I guess I must be having lots of husbands without my knowledge,” she quipped.

The discovery led to more letters to TRW, including one by certified mail. Acosta said the credit bureau has yet to reply.

“They are ruining our credit,” said Acosta, a clerical worker. “They list information on your report without checking to make sure it is correct. They are not cooperating with us when it comes time to correct it.”

TRW’s McGee said that while mistakes can happen, the company has a policy of replying to all consumer correspondence within 48 hours.

Stanley W. Hulett, a consultant who served until last year on the California Public Utilities Commission, has had his own running feud with TRW.

When he moved to Washington in 1981 to become an assistant secretary of the Department of the Interior, Mobil Oil Co. erroneously sent an $80 bill to his former address. Eventually, Mobil wrote off the bill as a bad debt, and the notation was added to Hulett’s credit report.

Hulett said he discovered the unpaid bill during a routine credit check in 1986. He immediately paid Mobil, but TRW refused to fix the damaged credit report. The problem remained uncorrected until Hulett wrote to an influential congressman. He was then contacted by a TRW vice president.

“I just don’t think they handled it in a competent fashion at all,” Hulett said. “They get information from these people (credit grantors) and they don’t attempt to verify it at all. Garbage in. Garbage out.”

Credit bureau officials say they are not to blame for the kinds of errors that beset Hulett. They say credit bureaus, like police officers or dogcatchers, are viewed as the bad guys by many people because of their very nature.

“We are not held in the same reverence as doctors and ministers,” said Marvin B. Kaplan, a spokesman for Associated Credit Bureaus. “Any time someone keeps records on you, you are not going to love that person.”

Kaplan and other industry officials say credit bureaus have paved the way toward greater opportunities for consumers to receive credit. Information provided by the bureaus saves creditors millions of dollars annually that might otherwise be lost to bad loans.

And industry leaders say much of the responsibility for inaccurate reporting of credit data belongs to creditors.

In Guiton’s case, the credit card company apparently never notified TRW that she had been a victim of credit card forgery. Guiton initially blamed TRW, but now says she realizes that she was responsible for monitoring her own credit report.

“It is important for consumers to be very assertive in protecting themselves,” said Guiton, who heads the State and Consumer Services Agency, a 15,000-employee bureaucracy whose duties range from managing the state’s property to overseeing the way income taxes are collected.

The Fair Credit Reporting Act, the 21-year-old federal law that regulates credit bureaus, requires bureaus to investigate consumer complaints about a file’s accuracy. But different bureaus handle complaints in different ways.

TRW, for instance, has a policy of generally refusing to erase mention of a missed or late bill payment from a credit record even if a consumer can offer proof--a receipt or a canceled check--that the notation is incorrect. Instead, TRW asks the company or store that granted the credit to ascertain whether the consumer’s assertion is true. If the company or store still disagrees or refuses to verify, the matter once again becomes the consumer’s problem.

TRW officials say the policy is intended to maintain the accuracy of the database.

“We don’t want the information in the files to be bastardized,” explains Edward Barbieri, a TRW vice president.

If a credit bureau refuses to acknowledge a claim of error, the law provides that the consumer can write a 100-word statement to be placed in his or her file to help explain the negative information to any future credit grantor. In the case of TRW, consumers must pick from among dozens of pre-written explanations and check off a box that is entered into the bureau’s computers.

Critics of credit bureaus charge the law does not go far enough to protect consumers and that enforcement is lax. In response, a House subcommittee has held hearings laden with horror stories for three successive years as it weighs several bills aimed at strengthening the law.

Some of the tougher provisions in the legislation require that credit bureaus regularly provide free copies of credit reports to consumers, force bureaus to act on complaints about errors within 30 days, give the Federal Trade Commission broader regulatory powers and either ban the sale of credit report information to mass marketers outright or allow it only with a consumer’s permission.

TRW, Equifax and Trans Union each maintain direct marketing operations, selling names and addresses of people who fit certain characteristics desired by mass mail marketers. Credit bureaus typically combine public information like names, ages and neighborhood characteristics with credit-derived information like the number and types of credit cards, to sketch as complete a picture as possible about an individual or family.

By overlaying databases, credit reporting companies have become “information conglomerates” that “build empires out of the manipulation of personal information,” said Robert Ellis Smith, a credit bureau critic who publishes a privacy newsletter from Providence, R.I.

Based on lists of characteristics, TRW, Equifax and Trans Union have produced custom programs to meet the needs of direct mailers. For instance, TRW’s “Highly Affluent Consumer Database” lists more than 1 million households with estimated incomes of more than $120,000 a year. Credit bureaus also can find consumers whose credit standing leads to direct mail offers of “pre-approved” credit cards.

In the early 1970s, TRW had a code of ethics that barred the company from selling its millions of names and addresses to direct mailers. But the policy was discarded after competing credit bureaus entered the mass-marketing business.

“The world changed,” Barbieri explained. The policy is now so long forgotten that one TRW executive had to be reminded that it ever existed.

Critics charge such lists completely ignore privacy concerns.

“It’s certainly a betrayal of people’s trust, because people are giving (information) for the specific reasons of a credit transaction,” said Hendricks, the publisher of a privacy and credit newsletter. “They are never told this information is going to be sold.”

Credit bureaus say they never divulge particular data, such as precisely how much money is owed on a credit card. Likewise, bureau officials also say they have no way of determining a consumer’s exact income. And consumers can always write a bureau or the Direct Marketing Assn. in New York to ask that their files be closed to snooping for direct marketing reasons.

By joining forces with mass marketers, credit bureau officials say they are providing individuals with shop-by-mail bargains and other services they would not be able to receive otherwise.

“What is the harm?” asks TRW’s Barbieri. “People recognize there is no harm. There are a lot of benefits, so their whole mind-set changes.”

But even direct marketers are debating whether the credit bureaus have gone too far. More than half of the direct marketers questioned in a 1990 poll conducted by Equifax said the public is “genuinely concerned” about the use of credit bureau files.

Roy Schwedelson, chief executive officer of WorldData Inc., a company that sells non-credit mailing lists to direct marketers, said that credit information by its very nature requires “certain privacy guarantees” that are being ignored.

“You have a gun to your head. You must give that data or you will be denied credit,” he said. “For them to turn around and sell that data is uncalled for.”

Times researcher Nona Yates contributed to this article.

Obtaining a Credit Report

Credit reports can be obtained by mail; in California that cost is set by law at $8 for individuals and $16 for couples. Credit bureaus usually require a person’s full name, current address, former addresses for the past five years, date of birth, Social Security number and signature. If it is a joint report, the information must be provided for both people.

Consumers who are denied credit because of a bad report are entitled to know which bureau was the source of the information. They also are entitled to a free copy within 60 days of the denial.

To write or call: * TRW Inc. P.O. Box 749029 Dallas, Tex. 75374 (213) 254-9153 or (714) 991-6600 * Equifax 130 S. State College Blvd. Suite 100 Brea, Calif. 92621 (800) 456-1244 * Trans Union Credit Information Co. 1561 E. Orangethorpe Ave. Fullerton, Calif. 92631 (714) 870-5191

Getting Off a Mailing List The nation’s largest credit bureaus operate services that sell the names and addresses of consumers to direct marketers who pitch credit card offers, catalogs and other mailings. In the past year, they have agreed to jointly delete names of consumers who do not want their names and addresses to be sold by direct marketing agencies. Consumers can request that their names be removed by writing to any of the following : * Direct Marketing Assn. Inc., Mail Preference Service 11 W. 42nd St. P.O. Box 3861 New York, N.Y. 10163-3861 * Equifax Options P.O. Box 740123 Atlanta, Ga. 30374-0123 * TRW Target Marketing Division, Mail Preference Service 901 N. International Parkway Suite 191 Richardson, Tex. 75081 * Trans Union Corp., Consumer Relations Department TransMark Division 555 W. Adams Chicago, Ill. 60606