Can You Sue the Credit Rating Agencies – Equifax, Experian, and TransUnion – For Mistakes With Your Credit Report and FICO Score

Read an interesting article in the NY times, discussing states that are suing the various corporate credit rating agencies like Standard & Poor’s and Fitch, because of the losses they bore from securities they rated as AAA. They argue that these “incorrect” ratings have cost them millions now and into the future, and that these agencies be held liable for not doing their due diligence when coming up with their ratings. This got me to thinking, “can we sue the consumer credit rating agencies if they mistakes which cost us the ability to get a home loan or car?”

Already facing a spate of private lawsuits, the legal troubles of the country’s largest credit rating agencies when the attorney general of Ohio sued Moody’s Investors Service, Standard & Poor’s and Fitch, claiming that they had cost state retirement and pension funds some $457 million by approving high-risk Wall Street securities that went bust in the financial collapse. The case could test whether the agencies’ ratings are constitutionally protected as a form of free speech.

The lawsuit asserts that Moody’s, Standard & Poor’s and Fitch were in league with the banks and other issuers, helping to create an assortment of exotic financial instruments that led to a disastrous bubble in the housing market. “We believe that the credit rating agencies, in exchange for fees, departed from their objective, neutral role as arbiters,” the attorney general, Richard Cordray, said at a news conference. “At minimum, they were aiding and abetting misconduct by issuers.”

The litigation adds to a growing stack of lawsuits against the three largest credit rating agencies, which together command an 85 percent share of the market. Since the credit crisis began last year, dozens of investors have sought to recover billions of dollars from worthless or nearly worthless bonds on which the rating agencies had conferred their highest grades. And more litigation is likely. As part of a broader financial reform, Congress is considering provisions that make it easier for plaintiffs to sue rating agencies. And the Ohio attorney general’s action raises the possibility of similar filings from other states.

To date, however, the rating agencies are undefeated in court, and aside from one modest settlement in a case 10 years ago, no one has forced them to hand over any money. Moody’s, S.& P. and Fitch have successfully argued that their ratings are essentially opinions about the future, and therefore subject to First Amendment protections identical to those of journalists.

But that was before billions of dollars in triple-A rated bonds went bad in the financial crisis that started last year, and before Congress extracted a number of internal e-mail messages from the companies, suggesting that employees were aware they were giving their blessing to bonds that were all but doomed. In one of those messages, an S.& P. analyst said that a deal “could be structured by cows and we’d rate it.” Recent cases, like the suit filed Friday, are founded on the premise that the companies were aware that investments they said were sturdy were dangerously unsafe. And if analysts knew that they were overstating the quality of the products they rated, and did so because it was a path to profits, the ratings could forfeit First Amendment protections, legal experts say.

Avoid the three credit rating bureaus and get your FICO credit score directly from the source

I know a little bit about the challenges of dealing with the credit bureaus from a six month experience a close friend had trying to clean his credit record. During that time, he lost the house he wanted to purchase because he couldn’t get financing, and for almost 6 months he couldn’t get any new credit. He was finally able to clear up his credit report but I remember him being so frustrated during the whole process, that if it was a regular vendor he was dealing with he probably would have taken them to court for carelessness (or uncaring-ness, a new term he came up with!). I helped him research how he could clear his credit record and what options he had, but it was still a lengthy process mainly because he didn’t initially know his rights and failed to follow up with written notices.

Under the Fair Credit Reporting Act, consumers do actually have the right to sue the consumer reporting agencies – Equifax, Experian, and TransUnion – in state and federal court for violations of the act. But litigation can be an expensive process, particularly if you lose. So before you consider legal action make sure you try the following steps first :

- Under the act, consumers also have a right to review their credit report and to have incorrect information corrected (you are entitled to get a free credit report from all the agencies once a year). If you find an error on your report, you should notify the credit bureau in writing immediately. The bureau is responsible for investigating and for changing or removing any incorrect data. The source of the error must then notify all consumer reporting agencies where they sent information. If you are not satisfied with the correction, you have the right to add a brief statement (100 words or less) about the issue to your credit report. The statement should be a clarification, not an explanation, of credit problems.

- If your credit application is turned down because of an error on your report, the lender is required to provide you with the name and address of the credit bureau that issued the report. Then, you have 30 days to request a free copy from the bureau. The bureaus must disclose to you all information in the report, its source, and who has recently received the report. You have the right to have the credit bureau re-issue corrected reports to lenders who received reports within the last six months, or to employers who received one in the past two years.

- The Fair Credit Billing Act provides for the prompt correction of errors on open-end credit accounts (department store credit accounts, for example) and protects consumers’ credit ratings while they are settling disputes. Under this law, if a consumer is disputing a charge, creditors cannot report the consumer’s account as delinquent. This applies to open-end credit instruments, such as credit
cards, revolving charge accounts, and overdraft checking. Consumers who question an item are responsible for notifying the creditor in writing within 60 days of receiving the bill. The creditor must acknowledge the notice within 30 days and may not do anything to damage the consumer’s credit rating while the item is in dispute.

- You can also lodge complaints and concerns about credit bureaus and credit practices via the Federal Trade Commission (ftc.com). They cannot directly resolve individual consumer complaints, but they can provide a good basis if you do decide to take legal action down the road.

At the end of the day, the best thing is to regularly monitor your credit score and reports, and to promptly notify agencies (in writing) of any potential issues before hand. While you can sue the agencies, it is unlikely you will get much from them, as proven by past law suits against their corporate brethren. It’s probably much cheaper to signing up for a credit watch or monitoring service, if you are concerned about your credit or need to ensure it is accurate.

Related:
~ Improving your FICO Credit Score
~ Five Things To Look For in Getting Low-Cost Auto Insurance Rates
~ How to Save and Make Money with Credit Cards
~ Negotiating Down Your Credit Card Debt by Half or More
~ Will my Mortgage now Qualify for Refinancing under Obama Housing Plan