Lawsuit Alleges Credit Bureaus Allowing Inaccurate Scores
GREENVILLE, S.C. - The three major credit reporting bureaus hurt consumers by allowing some credit card issuers to not report their cardholders' credit lines, according to a lawsuit filed by a Greenville, South Carolina man.
This hurts consumers, William Harris Sr. charged, because it lowers the consumer's score thus making it more difficult and expensive to get credit.
"It makes it appear that many, if not most, Capital One credit card customers have used up more of their available credit than is actually the case, thereby lowering their credit scores," Harris' said in his complaint against Experian. "Given this harsh reality, Experian has, by including Capital One's incomplete and misleading information in consumer reports on Capital One customers, systematically violated the FCRA [Fair Credit Reporting Act] by failing to follow reasonable procedures to assure the maximum possible accuracy of those reports."
Largely identical complaints were filed against Equifax and TransUnion. None of the three firms have commented on the suits and the Greenville firm, Motley Rice, representing Harris, has not commented upon the case.
Within the two years previous to the filing of this complaint, Experian prepared and distributed incomplete and misleading information in one or more consumer reports of his financial condition, Harris said in court papers. The report or reports contained "tradelines" for his open Capital One credit card account on which his high balance was lower than his credit limit. These tradelines did not contain any entry under the section denoted a credit limit, Harris said. Analysts and consumer groups refrained from commenting directly on the suit because they had not seen it, but several mentioned that if Harris succeeds in getting the individual legal complaint moved to a class action, the suit could have a dramatic impact on the industry in consumers' favor.
For example, suppose a consumer has a credit card with a $5,000 limit. The highest monthly balance the cardholder may have had was $2,500-a modest 50% utilization ratio. But if the card company refuses to report your limit, the scoring software might substitute the account's highest balance in place of the actual limit to compute the ratio.
This, in turn, could set up a ratio where the most recent balance on the card might have been $2,000, a figure which would reflect a high percentage of your credit line if the limit that the software used was not $5,000 but $2,500. A utilization ratio that high could significantly downgrade the cardholders' credit score which, in turn, could mean they pay significantly more money for the next auto or home loan, for example. According to Fair Isaac, a 50-point decrease in credit score could mean a 1-point difference in a consumer's mortgage-rate quote.
Although Capital One is not the only company that refuses to report credit limits, it is the one whose use of the practice is most well known. Capital One, analysts said, likely views the practice as a defensive move since it prevents competitors from sifting credit reports looking for its cardholders to target with better offers. When Federal Reserve Board researchers examined over 300,000 credit files two years ago, they found that 46% of all consumers were missing at least one credit limit.
Capital One did not respond to a request for comment on the suits and has not been named as a defendant. Federal law does not require that a card issue report to the credit bureaus, but it does require the bureaus to provide accurate information in the credit reports, the lawsuit contended. -firstname.lastname@example.org