The nation’s giant credit reporting agencies — which keep records on more than 200 million individuals and influence their ability to obtain credit — have agreed to overhaul their approach to fixing errors and their treatment of medical debts on consumers’ reports.

Eric T. Schneiderman, the New York State Attorney General, announced Monday that his office had reached a sweeping settlement with the agencies, affecting consumers nationwide, which were prompted by an investigation that began in 2012.

“Credit reports touch every part of our lives,” Mr. Schneiderman said in a statement. “They affect whether we can obtain a credit card, take out a college loan, rent an apartment or buy a car — and sometimes even whether we can get jobs.”

The credit bureaus — Experian, Equifax and TransUnion — have long been criticized for the convoluted process that consumers must endure to get their credit reports fixed, among other things. Under the agreement, they will improve their dispute resolution process, which is largely automated, and instead use specially trained employees. The three companies will also establish a six-month waiting period before reporting medical debts on consumers’ credit reports, providing more time for consumers to resolve issues that might amount only to a delayed insurance payment or another dispute. The credit agencies will also remove medical debts from an individual’s report after the debt is paid by insurance. Additionally, the credit reporting bureaus will take steps to make consumers aware that their credit reports are available free at least once a year from each of the credit agencies through the website The agencies will now have to include links to that website on their home pages, as well as provide another free report to consumers who experience a change in their credit reports after initiating a dispute.

The settlement requires the agencies to introduce the changes, which the bureaus said would be instituted nationwide, over three years. But most changes will be carried out over the next six to 18 months, according to the Consumer Data Industry Association, a trade group that represents the credit bureaus. “In today’s world, the consumer’s input is less important than the bank or collector’s input,” said John Ulzheimer, credit expert at, adding that the credit agencies always take the companies’ word over consumers’. “The attorney general’s settlement changes that.”

The investigation was initiated after several New Yorkers complained that they were having trouble correcting errors on their reports. The credit agencies’ industry group said that the three companies had been working with the New York attorney general and other state attorney generals to develop the plan, and that more announcements could be made in the months ahead. The credit agencies fully cooperated with the investigation and deny any wrongdoing, according to the settlement agreement. And though a financial payment was not required, the reporting agencies will have to spend significant sums on personnel and on enhancing their systems to adhere to the settlement agreement.

“They are going to have to hire a lot of people,” Mr. Schneiderman said at a news conference on Monday afternoon. “It is going to cost a substantial amount.” Credit reports touch nearly every aspect of a consumer’s financial life: Data in the files is analyzed and used to create credit scores, including the FICO score, which is widely used by financial services companies to judge consumers and decide how much interest to charge them. But the reports’ impact can reach far beyond the world of loans; they can affect an individual’s ability to obtain a rental apartment or get a cell phone, and even influence how much they might pay for car insurance.

Even though consumers are entitled to dispute any inaccurate information in their credit reports, the entire process has been criticized by consumer advocates for years: The bureaus often outsource thousands of disputes daily to workers overseas who generally are told to translate the problem into a two- or three-digit code that is fed into a computer; the code and any documentation are sent to the creditor. If the creditor verifies the information, no further investigation takes place.

Now, those automatic rejections will no longer be tolerated. And specially trained employees will have to review all supporting documentation submitted by consumers involving mixed credit files — in which a consumers’ file is blended with another person’s report — fraud or identity theft. Requiring the credit bureaus to wait 180 days to list any delinquent medical debt on credit reports is another victory for consumers. Given the complex way in which medical bills are charged and paid, it is not uncommon for delays in payment to tarnish credit reports, often without consumers’ knowledge. Just last year, the Consumer Financial Protection Bureau released the results of its own study, based on five million anonymous credit records, which found that consumers may be overly penalized for medical debts that go to collections. About half of unpaid collections on consumers’ reports are medical-related.

“Too many people are surprised to learn of medical billing problems only after having a bill sent to collection and being forced to deal with damaged credit,” said Mark Rukavina, a longtime consumer advocate and principal of Community Health Advisors, a consultancy that works with nonprofit hospitals on billing and collection issues. “Having the agencies finally agree to remove medical debts that were reported and subsequently paid by insurers is long overdue.”

FICO has already also acknowledged that delinquent medical debts may not be an accurate predictor of a consumer’s financial behavior. Last year, it said the latest version of its credit score would no longer weigh medical debts as heavily as in previous iterations. The settlement — which requires the bureaus to carry out a media campaign explaining many of the changes over three years — also prohibits collection companies from reporting items that did not arise from a contract or an agreement to pay, including items like fines or tickets. “The settlement is a huge victory that will benefit consumers,” said Chi Chi Wu, a lawyer at the National Consumer Law Center. “Of course, making sure that the credit bureaus comply with the agreement will be another task.”

“From The New York Times, March 10, 2015 © The New York Times Company.
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