I've written a lot over the years about the need for government to step in when markets fail to protect consumers. The FCC's decision last month to reclassify broadband companies as common carriers was one such case - though, as I wrote Sunday, consumers might actually benefit from more of the "utility-style" regulation that Chairman Tom Wheeler has vowed to eschew. Others include the Federal Reserve's crackdown on credit-card traps and Dodd-Frank's creation of the Consumer Financial Protection Bureau.
Nearly every time, I get angry push-back from tea-party types and libertarians who question any intervention - even against monopolists or near-monopolists. Among the rare exceptions: the nation's three main credit-reporting agencies, which generate anger that crosses all political and ideological bounds. They're the quintessential example of companies you've got to deal with whether you want to or not, and they don't also deliver stuff you partiicularly like. Seriously, would you rather watch House of Cards or view your credit report?
That lack of consumer affection has never much restrained the credit reporting agencies (CRAs), since their business model has never depended on our voluntary patronage. So let's all credit New York Attorney General Eric T. Schneiderman, who yesterday announced what both sides call major changes to improve the credit-agency experience for consumers - including, at long last, an end to the infuriating practice of allowing a creditor to "verify" a disputed line on a credit report merely by verifying that the creditor said one more time that it was true. The settlement requires that "when a creditor verifies a disputed credit item through the automated dispute resolution system, the CRA will not automatically reject the consumer's dispute, but rather, a CRA employee with discretion to resolve the dispute must review the supporting documentation," the New York AG's office says.
Will the credit agencies finally clean up their act, especially now that the CFPB has begun to oversee them and is accepting and processing consumer complaints? Consumer-policy experts such as Jeff Sovern, a law professor at St. John's University, have lingering doubts, because of the credit bureaus' unique position in the market.
Though credit bureaus profit from selling services such as credit score reports and credit monitoring directly to consumers, their main market has always been the lenders who buy their reports and provide the underlying data on consumers' behaviors. Sovern and Ira Rheingold, executive director of the National Association of Consumer Advocates, explained in a 2013 op-ed that creditors can actually benefit if certain kinds of disputes are never solved.
"For their part, lenders may benefit when credit bureaus report consumer defaults, even incorrectly, because such reports put pressure on consumers who wish to maintain good credit ratings to pay even disputed claims," Sovern and Rheingold wrote - describing a problem I've heard about repeatedly from consumers, who say they paid a small bill they didn't really owe to preserve their credit score.
Sovern and Rheingold wrote back then that "the marketplace can penalize credit bureaus that investigate too aggressively. Credit bureaus are heavily dependent on lenders for both revenue and the information the bureaus package and sell; if a credit bureau presses a lender too hard, the lender could patronize a different bureau and withhold data about its customers." Sovern says now that since the new settlement applies to all three bureaus, that should be less of a problem. "We will see," he says.
One thing remains predictable as ever: Though consumers may be pleased by what the industry calls its National Consumer Assistance Plan, which you can see detailed here, the industry isn't ever going to win any love. Who likes a company that's essentially forced on its customers?