Credit-Information Reporting: Why Free Speech Is Vital to Social Accountability and Consumer Opportunity.

• Author: KLEIN, DANIEL B.

A gossiper is someone thought to gossip too much. But everyone gossips to some extent. Everyone chats with coworkers, neighbors, and friends. Gossiping is often part of doing one's job.

Gossip serves the vital function of creating accountability. Usually when people interact, there is no referee overseeing the interaction. If one party fails to meet his obligations, the other party is the only person able to report it. Reporting the failure helps to form the reputation of the chiseler and creates accountability against chiseling. Anthropologist Sally Merry (1984) writes that "the individual seeks to manage and control the information spread about him or her through gossip" (275). One way to avoid a reputation for chiseling is not to chisel.

Civilized society depends on accountability mechanisms such as gossip. No one denies that many individuals will meet their obligations even if no social mechanisms exert accountability; people do have a conscience and a sense of honor. But where do those virtues come from? They are not endowed at birth. We are not born saints, and few of us die saints. Without some external system of accountability, people do not cultivate the practices and habits necessary to develop internal accountability. Before learning honor we learn prudence.

Moreover, the extent of our obligations is often unclear, even to the most scrupulous among us. Our knowledge of what is expected, what is customary, and what is appropriate in a particular situation depends on the signals that accountability mechanisms provide us. We might be willing to do good but may be unsure which actions are good.

And even if most of us have a strict sense of honor, without social accountability mechanisms a few wanton souls could greatly manipulate and upset civil society. Indeed, there will always be people who act irresponsibly and fail in their obligations-a fact we must candidly recognize if we are to understand why social accountability mechanisms are necessary. Such mechanisms police our own scruples and protect us against deliberate predation.

The news media practice a kind of gossip. Television and newspaper journalists tell of good deeds and wicked ones, thereby creating reputations that give rise to rewards and punishments. Accountability also works in the realm of scholarship and science when peers evaluate and gossip about scholarly products at professional conferences and seminars and in professional journals and books. Letters of recommendation also serve as checks on employability. Yet another accountability mechanism is the criminal justice system. Police officers go undercover, detectives ask questions, attorneys cross-examine, and witnesses make public testimony. The community hears the details of private transactions. Finally, court decisions are reached, penalties imposed, and criminal records made public.

All social accountability mechanisms work to reward good behavior and punish bad behavior. To function effectively, they must obtain information about who did what to whom. They ask questions, assess the validity of responses, and judge the credibility of character. Sometimes they infringe on civil liberties. All social accountability mechanisms collide with privacy, although each does so to a different extent.

Another social accountability mechanism is the credit-reporting agency (or credit bureau). Creditors, employers, landlords, and insurers may be willing to make opportunities available to consumers as prospective credit users, employees, tenants, and policyholders, but only if they can obtain information on their trustworthiness. Creditors, employers, and others pay credit bureaus for information about consumers, especially information about whether prospective consumers have met past credit obligations. In the United States, three large companies dominate the credit-reporting business: Equifax, Experian, and TransUnion. They work through more than five hundred local offices and contracted affiliates, which send them information from virtually every creditor. Hence, the flow of information is two-way.

Credit bureaus also help marketers--such as L. L. Bean, the National Braille Press, the Children's Television Workshop (Sesame Street Magazine), and the Sierra Club--identify consumers likely to be interested in certain products and assemble marketing lists for these companies and organizations.

Policy Issues Concerning Credit-Reporting Agencies

The credit-reporting industry is the subject of much controversy. Consumers in general know very little about how credit reporting works, and they tend to be suspicious about it (Dunkelberg, Johnson, and DeMagistris 1979). Some consumer activists, journalists, and public officials charge that credit bureaus violate people's privacy, report false or incomplete information, share information with inappropriate parties, and fail to respond to consumer inquiries and disputes. Critics claim to be protecting consumers from losing out on opportunities such as mortgage or car loans.

The range of information included on credit reports is smaller than many suppose. Credit reports usually include only the following kinds of information:

* consumer's name, address, Social Security number, place of employment, and spouse's name

* open credit lines, outstanding credit balances, credit limits, history of timeliness of payments, and amount of last payment

* bankruptcies, liens, child-support payments, and public judgments against the consumer

Reports do not include information about the consumer's lifestyle, religion, political affiliation, driving record, or, except in special cases, medical history--some of the things that a casual acquaintance might come to know. The Fair Credit Reporting Act (passed in 1970, amended in 1996) specifies that credit reports may be purchased only by those entities with a "permissible purpose"--notably creditors, employers, landlords, and insurers. Terms of strict confidentiality surround the use of reports by these parties. Consumers need not fear that any neighbor can read their credit report.

About ten thousand creditors supply information to credit bureaus each month. The bureaus almost always report that information faithfully. In rare cases the reporting is faithful but erroneous because creditors occasionally supply inaccurate information. The creditor may have failed to record or update consumer payments or delinquencies. Other errors surface in reports assembled by the bureaus, who bear the brunt of complaints. Errors in the broadest sense occur for many reasons: public records are faulty, consumers neglect to have their mail forwarded, consumers misplace bills, outgoing mail fails to find its way to the mailbox, mail is improperly delivered, mail is improperly forwarded, and so on. Credit bureaus themselves are fallible, but for the most part the hostility directed at them because of errors on reports amounts to blaming the messenger.

The credit bureaus have made it easy for consumers to review their own credit reports, often at no charge (and federal law sets a maximum charge of eight dollars). Federal law requires that the credit bureau supply to the consumer at no charge a copy of the credit report that was used in a decision that resulted in an adverse action (such as being turned down for credit) because of information in the report.

When a consumer disputes information in the credit report, a verification process begins. The dispute is usually submitted in writing. The verification process flows from the consumer to the bureau to the creditor and back again. Consumers with valid complaints have good cause to feel some frustration, but they must realize that credit bureaus do not know beforehand whether a complaint is valid or spurious. It they revised their records simply from a complaint received by phone, scam artist, would claim to be the victim of errors. The 1996 amendments of the federal law require that the bureau verify disputed information within thirty days or delete it from the records. Barry Connelly (1997), president of Associated Credit Bureaus, claim, that in most cases disputes are verified or resolved within two weeks. When adverse information is verified and the consumer believes there is more to the story, he may write a brief statement to be included in the record (usually limited to one hundred words). Also, when a consumer disputes information with the creditor, the creditor must report the account information as "in dispute."

Credit-reporting services are restricted by state and federal laws. Critics of the system continually seek to add further restrictions, including measures to do the following:

* impose penalties or assign liability to credit bureaus for errors in reports

* require credit bureaus to notify or get permission from consumers before using information about the consumer

* specify rigid procedures for credit-bureau operation, including how long information may be retained on reports, how credit reports are written, who may use the reports, how consumers are notified of credit decisions, and how consume] inquiries and disputes are handled

* provide consumers with their credit reports at no charge or at reduced prices

* require credit bureaus to respond to consumer inquiries within a specified time or face penalties

* create government bureaucracies to police the credit bureaus and formulate new regulations of their operations

The 1996 amendments include many, but not all, of these restrictions; they are fifty pages long (www.ftc.gov/os/statutes/fcra.htm). Although state laws vary, the fore going list gives a flavor of the types of restrictions sought or currently imposed. Law. suits and policy initiatives concerning credit bureaus are multitudinous and can be expected to continue indefinitely. Credit reporting has become a major public issue only in the last ten years, but now the issue is here to stay.

Credit bureaus are organized as for-profit businesses; they are...