Spector, Mary B.

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Southern Methodist University

Testimony ofMary SpectorAssociate Professor of LawSMU Dedman School of Law1on Examining the Uses of Consumer Credit DatabeforeSubcommittee on Financial Institutions and Consumer CreditCommittee on Financial ServicesUnited States House of Representatives Washington, D.C.September 13, 2012Chairwoman Capito,  Ranking Member Maloney, my name is Mary Spector. I am anassociate professor at SMU Dedman School of Law where I teach consumer law and direct aconsumer advocacy clinic. Thank you for the opportunity to appear before you today to discussways in which changes in consumer reporting might improve consumers’ access to credit,eligibility for jobs and access to affordable housing and insurance.Since 1970, The Fair Credit Reporting Act (?FCRA”)2 and its amendments have balancedthe market’s need for accurate information against consumers’ interests in protecting sensitivepersonal and financial information.3   The primary method used to protect consumers is to limitor exclude the reporting of certain information. That is the general approach taken by the FCRA,which defines its requirements for reporting information largely by what is excluded.  For1 My appearance before the Subcommittee is not in any representative capacity. I am notrepresenting any organization or organizations in connection with my testimony. I provide myinstitutional affiliation for identification purposes only. The opinions contained in my testimonyare my own and are not intended to reflect those of the University.2  15 U.S.C. §§ 1681- 1681u.3  See 15 U.S.C. § 1681.example, credit reports may not contain bankruptcy filings that pre-date the report by more than10 years,4 or civil suits, judgments and arrest records that pre-date a consumer report by morethan seven years or until the applicable limitations period has expired.5  The Act also limits thereporting time for paid tax liens,6 accounts placed for collection and other adverse information,which may continue to appear on a credit report for seven years after payment.7  It is also theapproach states take in preventing reporting of certain public record information regardingeviction litigation8  and payment histories with respect to public utilities.9  And, it is theapproach taken in H.R. 2086 by the Medical Debt Responsibility Act, which I believe is animportant first step in changing methods of consumer reporting in ways that benefit consumers’access to housing, employment, credit and insurance. Some estimate that outstanding medical debt accounts for as much as 50% of thenegative information appearing on credit reports.10  A researcher at the University of Minnesota4  15 U.S.C. § 1681c(a)(1).5  15 U.S.C. § 1681c(a)(2).6  15 U.S.C. § 1681c(a)(3).7  15 U.S.C. § 1681c(a)(4).8  See, e.g., Cal. Civ. Code § 1785.13.9  E.g., N.J. Stat. Ann. § 48:3-85 (West); 52 Pa. Code § 54.8, D.C. Mun. Regs. tit. 15, §3107.  See also 2011 NY A.B. 4830 (NS), 2011 New York Assembly Bill No. 4830, New YorkTwo Hundred Thirty-Fourth Legislative Session.10 See Mark Rukavina, The Financial Burdens of Health Care , 20 COMMUNITIES &BANKING 9,11 (2009)2estimates the error rate in medical billing is between 30% to 40%.11  When those numbers areplugged into a payment system in which entities other than the consumer may be responsible forpayment, it should be no surprise that resolution of accounts can be confusing, time-consumingand frustrating.  Even after the bills are paid, the presence of a paid medical debt on a creditreport can have a devastating effect on a consumer’s access to future credit and employment.  That was the case of Steve and Tara Barnes, whose medical bills for Tara’s treatment hadbeen turned over to a collection agency while Steve was still talking to the insurance companyabout who was responsible for what.12  Even after Steve paid the bills -- amounting to about$600 --  their presence on the Barnes’ credit report cost the couple when they refinanced theirhome. They estimate they paid $1700 more up front than they would have had to pay had theaccounts not appeared on the credit report13   Passage of the Medical Debt Responsibility Actwould help Steve and Tara Barnes and consumers like them by requiring the removal of medicalaccounts paid more than 45 days prior to the consumer report.  However, any benefits the Barnes might enjoy from the Medical Debt Responsibility Actcould be overshadowed by the widespread addition of so-called alternative data contemplated inH.R. 6363.  Described as a method to report “positive credit information,” careful examination11  See Jessica Silver-Greenberg, How to Fight a Bogus Bill:  Many Medical Bills ContainErrors That Could End Up Wrecking Your Credit Score. Here's What You Need to Know, WSJOnline (Feb. 28, 2011).12  Carla K. Johnson, Medical bills can wreck credit, even when paid off, USA Today(Mar. 5, 2012), available athttp://www.usatoday.com/news/health/story/health/story/2012-03-05/Medical-bills-can-wreck-credit-even-when-paid-off/53367464/1.13 See Gerri Detweiler, Could A Medical Collection Account Keep You FromGetting A Mortgage?, Credit.com (Aug. 2, 2011).3of the proposal reveals much more: The bill is not limited to so-called positive information and would enable thereporting of all payment information, including whether the consumer qualifiesfor payment assistance program.   The proposed bill does nothing to deter the transfer of billing errors, reduce errorson existing reports, or improve the system of dispute resolution, which a recentinvestigation by the Columbus Dispatch describes as a ?mess that cries forredress.”14Widespread reporting of so-called alternative data has the potential for thickening a thinfile or creating credit histories for consumers without existing files.  However, in consideringH.R. 6363, the following should also be taken into account: The thickening of a file with negative information or the creation of negativecredit history where none previously existed can have a significant negativeimpact on a consumer, particularly with respect to employment matters. When itcomes to employment and insurance, no credit history is better than a poor credithistory.15  Of the nearly 50% of employers who currently use credit reports in14  The Inside Story:  Our digging finds mess that cries for redress, COLUMBUS DISPATCH (May 5, 2012), available athttp://www.dispatch.com/content/stories/insight/2012/05/06/1-our-digging-finds-mess-that-cries-for-redress.html.  In May 2012, the Columbus Dispatch published a multi-part series based onits year-long investigation into nearly 30,000 complaints made to the Federal Trade Commissionand offices of attorneys general in 24 states.  See Jill Riepenhoff and Mike Wagener DispatchInvestigation:  Credit Scars, COLUMBUS DISPATCH (May 6, 2012).  15  See Karen K. Harris, Full Utility Reporting: Panacea or Scourge for Low-IncomeConsumers? THE SHRIVER BRIEF (July 18, 2012).4hiring decisions, the vast majority use them as a negative factor; only 14% use thecredit report as a positive factor.16 Two states and the District of Columbia currently prevent the reporting of all suchinformation.  The issue is under study in a third state, while others, like my ownhome state  – Texas – prevent the reporting of disputed accounts unless and untilthe matter is resolved against the consumer.17   For some consumers, creditors’ access to alternative information may enhancetheir creditworthiness.  In such cases, existing voluntary opt-in opportunities toprovide alternative data should be explored and, if appropriate, encouraged.18Limits on reporting paid medical debt will almost certainly improve consumers’ access toaffordable credit, housing, insurance and jobs.  While the addition of alternative data to thereporting system may provide some benefits to consumers, it should be considered only as partof a larger package of reforms designed to reduce errors, increase accuracy and improve the16 Society for Human Resource Management, Background Checking: Conducting CreditBackground Checks 2, 4-10 (July 19, 2012)., available at http://www.shrm.org/Research/SurveyFindings/Articles/Pages/CreditBackgroundChecks.aspx. 17  See Tex. Util. Code.  § 17.152; Tex. Adm. Code § 25.481(c). Texas also prohibitscollectors, including most creditors, from reporting account information to third parties as beingundisputed when the consumer has given the creditor written notice of a dispute.  Tex. Fin. Code§ 392.301(a(4).18  Under the Equal Credit Opportunity Act and Regulations B, creditors must considerinformation upon the consumer’s request if the consumer believes the credit report or score isnot providing an accurate picture (i.e.,  favorable enough) of credit. 15 U.S.C. § § 1691 - 1691f;12 C.F.R. § 202.6(b)(6)(ii).5procedures for resolving consumer disputes.19  There are a number of alternatives available forimproving the current system of credit reporting to provide fair and accurate information whileprotecting consumers’ privacy. They include: Restricting or prohibiting the reporting of certain public records, such as civilfilings until after final disposition,20 or unpaid tax liens.21  Limiting the amount of weight given to suits or judgments for amounts less than$5,000 or $10,000 in certain types of cases or from certain types of courts. Limiting the use of  ?name only" reports, which capture information that hasnothing to do with the consumer whose report is actually sought, causingsignificant and potentially long-lasting harm.22 Heightening the duty of re-investigation to require CRAs and data furnishers toprovide meaningful substantiation in disputed cases.23 Providing consumers with greater rights with respect to the reporting of court19  See Karen K. Harris and Susan Ritacca, Alternative Credit Data:  To Report or Not toReport, That is the Question, 44 CLEARINGHOUSE REV. 391, 399 (2010).20  See, e.g.,  Cal. Civ. Code § 1785.13.21  See Danshera Cords, Lien on Me:  Virtual Debtors Prisons, the Practical Effect of TaxLiens and Proposals for Reform, 49 U. LOUISVILLE L. REV. 341 (2011) (proposing FCRA bechanged to remove unpaid tax liens from consumer reports seven years after they becomeunenforceable).22  See Mike Wagner, Dispatch Investigation:  Credit Scars:  Car-buyer flagged asterrorist, COLUMBUS DISPATCH (May 7, 2012)23 See Karen K. Harris and Susan Ritacca, Alternative Credit Data:  To Report or Not toReport, That Is the Question, 44 CLEARINGHOUSE REV. 391, 399 (2010) (advocating change inburden of proof from consumers to data furnishers).6records and other information that may be technically accurate but incomplete ormisleading, as in the case of public records resulting from unfair collection orlitigation practices.24  Thank you for the opportunity to share my views with the Subcommittee.24  See  Mary Spector, Where the FDCPA Meets the FCRA: The Impact of Unfair DebtCollection Practices on the Credit Reports,(Work in Progress) and  Presentation Delivered atSymposium Credit Scoring and Credit Reporting, Suffolk University Law School (June 7, 2012).See also Mary Spector, Debts, Defaults and Details: Exploring the Impact of Debt CollectionLitigation on Consumers and Courts,  6 Va. L. & Bus. Rev. 257 (2011) ( finding evidence ofunfair collection practices used in litigation to collect consumer debt); Peter A. Holland, The OneHundred Billion Dollar Problem in Small Claims Court:  Robo-Signing and Lack of Proof inDebt Buyer Cases, 6 J. BUS. & TECH. L. 259 (2011) (discussing courts’ treatment of robo-signedaffidavits and advocating use of strict proof standards).  See also Sykes v. Mel Harris & Assoc,L.L.C , No. 09-Civ.848, (S.D.N.Y. Sept. 4, 2012) (granting motion to certify class of more than100,000 consumers against whom default judgments allegedly were entered fraudulently).7

Testimony of Mary Spector on Examining the Uses of Consumer Credit Data before Subcommittee on Financial Institutions and Consumer Credit Committee on Financial Services

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Testimony of Mary Spector on Examining the Uses of Consumer Credit Data before Subcommittee on Financial Institutions and Consumer Credit Committee on Financial Services

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