Credit agency class action

Columnist Kenneth R. Harney writes that potential homebuyers may benefit from a class-action related ruling:

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 anti-competitive 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 credit agencies that specialize in “rapid re-scoring” for homebuyers and other mortgage applicants. Rapid re-scoring 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 take 30 days or several months. That is far too long for lenders to hold open an application or for sellers to wait for a would-be homebuyer 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 re-scoring and credit data and by prohibiting the independent agencies from directly charging consumers for re-scoring services. In some cases, the independents say, the national bureaus charged them prices five times more for wholesale credit data than they charged the independents’ customers directly on a retail basis.

Lenders abandoned the independents in droves, forcing many of them to close or be bought. Since the early 1990s, the number of independent credit-reporting agencies has plummeted from about 1,000 nationwide to about 200 today, the industry estimates.

By forcing the independents out of business or buying them, they 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 mortgage applications.

The ruling “did not decide the merits of the independents’ charges, but it moved the litigation either to a trial or a settlement. Preliminary discussions on a possible settlement have begun.”