WASHINGTON — Mississippi has sued credit reporting giant Experian, alleging sweeping errors in the company’s data and routine violations of consumer protection laws. Mississippi’s action – and a previously unreported multi-state investigation of credit bureaus led by Ohio – represent a significant new legal challenge to the industry.
Mississippi Attorney General Jim Hood’s complaint against Experian Information Solutions was filed without fanfare last month in a Biloxi state courthouse and transferred to Mississippi federal court late last week. The lawsuit accuses Experian of knowingly including error-riddled data in the credit files of millions of Americans, jeopardizing their ability to obtain loans, employment-related background checks and sensitive government security clearances. Experian has even wrongly reported that consumers are on a federal terrorism watch list, the lawsuit said.
Both Experian and a spokesman for its trade group, the Consumer Data Industry Association, declined to discuss the litigation or related questions about the quality of the company’s data.
Experian warned investors earlier this year that the U.S. Consumer Financial Protection Bureau and its British counterpart were regulatory agencies responsible for protecting consumers and said, “It remains uncertain how these bodies may affect our credit and consumer business processes and business models in the future.”
Experian told investors that, to the best of its knowledge, it complies with data protection requirements, but it warned that, “We might fail to comply with international, federal, regional, provincial, state or other jurisdictional regulations, due to their complexity, frequent changes or inconsistent application and interpretation.”
Despite the errors, the Mississippi lawsuit said, Experian provides no straightforward way for consumers to correct erroneous blemishes affecting their credit. When consumers file a dispute, Experian reflexively finds in favor of the bank or debt collector that reported the debt, Mississippi said. And when consumers call to complain, the lawsuit said Experian employees attempt to sell consumers credit monitoring products of questionable value.
“Experian has turned its failures to maintain accurate credit reports and its refusal to investigate consumer disputes into a business opportunity,” Hood, a Democrat, said in a statement.
Less information was immediately available about the separate investigation being conducted by Ohio and other states, though Republican Ohio Attorney General Mike DeWine has regularly criticized the credit bureaus for inadequate quality control and consumer protections. According to two people familiar with the investigation, attorneys general have demanded and received records from both Experian and its primary competitors, TransUnion and Equifax. Experian is the largest of the companies, with revenues of $4.8 billion last year. The people spoke on condition of anonymity because they were not authorized to publicly discuss the confidential investigation.
The key allegations in Mississippi’s complaint are not entirely new: consumer advocates, plaintiffs’ attorneys, the Federal Trade Commission and the Consumer Financial Protection Bureau have assailed credit bureaus for inadequately addressing erroneous credit reports. According to an FTC study, 5 percent of all consumers’ credit reports contain errors that could harm their ability to obtain credit.
The Mississippi complaint stands out as the first major legal action by a state against a credit bureau in recent years, however, and its litigation may pressure other states and federal agencies to take public action.
Much of Mississippi’s case appears to be rooted in documents obtained directly from Experian. At the company’s request, examples of allegedly inappropriate business practices were censored in the public court filing because Experian considers them a trade secret.
Experian’s alleged misconduct has harmed Mississippi consumers, the lawsuit said. Because of the company’s alleged failure to maintain reasonable procedures to verify credit information and correct mistakes – a violation of the federal Fair Credit Reporting Act – consumers have been wrongly hounded for debts they did not owe, blocked from taking out loans and threatened with the loss of top secret military clearances.
Mississippi alleges that even simple errors in Experian files – such as a credit file that wrongly stated that a Mississippi resident described in the complaint as “Consumer 5” was dead – can prove nearly impossible to fix.
“At first, Consumer 5 and his wife thought it was funny,” the complaint said. But months later, his unsuccessful efforts to fix the error cost him the ability to purchase a truck at a favorable interest rate.
In another example cited in the Mississippi complaint, a lieutenant colonel in the Army National Guard was denied credit and forced to buy numerous credit monitoring services due to Experian’s failure to distinguish between his credit history and those of other people in his family. Mississippi also alleges that consumers have lost access to the financial system after Experian wrongly confused their credit files with those of people on a U.S. Treasury Department terrorist watch list.
At the root of Experian’s misbehavior, Mississippi claims, is how the company gathers data in consumers’ credit reports. The company – like its peers – builds consumer credit files out of proprietary data – such as whether a person has made regular payments on his mortgage. It also uses public records – such as whether court records list a tax lien on a person’s home. Banks and other prospective creditors that subscribe to the credit bureau’s service see both types of records but consumers who request their own credit reports sometimes receive only the proprietary data, leaving them in the dark about public records that can be inaccurate.
A second alleged violation of the law occurs when consumers dispute alleged inaccuracies in their credit reports. Under federal law, credit reporting bureaus are required to conduct a free, reasonable reinvestigation of consumer complaints. According to Mississippi investigators’ interviews with former Experian employees and Experian’s own documents, the lawsuit said, “Experian fails to conduct any – let alone a reasonable – reinvestigation of consumer disputes regarding their credit history or accounts.”
Consumer advocates have argued that lax quality control and investigations of disputes is part of the credit bureaus’ business model. While the deficiencies cited by Mississippi sometimes result in costly lawsuits by aggrieved consumers – an Oregon woman won an $18.6 million jury verdict against Equifax last year – such legal costs are cheaper for the credit bureaus to pay than it would be to improve their systems.