Financial Inclusion

‘Big Three’ Credit Reporting Agencies Are Heading Toward An Overhaul

Equifax, Experian and TransUnion – the three biggest companies that collect and disseminate credit information on American consumers – have agreed to change how they report data on unpaid medical bills and how they address errors on user reports.

Coming as part of an agreement with the state of  New York, these changes will represent the largest overhaul to the reporting of consumer credit in over 10 years.

Though the changes come as part of a deal with a state, they will be implemented nationally over the next three-and-a-half years as federal watchdogs and consumer advocates have long complained that the agencies’ methods are stacked against individuals.

Going forward, trained employees will be used to review the documentation consumers submit when they believe there is an error in their files. Even in cases where a creditor says its information is correct, the credit agencies have agreed to be more proactive in continuing their efforts to resolve the conflict.

The settlement comes following an investigation of the agencies by the office of New York State Attorney General Eric Schneiderman. That investigation kicked off in 2012 after all three agencies were the subject of complaints about errors on state residents’ credit reports and the onerous process to fix them. After a year of negotiations between Schneiderman and the three firms, a nationwide deal was struck to avoid creating two systems for reporting.

The pact “is a good sign that the reporting agencies are finally willing to step up their game and respond to the needs of hardworking consumers and their families,” Schneiderman wrote in an email statement, according to The Wall Street Journal.

“This dialogue with a state attorney general [gave] us the chance to have a dialogue with each other and work on details on how we can proactively pursue changes to our practices,” said Stuart Pratt, president and chief executive officer of the Consumer Data Industry Association – a Washington-based trade group that represents Experian, TransUnion and Equifax.  He also noted that the credit-reporting firms weren’t found to be in violation of any law.

The overhaul will also change how unpaid medical bills are listed on credit reports, as over 40 million Americans have past-due medical debt, according to the CFPB, and 53 percent of debt on credit reports is tied to medical bills. Collection agencies generally report medical debt to the credit-reporting firms at the point at which they get unpaid bills from medical professionals and institutions (like hospitals). The problem is that said unpaid bills can come as the result of insurance companies delaying payments as easily as they can come from consumers just not paying.

Going forward, credit-reporting firms will have to wait 180 days before adding any medical-debt information to consumers’ credit reports. When medical debts are paid by an insurance company, they must be removed from the credit report, regardless of the time frame on the insurance company’s part. In contrast, most delinquencies and other negative credit events stay on people’s credit reports for up to seven years.

The agreement follows several efforts to better evaluate consumer credit. Fair Isaac Corp., the firm that created the so-called FICO credit score, announced last summer it would stop including any record of paid or settled bills with collection agencies, and would give less weight to unpaid medical bills that are with collection agencies.

Studies have found that a large number of consumers are affected by credit-report errors.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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