Giving new meaning to the phrase “credit given where credit is due,” the country’s three largest credit reporting companies have agreed to overhaul their reporting practices and implement what is being called the most sweeping industry transformation in more than a decade.
Under an agreement announced on March 9, 2015, with New York State, Equifax Information Services LLC (“Equifax”), Experian Information Solutions Inc. (“Experian”) and TransUnion LLC (“TransUnion”) will change the way they handle errors and report unpaid medical bills, and be more proactive in resolving disputes over credit report information. Most changes will be implemented nationally over the next six to 39 months.
According to the Wall Street Journal, the agreement builds in an additional layer of accountability to dispute resolution. The three credit-reporting firms will be required to use trained employees to review the documentation consumers submit when they believe there is an error in their files. If a creditor says its information is correct, an employee at the credit-reporting firm must still investigate and resolve the dispute.
Under the new agreement, unpaid medical bills—an increasingly common type of debt—will also be treated differently on credit reports. Approximately 43 million Americans have past-due medical debt on their credit reports, according to the Consumer Financial Protection Bureau. About 52 percent of all debt on credit reports is from medical expenses. Advocates for changes to the system have long noted that while unpaid medical bills ultimately result from consumers not paying, this is often the case because insurance companies delay reimbursements.
Now, medical debts won’t be reported until after a 180-day waiting period to allow consumers to catch up on their financial obligations and to allow insurance payments to be applied. When medical debts are paid by an insurance company, regardless of the time frame, they will have to be removed from the credit report soon after. In contrast, most delinquencies and other negative credit events stay on people’s credit reports for up to seven years.
In addition, medical collections that have been or are being paid by insurance will be removed from credit reports.
Additionally, consistent standards will be reinforced by the credit bureaus to data furnishers, the entities that submit data for inclusion in a credit report.
A working group will be formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.
Credit experts say the settlement marks the biggest reform for the credit-reporting industry since the 2003 passage of the Fair and Accurate Credit Transactions Act was passed, which required credit-reporting firms to give consumers access to their three credit reports free once every 12 months. The agreement also arrives more than two years after New York State Attorney General Eric Schneiderman’s office launched an investigation into credit reporting practices. The office began scrutinizing the credit-reporting industry after receiving complaints from consumers about errors and the difficult process to correct them. After engaging in dialogue with Schneiderman’s administration, the three firms agreed to a countrywide deal to avoid creating two systems (one at the state and another at the national level) for reporting.
The agreement is considered both overdue and progressive by federal watchdogs and consumer advocates, who have long claimed the way credit reporting companies collect and share information puts consumers at a disadvantage. In a statement, Schneiderman said, the pact “is a good sign that the reporting agencies are finally willing to step up their game and respond to the needs of hardworking consumers and their families.”
Experian, Equifax and TransUnion say that the attorney general’s investigation presented a valuable opportunity to better their services. The three reporting firms referred comment to the Consumer Data Industry Association, a Washington-based trade group that represents them.
“This dialogue with a state attorney general [gave] us the chance to have a dialogue with each other and work on details on how we can proactively pursue changes to our practices,” said a spokesperson for the Consumer Data Industry Association. The association also noted that the credit-reporting firms weren’t found in violation of any law.
No business is an island, and changes like these to the way the credit industry works will impact many types of organizations, from companies that extend credit, to health care organizations that work directly with patients on medical debt resolution.