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       IntroductionCredit Score BasicsCredit Scores - AdvancedRe-ScoringObtaining Your Credit ReportReading Your Credit ReportDisputing ErrorsIdentity Theft BasicsMaking & Mixing Credit ReportsReinvestigations (or not)HistoryCredit RepairDebt CollectionAuto InsuranceHomeowners InsuranceMortgage InsuranceThe Color of Credit ScoresSpecial ChallengesOpting OutImpermissable AccessDamage & DamagesThe 2003 FACTA BattleMissing Credit LimitsConclusion |
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Credit Scores and Credit Reports, by Evan HendricksChapter 20 Damage & Damages "That doesn't mean that it's not actual.
It just means that it's hard to quantify,
but you've had the emotional harm.
Why isn't that an... actual harm?"
Trans Union had put Judy Thomas through the wringer. Unbeknownst to her, it had first mixed the negative credit history of Judith Upton into her credit report in 1996. Thomas disputed the errors. Some, but not all of them, were deleted. More inaccuracies returned to her Trans Union (TU) credit report again in 1998, right when Thomas, a Klamath Falls, Oregon realtor, was applying for a mortgage. The episode painfully delayed approval of her mortgage and the purchase of her home, as it took TU months to clear up her credit report. Thomas remembered being in tears, sitting beside her mortgage broker, as the broker tried explaining and re-explaining to a TU phone representative that the bad data did not belong on Thomas' report.— Justice Antonin Scalia Oral Argument, Doe v. Chao, (December 2003) TU grudgingly cleared up Thomas' credit report a second time, and she was able to buy her house. But the experience gnawed at her for many months. After finally finding a pair of experienced lawyers to take her case in 2000, Thomas filed suit under the Fair Credit Reporting Act. 322 Thomas was represented by Robert Sola and Michael Baxter, of Portland, Oregon. In a quiet moment just days before the start of her July 2002 trial, Judy Thomas was asked, "Why did this bother you so much?" "It wasn't me," she responded. After a four-day trial which delved deeply into TU's standard operating procedures, a federal jury in Portland awarded Thomas $300,000 in compensatory damages and $5 million in punitive damages. The smaller amount was to compensate Thomas for the harm she endured; the latter amount was to punish TU so the company would not do to others what it did to Thomas.323 'But What Are The Damages?' Normally, when people think of damages in the legal context, they think of lost jobs or broken legs. In fact, when confronted with complaints about credit report errors or other invasions of privacy, the common refrain from the financial services industry and their lawyers is, "Yeah, but what are the damages?" Thomas' case was a watershed because it demonstrated the high value that Americans place on two simple components of privacy in the information age: one's "good name," and reasonable control over one's own personal data. If measured in hours, or in out-of-pocket expenses, Thomas' damages were relatively small — especially considering that the FCRA's statute of limitations was only two years.324 But the jury apparently placed profound importance on the humiliation and emotional distress that Thomas endured because of the unjust besmirching of her good name and the associated hassles. 323 Thomas v. Trans Union LLC: U.S. Dist. Ct. - Oregon - No. 00-1150; In a Jan. 29, 2003. Opinion & Order, U.S. Magistrate Judge John Jelderks reduced the punitive damages from $5 million to $1 million, reasoning that the case only warranted a 4-1 ratio of punitive to compensatory damages. He awarded Sola and Baxter roughly $110,000 in fees and costs. 324 Under the 2003 FCRA Amendments, the statute of limitations has been modified and in some cases extended to five years. That's what Congress intended. The FCRA states that the "banking system is dependent upon fair and accurate credit reporting," and that "inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods undermine the public confidence which is essential to the continued functioning of the banking system." The FCRA also states, "There is a need to insure that CRAs exercise their grave responsibilities with fairness, im-partiality, and a respect for the consumer's right to privacy." To achieve this, the FCRA provides for actual damages for negligent violations. "Actual damages" include out-of-pocket expenses, financial harm and emotional or mental distress. To recover for the latter, a consumer generally needs to provide evidence that he or she actually experienced distress. Such evidence can come in the form of credible testimony or medical or other records. The FCRA also provides for punitive damages for "willful" violations, which are intended to deter companies from making such violations by punishing them if they do. Courts have generally agreed that "willful" means that the company should have known better, that it either "consciously or recklessly disregarded" a consumer's rights. Finally, the FCRA provides for attorney's fees when the consumer is the prevailing party. Some Don't See The Damage However, the "What-Are-The-Damages" syndrome still plagues consumers who try to stand up for their rights under the FCRA. Contrast Thomas' experience with that of Mary Harris, a Texas resident whose credit report had been fouled, off-and-on for 16 years, by the negative history of another Mary Harris, who lived in South Carolina. Mary Harris first discovered her Equifax file was mixed in 1986 when her husband told her that their mortgage application for a South Carolina home had been held up because of her "bad credit." With the help of some in-laws, one of whom was a state judge and the other an employee of a credit bureau, Harris was able to dispute the errors and remove the inaccuracies. In 1996, again applying for credit, Harris learned that more bad data from the other "Mary Harris" had returned to her credit report. This time when she called Equifax, Harris said an agent told her that Equifax merely reported the information creditors provided them and it was not Equifax's job to investigate errors. The agent told Harris that she had to contact the creditors, convince them to stop the errors, and direct Equifax to delete them. Not knowing her rights to demand an investigation, Harris contacted Sears, Household Credit, Lane Bryant and Discover Card, all of whom eventually agreed that mistakes did not belong on Harris' report, and advised Equifax to delete them. In 1999, Harris and her husband had already sold their farm in Louisiana and applied for a mortgage for a home in Texas. But the same negative accounts were back on her credit report, and their application was declined. Under a tight deadline, Harris and her husband had to re-do the application so it was strictly in the husband's name. After staying in a camper on a fretful Sunday night in Houston, the Harrises learned that the husband-only application had been approved. In 2002, after applying for a home equity loan, Harris learned that the Sears, Household, Discover and Lane Bryant accounts had returned, along with American Express, MBNA, Providian and a collection account that was not hers. Inaccuracies also persisted in her name and address. This time the report was issued by CSC Credit Services, an Equifax affiliate that services Texas and other states in the South and Midwest. While CSC handles consumer disclosures and requests for reinvestigations, it relies on the Equifax database for credit reports. Throughout 2002 and into 2003, credit report errors repeatedly prevented the Harrises from getting the best rates on home equity loans or refinancing packages at a time when those rates were heading to historic lows and millions of consumers were benefiting. Throughout the entire period, the situation was putting a great deal of stress on their relationship. Somebody, Help Me Harris finally complained about Equifax to the Texas Attorney General in the June of 2002, which tries to resolve complaints informally but does not have the authority to issue orders in individual cases. In October 2002, the office advised Harris that it had tried to contact Equifax on several occasions. "Regretfully, we have not received any response to our inquiries," wrote Bach Stephens, a complaint analyst in the Houston office of Texas AG John Cornyn. "Informal complaint resolution is not effective when a business does not respond. Therefore, we must close the file at this time." Stephens suggested that Harris might want to talk to an attorney. Harris finally did, and filed suit in federal court in Galveston.325 Initially, U.S. District Judge Sam Kent expressed disbelief that the inaccuracies could drag on for so long, Harris said. Judge Kent was considered friendly to plaintiffs, having heard many cases involving oil rig workers who were injured during explosions and other accidents in the Gulf of Mexico. Mary Harris thought she would finally get her day in court. She did — kind of. 325 Harris was represented by Houston-area attorneys Steven L. Parker, and Jack and Jordin Nolan. At her May 2003 trial in Galveston, about 40 minutes into her testimony, Judge Kent appeared to grow impatient. Harris said he interrupted her testimony, and curtly asked her to list her out-of-pocket expenses. Kent wrote them down and then ordered her lawyers, and the Equifax lawyers into his chambers. Symbolically, Harris was left sitting on the witness stand alone in the court room. Back in his chambers, Judge Kent then advised her lawyers in no uncertain terms that he did not want to hear any more of her testimony, and advised them to settle the case right then and there. Harris felt she had no choice, and settled.326 She got the impression that Judge Kent did not think the credit denials, the ongoing hassles and the emotional distress were all that damaging. She also got the impression that Judge Kent would not even consider whether Equifax was liable for punitive damages, recalling that she understood him to say something to the effect that he "didn't have authority to punish Equifax."327 Her long-awaited "day-in-court" aborted, Harris stood outside the Galveston courthouse, visibly shaken, and in tears. "Help me!" she said, sobbing softly. "We are raised to believe that our legal system will protect the innocent. If the federal court cannot enforce the FCRA laws, then who can?" she asked. Looking backs months later, Harris, commented on the power that CRAs have over consumers. "Equifax controls our lives more than our own government. Equifax controls whether we have employment, housing, transportation, clothing, food, and most important, a good reputation with total and complete disregard to accuracy and accountability." 326 The terms of the settlement were confidential 327 Mary M. Harris v. Equifax Information Services, L.L.C.: U.S. Dist. Ct. - S. Dist. of Texas (Galveston) - No. 02-CV-753. Harris' attorneys waived a jury trial and opted for a "bench" trial. She expressed concern that actions like Judge Kent's had the effect of giving Equifax the green light to conduct business under its own rules, and reduced its incentive to comply with the FCRA. Privacy, Credit Reporting & 'FIPs' Actually, there is an extensive body of research confirming that, for most people, it is very damaging to suffer the kinds of privacy invasions stemming from credit reporting, including inaccuracies and mixed files, impermissible access and disclosures, identity theft, failure to correct errors and reinsertion of previously deleted data. It's important to understand that credit reporting is a "privacy" issue because privacy in the modern age is defined and evaluated according to principles of Fair Information Practices (FIPs). These principles, which serve as the foundation for most privacy laws in the United States and abroad, encompass access and correction, data accuracy and integrity, purpose specification and use limitation, data security, transparency and enforcement.328 328 In 1980, the Organization of Economic Cooperation and Development (OECD), based in Paris, adopted the following eight principles of fair information practices, still referred to by some experts as the "Gold Standard" of privacy. These principles were endorsed by the Governments of the United States, Japan and most Western European countries in an OECD international accord. These principles effectively have been recognized by the United Nations in its work on privacy: (1) Collection Limitation; (2) Data Quality; (3) Purpose Specification; (4) Use Limitation; (5) Security Safeguards; (6) Openness (7) Participation and (8) Accountability. Also see Personal Privacy In The Information Age: The Report of the Privacy Protection Study Commission, (July 1977; GPO Stock No. 052-003-00395) Herein referred to as the PPSC Report. The three general FIP principles endorsed by the PPSC were: (1) minimize intrusiveness; (2) open up record-keeping operations in ways that will minimize the extent to which recorded information about an individual is itself a source of unfairness in any decision about him made on the basis of it (maximize fairness); and (3) create legitimate enforceable expectations of confidentiality. Also see "The 1973 Report of the [HEW] Secretary's Advisory Committee On Automated Personal Data Systems." The five FIP principles set forth by the HEW task force were: (1) there must be no personal data recordkeeping systems whose very existence is secret; (2) there must be a way for an individual to find out what information about him is in a record and how it is used; (3) there must be a way for an individual to prevent information about him obtained for one purpose from being used or made available for other purposes without his consent; (4) there must be a way for an individual to correct or amend a record of identifiable information about him; and (5) any organization creating, maintaining, using, or disseminating records of identifiable personal data must assure the reliability of the data for their intended use and must take reasonable precautions to prevent misuse of the data. The U.S. Privacy Protection Study Commission, in its 1976 report, noted the link between third-party recordkeepers, privacy and the rights of individuals. The intrusiveness, unfairness and unrestricted disclosure characteristic of so much organizational record keeping today is largely the result of weaknesses in the relationship between the individual and those who need to know intimate details of his life... As long as America believes, as more than a matter of rhetoric, in the worth of the individual citizen, it must constantly reaffirm and reinforce its protections for privacy, and ultimately the autonomy, of the individual.329 In fact, Equifax explicitly recognized the importance of Fair Information Practices principles in its groundbreaking, 1990 public opinion survey, entitled, "Equifax Report on Consumers In The Information Age"330 329 "Personal Privacy In An Information Society," Op. Cit., 330 "Equifax Report on Consumers In The Information Age, " (© Equifax 1990), "A national opinion survey conducted for Equifax, Inc. by Louis Harris & Associates and Dr. Alan F. Westin, professor of public law and government, Columbia University." Westin has served as a consultant to Equifax for several years since the 1990 report. He was a special consultant to the PPSC and a member of the 1973 HEW Advisory Task Force. However, despite extensive literature on the subject, there is not general familiarity with it — outside of a small community of privacy experts and consumer advocates. Starter List of Harms Here's the short list of the ways in which consumers are damaged by inaccurate credit reports, non-responsiveness and faulty reinvestigations by CRAs and furnishers.
History Offers Abundant Evidence One of the first recognized harms resulting from inaccurate data is the unjust denial of credit, insurance or employment. A 1994 House Banking Committee report on FCRA legislation said that an immediate damage from "inaccurate credit reports" was that they "can impede the ability of too many consumers to obtain credit or other benefits." Referring to the 1989 Williams study and the 1991 Consumers Union study, the Committee further specified one reason why inaccuracies were damaging: "Both studies defined serious errors to mean those that could, or did, cause the denial of credit, employment or insurance." Similarly, the 1998 US PIRG report stated: In many instances, credit report errors cause consumers considerable harm. The results of mistakes can range from the rejection of a credit card application to the denial of a job. Also, errors often cause consumers to spend weeks - sometimes years - calling creditors, writing credit bureaus, and worrying anxiously in an effort to remove the inaccurate information from their record. One California victim of credit fraud who contacted PIRG was denied financing on her new car, even after she had contacted all three credit bureaus numerous times about the mistaken delinquencies on her credit report. Another California man had to hire an attorney to send a letter to the credit bureaus, "stating that I am who I am," before he could finally get a stranger's bad credit accounts removed from his credit report. While credit report errors almost always lead to a little consumer hassle, they also can create a ticking time bomb waiting to wreck an unsuspecting consumer's good name at any moment. As Trans Union's Web site points out, a negative credit history will lower the credit score. A lower credit score means that a consumer will not be able to obtain credit or insurance, or will only be able to obtain them on less favorable terms. The damage of inaccurate credit reports will become clearer to more and more consumers because in the era of risk-based pricing, the credit score will define the terms of credit. As we said before, the lower the credit score, the worse the interest rate or insurance premium. Time Lost The process of cleaning up an inaccurate credit report can be time-consuming. In its 1994 report, the House Banking Committee wrote, "Compounding this high error rate problem is the difficulty that consumers face when they attempt to correct inaccurate or incomplete information contained in their credit files." The Committee cited the 1991 US PIRG study, based on the review of 155 consumer report complaints on file with the FTC, which found that the average duration of complaints against CRAs was 22.5 weeks, or nearly 6 months. The 1991 PIRG report was entitled "Don't Call; Don't Write; We Don't Care." Not Responsive The dispute correction process is prolonged when the CRAs are not responsive. This is what one unnamed consumer told US PIRG for its 1990 report: After 5 1/2 months of phone calls and letters, the CRA has absolutely refused to rectify the incorrect information on my report... I have submitted comments from institutions and from my own records that should clearly show that their report is incorrect. . . This has caused me untold humiliation and embarrassment with banks and credit agencies from which I have tried to obtain credit.331 Nancy Ross, a Washington Post writer, had a similar experience: For the past two years, I have been the victim in a case of mistaken identity that has ruined my credit rating. Despite my efforts to rectify the situation, I'm beginning to fear that my epitaph may read: 'Here lies a deadbeat.'332 On October 3, 1989, Privacy Times ran a lengthy story based on consumer complaints to the FTC regarding credit bureaus. One consumer's letter referred to the frustrating and time-consuming nature of fixing the problem. "[It] looks like another round of letters is in order," the consumer wrote. The article noted that in several complaints, consumers referred to their attempts to correct errors as "humiliating and frustrating" experiences. One outraged consumer said 30 days after he had submitted corrections to TRW he received a reply stating that his "disputes are frivolous or irrelevant. Therefore, they will not be reinvestigated." After a year, the consumer was convinced that TRW was violating the FCRA, but said he was "powerless to obtain their compliance," explaining, "The FTC advised me to seek private council [sic] and pursue a civil action, while, at the same time, the FTC advised me that they would 'shortly' file an action against TRW for 'similar' and other violations of the FCRA.'" 331 "Nightmare On Credit Street, Or, How The Credit Bureau Ruined My Life," U.S. PIRG, June 12, 1990 332 Ross, Nancy, Washington Post, May 31, 1990 "The Center for Law in The Public Interest advised me this was 'not the kind of case they do.' The law firm of Allred, Maroko, Goldberg & Ribicoff declined the case because the firm has 'no expertise in the field.' A meeting with an attorney provided by the L.A. County Bar Association yielded the opinion that 'it would be time-consuming and too costly to litigate.'" The 1993 US PIRG report, based upon consumer complaints to the FTC, found that 16% of "corrected" errors subsequently reappeared and that the average consumer had already contacted the credit bureau 3.6 times by phone call or letter without satisfaction before contacting the FTC. The 1998 US PIRG Report found that CRA non-responsiveness relating to basic communications and simple access to their consumer reports continued to cause frustration to a significant percentage of consumers. Moreover, inaccuracies continued to cause damage: If a consumer's credit report is inaccurate, she may appear to be a bad credit risk because of a variety of factors: because she appears to have been delinquent on accounts that she was never late on, because she looks like she has too many credit accounts open at one time, because she has court judgments against her that are actually against a stranger, or many other unfortunate scenarios. Credit report errors can cause the denial of not only credit, but also employment, insurance, housing or even the right to cash a check, use a debit card or open a bank account... The most valuable thing we have is our good name. Parallel With Identity Theft As mentioned before, identity theft is a subcategory of Mixed Files, as the imposter-generated data are mixed into the consumer report of the innocent victim. Thus, the damages arising from identity theft, as they pertain to the interaction between consumers and CRAs, are similar to the damages arising from Mixed Files. In July 12, 2000 testimony before the Senate Judiciary Subcommittee on Technology, Terrorism and Government Information, Jodie Bernstein, then head of the FTC's Bureau of Consumer Protection, testified: The leading complaints by identity theft victims against the consumer reporting agencies are that they provide inadequate assistance over the phone, or that they will not reinvestigate or correct an inaccurate entry in the consumer's credit report. In one fairly typical case, a consumer reported that two years after initially notifying the consumer reporting agencies of the identity theft, following up with them numerous times by phone, and sending several copies of documents that they requested, the suspect's address and other inaccurate information continues to appear on her credit report. In another case, although the consumer has sent documents requested by the consumer reporting agency three separate times, the consumer reporting agency involved still claims that it has not received the information.333 In her March 7, 2000 testimony before the Subcommittee, Bernstein elaborated further: A consumer's credit history is frequently scarred, and he or she typically must spend numerous hours sometimes over the course of months or even years contesting bills and straightening out credit reporting errors. In the interim, the consumer victim may be denied loans, mortgages, a driver's license, and employment; a bad credit report may even prevent him or her from something as simple as opening up a new bank account at a time when other accounts are tainted and a new account is essential. Moreover, even after the initial fraudulent bills are resolved, new fraudulent charges may continue to appear, requiring ongoing vigilance and effort by the victimized consumer... 333 www.ftc.gov/os/2000/07/idtheft.htm Identity theft victims continue to face numerous obstacles to resolving the credit problems that frequently result from identity theft. For example, many consumers must contact and re-contact creditors, credit bureaus, and debt collectors, often with frustrating results.334 The General Accounting Office wrote in one of if its first reports on identity theft in 1998: Identity theft can cause substantial harm to the lives of individual citizens — potentially severe emotional or other non-monetary harm, as well as economic harm. Even though financial institutions may not hold victims liable for fraudulent debts, victims nonetheless often feel 'personally violated' and have reported spending significant amounts of time trying to resolve the problems caused by identity theft — problems such as bounced checks, loan denials, credit card application rejections, and debt collection harassment," it wrote.335 334 Prepared Statement of Jodie Bernstein, Director of Consumer Protection, FTC; http://www.ftc.gov/os/2000/03/identitytheft.htm 335 (Identity Theft: Available Data Indicate Growth in Prevalence & Cost, GAO-02-424T, (www.gao.gov/new.items/d0242t.pdf) FTC 2003 Survey In its September 2003 survey, the FTC found that the longer it took to discover the identity theft the greater the damages. While 63% had no out-of-pocket losses, victims reported a wide range of problems, including wrongful bank and credit card charges, harassment by collectors, loan or insurance rejection, cut off of utilities, civil lawsuits, and criminal investigations. The FTC also found that credit bureaus were instrumental in gauging damage to victims. Among those victims who contacted a credit bureau, 58% said they were either "very" or "somewhat" satisfied, while 29% said they were somewhat dissatisfied and 9% said they were very dissatisfied. Of those consumer who contacted all three major credit bureaus, 49% said they were satisfied with all three, 20% said they were satisfied with some of them, and 31% said they were dissatisfied with all three. Mental & Emotional Distress Whether it be inaccuracies resulting from a mixed file, or identity theft, many of the studies above have alluded to what might be the worst damage to consumers: mental and emotional distress. It is evident in the testimony of victims that we cited in previous chapters. Here is what two victims of mixed files described it in U.S. PIRG's 1990 report, "Nightmare On Credit Street, Or, How The Credit Bureau Ruined My Life" Michael Riley, Time Magazine. "Suddenly, the credit-travel enticement had turned into a Kafkaesque nightmare of mistaken identities, computer screw-ups and human errors, all spilling out of the vast and powerful credit-reporting system... not only was my credit a disaster, I was officially dead." (Time Magazine, April 9, 1990.) Unnamed Consumer. "Early part of last year I was denied because of wrongful report... This past December... I was denied again... I was furious as this was to have been corrected the first time... There are exactly seven accounts that do not belong on here and I want them removed for good. On January 23rd of this year I received my credit rating and again they have many accounts incorrect." This author, along with other experts, not surprisingly has observed that invasion of privacy causes emotional distress. It is distressful to learn first hand that your good name and credit history have been tarnished, through no fault of your own, by the derogatory credit data of a complete stranger. It is distressful to find that, despite repeated efforts on your part, a credit bureau continuously fails to delete inaccurate or unverifiable data from your report, or a creditor continues to report false data. It is distressful to find that information, previously deleted because it was inaccurate, was inexplicably reinserted into your consumer report. It is distressful to be wrongly associated with highly derogatory credit data, and to have to clear your name. It also takes time and energy to try to correct the problem, often involving numerous phone calls and letters. It's distressful not knowing everyone who may have associated you with highly derogatory credit data. It can be difficult to maintain constructive personal relationships under stress.336 It can be difficult to perform adequately at one's job. 336 In fact, the insurance industry says that stress, stemming from financial problems, can cause auto accidents, and therefore justifying its use of credit reports in setting insurance rates. ITRC Study In September 2003, the Identity Theft Resource Center (ITRC) published research that enumerated the many harms that victims suffer, and concluded that the emotional distress might be the worst of all. In the largest survey of its kind, the ITRC surveyed 173 actual victims of identity theft, and then had two experts review their responses.337 One was Paul Colins, a credit industry analyst. "The range of emotions is wide and rather painful to read. Three-fourths of victims were left with a feeling of financial insecurity, 88% experienced anger, and 75% expressed a feeling of helplessness," Colins commented. "While these feelings do appear to subside a little over time, the survey clearly shows for many victims the feelings linger on. While most surveys have focused on the financial costs to victims, these psychological impacts are generally unreported. They may, however, have far worse consequences for victims."338 Dr. Charles Nelson, a licensed psychologist, and director of both the Crime and Trauma Recovery Program at the Family Treatment Institute, also reviewed victims' responses. "Identity theft has been classified in many realms as a victimless crime," Nelson wrote. "This survey was designed to test the emotional impact of identity theft and to discover if sufferers of this crime exhibit similar responses as those of more commonly recognized victims including rape, repeated abuse, and violent assault victims. Many of the listed symptoms are classic examples of Post Traumatic Stress Disorder and secondary PTSD (from secondary wounding)."339 "While each crime has its own specific triggers and emotional responses, upon examination of these results, this study clearly proves that the impact of identity theft on its victims leaves similar scars and long-term impact as demonstrated by victims of violent crime. 337 "Identity Theft: The Aftermath 2003," Identity Theft Resource Center (Sept. 2003); http://www.idtheftcenter.org/idaftermath.pdf 338 Id. 339 Id. "This comes as no surprise to victims of identity theft. Although there is no direct physical injury in this crime, identity theft victims know all too well the psychological, emotional, and social destructive swath of pain that has been cut through their lives. Furthermore, it is clear that this crime has a ripple effect on the relationships in the victims' lives. This study found that numerous victims of this crime suffered a significant strain in the relationship with their significant other. Anecdotally, during ITRC focus groups victims have shared that this crime was a major contributing factor in a divorce due to the intense strain on one or both of the partners," he continued. Nelson noted that some ID Theft victims said they felt "dirty or defiled, guilty, ashamed or embarrassed, being an outcast, undeserving of assistance or having brought this crime upon myself — responses similar to the ones we saw after an extensive media information campaign on rape and sexual assault prevention." "Consumers are being told that they are the responsible party, if a crime occurs. 'Top ten lists' of how to avoid victimization add to this perception," he wrote. "For the self-blaming response to stop, victims need to learn that they are not the responsible party for this crime. Victims are victims, each with his or her own fingerprint of painful responses to the crimes committed. There are commonalities within the victimization responses found in each category of crime victims. This study discovered that there are also far more response similarities that identity theft victims share with ALL victims than previously realized."340 340 Id. It Shows In The Statistics The high value that Americans place in protecting and preserving their good names is reflected in FTC complaint statistics. As the 1993 U.S. PIRG studies revealed, in the early 1990s, the leading cause of complaints to the FTC was inaccuracy in credit reports. Notice how complaints about mistakes, which do not always involve out-of-pocket loss, outpaced other categories which did entail loss of money.
341 http://www.ftc.gov/opa/2002/01/idtheft.htm The 2002 numbers were 43% of the complaints, identity theft, and 13%, Internet Auctions.342 For 2003, 42 % of the complaints were about identity theft. The FTC received more than half a million complaints in 2003, up from 404,000 in 2002.343 A Formula For Identifying and Measuring Damages In a 2003 FCRA case,344 plaintiff's counsel calculated that Plaintiff worried about or was tormented for 15 hours per week, or slightly less than 2.5 hours per day, about inaccuracies in her consumer report. While this was a good start, a more robust formula is needed to fairly gauge damages. It seems logical that since we are relying so heavily on credit scores to summarize a consumer's credit-worthiness, we also should have a scoring model for measuring the damages and costs to consumer caused by defects in the national credit reporting system. Perhaps such a scoring model would finally help the financial services industry appreciate the extremely damaging nature of credit report inaccuracy. To that end, this author in 2003 unveiled the following proposed methodology, which first requires one to identify the applicable categories of damage in the given case, and then determine which of the factors listed below are appropriate multipliers.345 342 http://www.ftc.gov/opa/2003/01/top10.htm 343 http://www.ftc.gov/opa/2004/01/top10.htm 344 Boris v. ChoicePoint: USDC-W.D. Kentucky (Louisville) - No. 3:01CV-342-H; March 14, 2003 345 Prepared Statement of Evan Hendricks, "The Accuracy of Credit Report Information and the Fair Credit Reporting Act," Senate Banking Committee; July 10, 2003 http://banking.senate.gov/03_07hrg/071003/index.htm; and, Presentation of Evan Hendricks, "Information Flows: The Costs and Benefits to Consumers and Businesses of The Collection and Use of Consumer Information." Federal Trade Commission National Workshop; June 18, 2003. http://www.ftc.gov/bcp/workshops/infoflows/030618agenda.html Some Categories of Typical Damages/Costs of ID Theft & Inaccuracy:
FACTORS
As a preliminary example, take the "Category 1" — "inaccurate characterization." Let's say John Doe, a victim of identity theft, discovers in January 2001 that his credit report was polluted with highly negative collection and charge-off accounts generated by a fraudster. This would be a momentous event, deserving a significant assignment of points under the formula. After all, the inaccurate credit report was not the result of anything done by John Doe and was totally unexpected, so the "shock value" (Category #8, emotional distress) was relatively high. Rather than routinely extending him credit, the system falsely branded him unworthy of credit. Further points are assigned because this inaccurate characterization coincided with the unjust denial of credit (Category #2). It's possible that this unjust denial resulted in being humiliated in front of a store clerk or others (Category #8), and with being unable to do anything about it (Category #7). Thus, the formula assigns a relatively large number of damage points for John Doe's first interaction under Factor #1, as compared to a consumer who only finds a few minor inaccuracies on his credit report that did not result in a denial of credit, humiliation and sense of helplessness. If John Doe's credit reports worsens because of the addition of an imposter-caused bankruptcy, Category 1 later earns additional points. The other multipliers come into play, as John Doe must expend time and energy to solve the problems (Factor 2), and develops an expectation that the problem was solved (Factor 3); instead there are recurrences of being mischaracterized (Factor 4) and the problem persisted over a defined period of time (Factor 5). Invasion of Privacy = Emotional Distress Many thoughtful commentators have reached the conclusion that it is emotionally distressful, and therefore damaging, to have your privacy invaded. As Judge J. Michael Blane pointed out in his dissent in 4th Circuit's ruling in Doe v. Chao, a Privacy Act case, "First, Congress created the statutory damages remedy as an incentive to suit because it recognized that damages from government invasions of privacy are hard to prove. Second, Congress recognized that the typical injury caused by the invasion of privacy is emotional distress." The Members of Congress who were most active in the 2003 FCRA Amendments, known as the Fair and Accurate Credit Transactions Act (FACTA), consistently spoke of the harms flowing to consumers and to society from inaccurate credit reports and/or identity theft. Shelby and Sarbanes Sen. Richard Shelby (R-AL), Chairman of the Senate Banking Committee opened the July 10, 2003 hearing by stating, "This morning, we take up one of the most important issues, if not the most important, associated with the FCRA: the accuracy of the information contained in consumer credit reports. Changes in our financial services industries have made accuracy more important than ever. Credit report information is increasingly used as the key determinant of the cost of credit or insurance... With the rewards for good credit so meaningful, and the penalties for bad credit so severe, it is absolutely critical that credit reports accurately portray consumers' true credit histories."346 Sen. Paul Sarbanes, the committee's Ranking Democrat from Maryland, said, "Erroneous negative information on credit reports can often take a significant investment of time and money to remove. They can also be extremely costly to consumers by significantly raising borrower costs. Not only do such inaccuracies raise the cost of borrowing, but they may also actually cost the consumer a loan. Insurers, mortgage banks, and other financial institutions rely heavily on credit scores to make credit decisions. 346 Senate Banking hearing, July 10, 2003, op. cit.; http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Testimony&TestimonyID=264&HearingID=49 Inaccuracies in the underlying credit reports can therefore make it more difficult and significantly more expensive for Americans to purchase insurance, homes, cars, and other big-ticket items."347 Sen. Debbie Stabenow (D-MI), stated, "In addition, when that information is not accurate, consumers need a quick and easy resolution process. In a fast-paced society like ours, unnecessarily long delays in correcting inaccurate credit reports have profound consequences. They can lead to denial of a mortgage to buy a home or the steering into a subprime loan. They can lead to the inability to get a credit card or an unwarranted increase in interest rates on an existing credit card. They can also create reduced work productivity and extreme stress as consumers must take off work and spend countless hours trying to correct mistakes that occurred through no fault of their own."348 On identity theft, Shelby said, "Soon thereafter, when the criminals' handiwork shows up on their credit reports, they face the considerable task of restoring their good name and credit. Plainly, this crime has many victims. Firms lose profits. Individuals lose time, money, and peace of mind when their good name and reputation are tarnished." "In light of the serious nature of the consequences of identity theft, this issue would merit attention even if there were only a limited number of victims. Unfortunately, there are thousands of victims whose numbers are growing at an increasingly faster pace. Indeed, it has been asserted that identity theft is the fastest growing crime in America." "This issue tracks across credit reporting in so many ways that it is essential that we consider it in the context of the reauthorization of the preemption provisions of the Fair Credit Reporting Act."349 347 Id. 348 Id. 349 "The Growing Problem of Identity Theft and Its Relationship to the Fair Credit Reporting Act" June, 19 2003 http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Testimony&TestimonyID=108&HearingID=43 Sarbanes agreed. "Americans have strong concerns about protecting their confidential information. Honest citizens who are victims of identity theft incur a high cost in money, time, anxiety and effort to correct and restore their spoiled credit histories and good names."350 Sen. Michael Enzi (R-WY) said legislative solutions were "critical for somebody who is trying to put his or her life back together after the trauma of identity theft."351 It's Always Been Valued In fact, none of this is new. As noted previously, protecting one's good name is so fundamental to mankind that Shakespeare wrote about it some 400 years ago. Who steals my purse steals trash: 'Tis something, nothing; Twas mine 'tis his and has been slave to thousands. But he that filches from me my good name Robs me of that which not enriches him, And makes me poor indeed.352 350 Id. 351 Id. 352 Othello, III,iii,157-61 (Iago) © 2005 Evan Hendricks and Privacy Times, Inc. All rights reserved. |
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