Enhanced rights for borrowers are on horizon

NATION'S HOUSING

June 26, 1994|By Kenneth R. Harney

Washington -- Homebuyers whose mortgage applications are jeopardized -- or torpedoed -- by inaccurate information in credit bureau files are on the verge of major new protections nationwide.

The House of Representatives passed its version of the Consumer Reporting Reform Act of 1994 on June 13, and expects to conclude negotiations on a similar bill already passed by the Senate. Final legislation should hit President Clinton's desk this summer.

Why should you care? Plenty of reasons -- beginning with the fact that if you ever intend to refinance your mortgage, buy a new house, rent an apartment, or apply for a home equity loan, computerized credit files you've probably never seen will play a crucial role. Lenders will gauge what interest rate to charge you -- or whether to loan you a cent in any case -- based in part on what they see in your credit files.

The three largest national credit file "repositories" -- TRW, Equifax and TransUnion -- maintain an estimated 450 million files on consumers, and receive and store billions of bits of information from banks, department stores and other creditors every month. As the repositories themselves are frank to admit, some of that information is dead wrong. Because of foul-ups at the local level -- department stores getting your Social Security number wrong, or a mortgage lender misreporting late payments on your account -- your credit file may contain substantial errors.

And since many lenders now use electronic "credit scoring" to allow quick thumbs-up or thumbs-down decision making on loan applications, you may be turned down for your next home loan for utterly wrong reasons. Unfair turndowns -- plus allegations of credit industry laxity in correcting errors in files -- have been the single largest source of consumer complaints to regulators like the Federal Trade Commission and state financial oversight agencies. In Maryland, for example, state consumer credit commissioner Alan T. Fell says he receives more complaints per year on the handful of credit bureaus he licenses than on all the other 3,700 financial industry firms he regulates.

The new bill is intended to change much of this. The two key backers in the House, Rep. Joseph P. Kennedy II, D-Mass., and Rep. Henry B. Gonzalez, D-Texas, call it "the most important piece of consumer legislation that Congress considers this year."

Here's what it will do when finally signed into law:

* Give you quicker and cheaper access to your credit files. The bill sets a limit of $3 for an annual copy of your credit report from any repository, and an $8 charge for additional copies during the course of the year. If you are turned down for a mortgage or other financing because of negative information in your file, credit bureaus will be required to provide you one copy of the report free of charge within 60 days of the adverse action by the creditor, and at the conclusion of a reinvestigation when incorrect information on you was deleted.

* Provides new protection for consumers disputing information in their files. Credit repositories will be required to investigate complaints of inaccurate data within 30 days -- a standard they say they often meet today. The bill also requires bureaus to maintain strict procedures to prevent reinsertion of previously deleted, adverse information unless the creditor providing the data can certify its accuracy. In addition, the bill requires consumers to be notified when previously deleted information is put back into their files.

* Clamps new legal liability on credit information providers to maintain high standards of accuracy in their own consumer files. For example, if a department store or mortgage lender is notified that its information on you is incorrect, and still does not delete the bad data, you'll be able to sue the creditor for damages.

* Provides new restrictions on lenders and other merchants using your credit files to fish for pre-qualified borrowers, such as for home equity lines of credit. The bill would ban such solicitations unless they include a firm offer of credit -- that is, virtually guarantee you a loan -- and include disclosures on how your name was obtained (for example, from a particular credit repository who sold your marketing profile). Most significantly, the bill prohibits the use of a consumer credit report for target marketing without the consumer's express permission, and guarantees you the right to have your name removed from future marketing lists.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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