A RECENT federal court ruling in California could have far-reaching effects on consumers nationwide who discover errors in their credit reports while applying for a home mortgage.
The court turned down a request by the three dominant credit bureaus - Equifax, Experian and TransUnion - to dismiss class-action suits charging them with anticompetitive and predatory pricing practices in violation of federal antitrust and state fair-trade laws.
The suits were brought against the national bureaus last year by two dozen small, independent credit agencies that specialize in "rapid rescoring" for home buyers and other mortgage applicants. Rapid rescoring often can get erroneous negative information removed from the national bureaus' files within 48 to 72 hours - fast enough for the loan applicants to raise their credit scores and qualify for a lower interest rate and fees.
When consumers try to correct misinformation directly with the bureaus, by contrast, the process can range from 30 days to several months. That is far too long for lenders to hold open an application, or for home sellers to wait for a would-be buyer to obtain a needed loan.
The independent credit agencies charged in their suits that Equifax, Experian and TransUnion conspired to put them out of business by sharply raising prices for rescoring and credit data, and by prohibiting the independent agencies from directly charging consumers for rescoring services. In some cases, according to the independents, the national bureaus charged them prices five times higher for wholesale credit file data than they charged the independents' own lender customers directly on a retail basis.
The lender customers abandoned the independents in droves, forcing many of them to close or be purchased. Since the early 1990s, the number of independent credit reporting agencies has plummeted from about 1,000 nationwide to about 200 today, according to industry estimates.
By forcing them out of business or acquiring them, the independents claim, the three big bureaus could essentially control virtually all phases of consumer credit information - especially the critically important specialty of getting erroneous data in their files corrected quickly enough for home mortgage applications.
In a typical rescoring, a mortgage loan officer or broker pulls an applicant's three national credit reports and FICO scores. If erroneous negative information depresses the scores below what the applicant needs for a mortgage, the loan officer might refer the consumer to an independent credit agency for possible rapid rescoring.
