Sunday, December 09, 2012

Consumers Find Themselves Falsely Flagged As Terrorists And Drug Traffickers On Credit Reports Due To Match With Similar Names On Treasury's SDN List

It's bad enough when an American citizen is forbidden to board an aircraft on U.S. territory because he shows up on a no-fly list to which anyone's name can be added without notice and for which the criteria (for legitimate security reasons) is not publicized. Now imagine if you go in to buy a car on credit, and you're denied because you're considered a possible terrorist or drug trafficker. This one's not the government's fault, though; the responsibility is shared by the credit reporting agencies and individual lenders who do not apply Treasury Department guidance correctly.

On December 6th, 2012, Yahoo Finance reported that when Sergio Ramirez of Fremont, CA went to buy a car, he was rejected for a loan after a notation on his TransUnion credit report indicated he may be a drug trafficker. When Ramirez tried to dispute the false alert, TransUnion told him there was nothing Ramirez or the credit bureau could do to fix the problem. Ramirez' name was the same as two suspected drug traffickers on the SDN list.

Many other people may have similar black marks included with their credit reports without realizing it. The reason: The loose criteria some credit bureaus use to match people to a publicly available government blacklist called the Specially Designated Nationals (SDN) list, which is more commonly known as the OFAC list, after its agency of origin -- the Treasury Department's Office of Foreign Assets Control. The SDN is an outgrowth of the national security hysteria that overtook the country after the 9/11 attacks; it's a part of the USA Patriot Act's broader effort to interdict terrorism. Lenders are supposed to check the SDN each time they receive a new application for credit and face steep penalties of up to $10 million if they don't.

The big three credit bureaus, TransUnion, Equifax and Experian, began to sell OFAC alert services that check consumers' names against the list and notify lenders if there's a potential match. However, they only match the first and last names; there's not always an attempt to provide a more precise match by using middle names, Social Security number or birth date. Consequently, anyone who shares the same first and last name with someone on the SDN list for legitimate purposes is likely to get flagged. And the SDN list is heavy with Hispanic and Middle Eastern names.



Why do the credit bureaus refuse to allow people mistakenly flagged to dispute their records and get them corrected? Some credit bureaus argue they don't have to re-investigate OFAC alerts on a consumer's credit report because the OFAC alerts are sold separately from a credit report and aren't included in the credit bureau's primary credit reporting database. To dispute it, a credit bureau would have to merge the OFAC listings with its primary credit reporting database so that the information would appear on your credit report when you requested it. But as long as the OFAC alerts are being delivered as a separate product, then the alert isn't generated until a creditor has requested the service AFTER a consumer has applied for credit.

So what the credit bureaus must be required to do by law is to merge the OFAC listings with the credit reporting database, since it doesn't appear they are willing to do so voluntarily. When the private sector persistently refuses to do the right thing and causes harm to individuals as a result, then coercion must be used to get them to do the right thing.

Individual lenders also share the responsibility for this problem. Stuart Pratt, president of the Consumer Data Industry Association, says lenders aren't supposed to make a credit decision based solely on an OFAC alert they receive from a credit reporting agency. Instead, it's the lenders duty to check the list released by the Treasury Department and do more research before making a decision on extending someone credit. Had the car dealer taken the proper steps that OFAC itself has laid out in its guidance, Sergio Ramirez would have gotten his loan.

One of these cases made it to the Third U.S. Circuit Court of Appeals, which ruled in August 2010 that TransUnion violated the Fair Credit Reporting Act by keeping the OFAC alert secret from Sandra Cortez and not letting her dispute it, and for failing to maintain reasonable procedures that would ensure her report was as accurate as possible. A car dealership in Colorado who threatened to call the FBI and made Cortez wait for hours before she could take her car home got off the hook. The case was Cortez vs. TransUnion; read the 91-page court decision HERE. But it doesn't appear this court decision was enough to persuade TransUnion to take more responsibility. Furthermore, the Columbus Dispatch discovered a persistent pattern of irresponsibility by the three credit bureaus; during a yearlong investigation, The Dispatch collected and analyzed nearly 30,000 consumer complaints filed with the Federal Trade Commission and attorneys general in 24 states that alleged violations of the Fair Credit Reporting Act. More than five percent complained to the FTC and more than 40 percent to the attorneys general that their reports had basic personal information listed incorrectly: names, Social Security numbers, addresses and birth dates. And more than half of all who filed complaints with the FTC said that despite their best efforts, they could not persuade the three major credit-reporting agencies to fix the problems.

Credit bureaus are begging for stiffer regulation, and it needs to be forthcoming. Just as the No-Fly List needs to be transformed into a "Close Watch" list that would allow the person to board a flight once he or she proved harmless to the flight, so the Fair Credit Reporting Act must be strengthened to allow dispute of any derogatory information regardless of its source of origin. These credit bureaus cannot be allowed to evade responsibility by claiming the OFAC data is "a separate product".

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