U.S. PIRG Consumer Blog: Could the credit bureaus be credit doctors?

Monsters come out at night from under the bed. But one of the most dangerous times for consumers is actually all day long, 24/7, in the last few weeks of any two-year Congressional session. That's monster time. That's right now. That's when the special interest lobbyists come out both day and night. They ratchet up their efforts to pass bad legislation that favors them; even worse, they do it outside the regular order of business. Instead of passing bills after hearings and through committee votes, they cut deals in backrooms, or slip new language into floor "packages."

The so-called Big 3 credit bureaus are making just such an end-game play in an effort to immunize themselves from the Credit Repair Organizations Act of 1996. CROA was passed to protect consumers from credit repair doctors, who make false promises that they can fix your credit. As a deterrent, the law prevents companies from collecting fees in advance, before services are performed.

But what if the credit bureaus themselves sell products that falsely claim they can fix your credit? What if the credit bureaus themselves collect money in advance for that service? Could the credit bureaus be credit doctors because they sell credit monitoring? Could their billion dollar revenue stream for a heavily-advertised product that doesn't stop identity theft and cannot improve your credit be cut off by CROA? Or, instead, will Congress immunize them by creating a special-interest safe harbor so that the bureaus can do what others cannot? Will the bill also take away strong mechanisms used to go after sleazy debt collector practices, too? Will the bill be so poorly written that credit doctors will be able to hide behind its immunities also? MORE:

A few years ago some consumer lawyers sued some of the credit bureaus, alleging that credit monitoring was a credit repair product. They also sued some of the credit card companies and so-called "membership club" companies that make huge commissions for selling credit bureau credit monitoring to their own customers. The cases allege that credit monitoring is no different than any other tawdry credit doctor product. [It actually is different. Credit doctors make a few thousand here or there; most estimates place the annual credit monitoring revenue stream at a billion dollars a year and rising.]

So the credit bureaus came to Congress and asked for a fix. Not only that, they asked that the fix be retroactive. They want Congress to pass a bill that will cancel the existing lawsuits, not merely prevent future lawsuits. Last spring, the House Financial Services Committee passed HR 3997. We've criticized that bill (LaTourette-R-OH and Hooley-D-OR) extensively because it includes a weak data breach notice provision and it would also preempt 20 state security freeze laws available to anyone. (Longer list of problems here).

HR 3997's Section 6 provides sweeping and retroactive immunity for credit bureaus, their friends, affiliates, relatives and business partners -- and perhaps credit doctors themselves -- from liability for violations of CROA. Recently, Senator WIlliam Bennett (R-UT), along with Sens. Debbie Stabenow (D-MI) and Tim Johnson (D-SD) introduced S 3662, a virtually identical companion bill.

In letters opposing the House proposal, here is an excerpt from what U.S. PIRG, Consumer Federation of America, National Consumer Law Center and National Association of Consumer Advocates have said:

We write to ask you to work to remove the amendment to the Credit Repair Organizations Act (CROA) currently included in Section 6 of H.R. 3997. In addition, we urge you to oppose the inclusion of this section in any other data security bill negotiated for Floor action. This proposal undermines a viable and important consumer protection law, going far beyond the stated purpose of relieving credit monitoring activities from coverage under the Act.
Currently, CROA broadly applies to any person who, in return for money, provides services to improve a consumer's credit record. Only non-profit organizations and a few other entities are exempted. In addition to requiring key disclosures, and mandating important contract terms, the Act prohibits credit repair agencies from violating standards of truthfulness, fraud or deception.

Advocates for consumers have found CROA a useful tool in dealing with a range of bad actors in the credit marketplace, a tool which will no longer be available if the CROA amendment in H.R. 3997 is enacted. Below are some examples of the consumer protections in the current law that would not be available under this amendment.

-- When run-of-the-mill credit repair businesses deceptively advertise their ability to improve consumers' credit scores by exaggerating what they can accomplish, CROA offers protections against this deception.
-- When debt collectors collect debts by deceptively promising improvement of a consumer's credit rating, CROA's prohibition against deception can be brought to bear.
-- Some payday lenders are now advertising themselves as credit repair specialists to evade state restrictions on interest rates; activities to which CROA's protections clearly apply.

The amendment to CROA in H.R. 3997 for credit monitoring activities includes broad and sweeping exemptions. It would allow anyone who characterizes their services as providing "access to credit reports, credit monitoring notifications, credit scores ...., any analysis, evaluation or explanation of credit scores . . . ." to be exempted from coverage under CROA so long as they provide a new disclosure and cancellation rights for credit monitoring services. In other words, any business that is currently defined to be a credit repair organization under CROA can simply escape the coverage of CROA by slightly changing the description of what they do from promising to "improve credit" to providing -- for example -- analyses and projections of a person's credit score. CROA's current strict prohibition against deception and fraud would no longer apply to that business.

The bureaus argue that the CROA was never intended to affect them. They claim that the Fair Credit Reporting Act (FCRA) provides a comprehensive enforcement scheme for credit bureaus themselves. They claim that the punitive damages exposure posed by CROA is unfair.

Consumer groups disagree, especially when the bureaus' proposed fix will probably make things worse for consumers. And even though the Financial Services Committee did approve HR 3997 with Section 6, no hearings were ever held, and the Senate has held none.

The marketing of credit monitoring services has always been tawdry, and the FTC has not seen fit to impose adequate penalties on the bureaus for misleading consumers about credit monitoring. [In 2005, the FTC did fine Experian a token $950,000 (essentially chump change) for deceiving consumers into thinking that credit monitoring was "free."]

Private enforcement is an effective deterrent that should not be undermined and Congress should not pass legislation that may gut a comprehensive law at the behest of powerful special interests.

That's especially true with credit monitoring. It doesn't stop identity theft, it simply makes money for credit bureaus.