TRW Inc., one of the nation's largest credit reporting agencies, Tuesday settled major lawsuits with federal and state authorities by agreeing to make massive operational changes to reduce errors and correct mistakes in reports within 30 days.
The lawsuits, brought by the Federal Trade Commission and attorneys general in 19 states including California, represent the largest actions to date against the credit reporting industry, whose activities have prompted widespread criticism and several congressional hearings in the past two years.
At a news conference, Barry Cutler, director of the FTC's Bureau of Competition, characterized the settlement as essentially the government giving TRW "a tough fix-it order."
By signing the consent order, Cleveland-based TRW did not admit or deny guilt. But the company, which maintains files on 170 million Americans, committed itself to improving the accuracy of its oft-maligned reports and responding quickly to consumer complaints.
TRW, whose credit reporting operations are headquartered in Orange, said it has already implemented many of the procedures and provisions of the agreement and would work with the FTC and state officials to improve performance.
"We believe the attorneys general and the FTC share our concern about the needs of consumers." TRW said in a statement. "This agreement formalizes our intention to work together."
Cutler said the agreement will help consumers who try in vain "to get information corrected month after month." He noted that credit matters are the biggest single source of consumer complaints to the FTC, prompting 10,000 letters this year.
He said the action involving TRW is a "very strong signal" to the rest of the credit bureau industry about the intensity of feelings on the subject and the determination of federal regulators and Congress to respond to growing public anger. Consumers are "mad as hell and don't want to take it anymore," he said.
The settlement, which was approved in Dallas by U.S. District Judge Barefoot Sanders, was endorsed by the FTC and several big states, including New York, Illinois, Texas, Florida, Ohio and Pennsylvania. TRW said it will pay $300,000 in costs to the states.
In Sacramento, Atty. Gen. Dan Lungren applauded the settlement, which he said would improve the accuracy of credit reports on millions of California residents.
"We are very pleased," Lungren said. "TRW admits no violation of any state or federal law, but this requires them to be more consumer-friendly than they have been in the past." His office has received more than 2,000 complaints from Californians about TRW.
There are 900 credit bureaus issuing reports, which are used widely in distributing credit cards and approving car loans, home mortgages and rental agreements, and in screening job applicants. But the industry is dominated by three large firms--TRW Information Services, Equifax Inc. in Atlanta, and Trans Union Corp. in Chicago.
Tuesday's order settles charges by the government that TRW violated the federal Fair Credit Reporting Act by "failing to maintain and follow reasonable procedures to assure maximum possible accuracy of the information contained in its consumer reports."
The most common problem for consumers comes when a credit report is "mixed," with information about several different people. Responding to a request for a report on Tom Jones, the computers at TRW, or any other credit bureau, may spew out information on three or four men named Tom Jones. Some of them may have defaulted on loans or skipped credit card payments.
The consent order calls on TRW to obtain more "identifiers," additional pieces of information. For example, when a department store asks TRW for a report on Tom Jones, the credit bureau will ask the store to supply Jones' full name, including his middle initial and whether he is Tom Jones Jr. or Tom Jones III, and his complete home address, including ZIP code.
"Stores will get less information but it will be more accurate," said Cutler of the FTC. "Before the bias had been in favor of throwing in all the garbage. Now there will be a bias toward having more accurate information."
TRW must change its computer systems next year to reduce the occurrence of mixed files. If a consumer disputes the accuracy of an entry in his or her file, TRW must investigate it within 30 days, according to Tuesday's consent order. If the information cannot be verified, it must be deleted from the file.
The consent order also requires TRW to issue reports to consumers "in plain, easily understood language," said New York Atty. Gen. Robert Abrams. The company's reports "are virtually incomprehensible to consumers because they use more than 170 different codes, symbols and abbreviations," he said.
Starting in 1993, reports disclosed to individual consumers must also include a risk score, the calculation in which a credit bureau decides the likelihood that an individual will skip payments, default on loans or commit fraud. TRW sells information from its massive files to other reporting agencies. These firms resell the reports on individuals to corporations checking job applicants. If TRW issues a report likely to harm a person's chances of getting a job, it must inform that person.
John McGee, TRW's vice president for public affairs, said Tuesday that "most items in the settlement are already part of current law or things TRW is already doing. We have never violated a law."
He said the company signed the consent order to get "this behind us, and go ahead with running our business." TRW is in the midst of a three-year, $30-million program to improve its record-keeping system, which handles 1 billion pieces of information a month, McGee said.
Cutler, the FTC official, refused to say whether the other two leading credit bureaus--Equifax and Trans Union--are under investigation. But he made it clear that credit reporting problems are a top priority.
"TRW was the most willing to negotiate a settlement," he said. "Other major cases are under way."
Equifax declined to comment on the TRW settlement. But Vice President John Ford said many of the procedures TRW will adopt "appear to be practices that Equifax has either initiated voluntarily or has had as a matter of standard operating procedure for some time." Oscar Marquis, general counsel for Trans Union, said the consent decree "to a large extent confirms industry practice."
Responding to critical scrutiny by Congress and the public, both Equifax and TRW have announced consumer-friendly improvements recently, including toll-free phone lines.
But the consent decree forces TRW to take actions long resisted by the credit bureaus, industry critics said Tuesday.
"I think that the leading companies in the credit reporting industry have been crying uncle," said Robert Ellis Smith, publisher of the Privacy Journal based in Providence, R.I. He said the companies have long been capable of making such technological changes, but have resisted.
Evan Hendricks, publisher of the Privacy Times newsletter in Washington, said the consent decree is "fantastic. It's a big boon for consumers."
The settlement with TRW will provide strong incentives for Equifax and Trans Union to adopt similar policies, said Gerri Detweiler, a spokeswoman for the Bankcard Holders of America, an Arlington, Va., consumer group.
"The credit reporting industry is under intense pressure right now," she said. Rep. Esteban Torres (D-La Puente) said many provisions of the consent decree "emulate" provisions in his own legislative proposal on credit reporting. "This is really a great step for consumers," he said.
Times staff writers Chris Woodyard in Orange County and Jerry Gillam in Sacramento contributed to this story.
Correcting Credit Reports
TRW Inc., one of the nation's biggest credit reporting agencies, has settled state and federal charges alleging that many consumer credit reports included errors. The agreement requires TRW to do the following:
* Resolve complaints about erroneous reports within 30 days.
* Respond within four days to any consumer asking for a free copy of a credit report.
* Institute new systems to monitor accuracy.
* Take special steps to prevent "mixed" reports that mistakenly combine credit information on several people with similar names.
* Prevent the reappearance of serious derogatory information removed from a consumer's credit report as the result of an investigation.
* Inform a consumer when a report is issued with information that could lead to rejection of a job application.
* Pay $300,000 in legal costs in the state cases.
SOURCE: TRW Inc.