The Horror Side of Credit

A man can live with the thought that his baby footprints are in the records of the state, that his fingerprints are on file with the FBI and that much of his private life, probably including a psychological report, resides in the files of his company. As invasions of privacy go, these are tolerable--at least compared with some of those perpetrated by consumer-credit bureaus. Last week, for the second time in less than a year, credit-bureau activities came under investigation by a committee of the U.S. Congress. This time it was the Senate Subcommittee on Antitrust and Monopoly, headed by Michigan Democrat Philip A. Hart. Two days of testimony produced enough horror stories to suggest that credit activities are urgently in need of regulation and reform.

For practical purposes, the more than 2,500 credit bureaus in the U.S. exist to protect their clients against the 4% of consumers who are "slow pays" and the 1% who try to "skip" without paying at all. As such, they are essential in a country that lives on credit. More than 60% of an average American's net income is spent on credit obligations of one sort or another. Each month in the U.S. some $8 billion worth of credit is extended, and the current total of outstanding consumer bills is estimated to be $105 billion--or 12% of the annual gross national product.

Hearsay and Fact. It is hardly surprising that the credit bureaus themselves have become big business. Operating on a membership-and-fee basis --a flat rate of $10 to $50 per year, plus anywhere from 75-c- to $50 for a credit analysis--they provide creditors with data on an individual's working, purchasing and paying habits. The Associated Credit Bureaus Inc., a sort of cooperative that represents 2,400 local bureaus that have files on about 160 million Americans is computerizing its nationwide operation. By 1973, credit information on a shopper from Rochester, N.Y., will be instantly available to a storekeeper in Redlands, Calif.

That information may be startlingly complete. The first time a man applies for credit of any sort, the facts of his life are collected and fed to the com puter; forever after, his file grows and grows. In addition to such basics as his name, address, bank references, marital status and bill-paying habits, credit bureaus keep track of his employment record, living accommodations and bank balance. They record his debts and how he pays them, and his legal involvements. They scour newspapers and public records for data on births, deaths, divorces, business failures, tax liens and court actions. They may even dispatch a field agent to interrogate an individual's acquaintances, friends and foes.

Scatterbrained. The result is a file that can contain hearsay as well as fact, and an account of a man's life that can be misleading, inaccurate--and incredibly damaging. What is more, the clients of credit bureaus include Government agencies, insurance companies and employers in private business. Examples from last week's testimony:

. An Alabama man had a dispute with a Montgomery store over the final payment in a layaway plan for Christmas toys; 16 years later, in Florida, the report of that dispute nearly cost him a job with a large company.

. A credit-reporting agency in Mississippi filed an investigation by a field agent that quoted townfolk as saying that a female insurance adjuster was "scatterbrained," "peculiar," "neurotic or psychotic." Only after a drawn-out struggle and considerable loss of work was the adjuster able to persuade the agency to delete the words "neurotic and psychotic" from her file.

. A commercial photographer from Baton Rouge, La., ran into financial difficulties while setting up his business in 1957 and had to defer payment on various accounts. He has since become successful enough to buy--on credit--an airplane for his business, and Dun & Bradstreet rates his borrowing capacity at about $35,000. But three months ago his wife was unable to charge two cans of paint for the family swimming pool because of the eleven-year-old local credit-bureau report.

. An insurance adjuster in Norfolk, Va., was fired by his company because he allegedly referred claimants to certain attorneys. The insurance company informed the local credit bureau of his dismissal, whereupon the adjuster sued for slander and collected a $1,000 judgment. Because he sued, even though he won, he has since been classified as a "dangerous" credit risk, on the ground that he is "litigious." He has been unable to find employment, except as a $2-an-hour security guard.

. A television newsman in Shreveport, La., was erroneously reported to have had his car repossessed. It took him more than a year to have that false report corrected, and his battle with the credit agency has since cost him a job and a home loan.

The big problem with credit bureaus is their lack of humanity. A man may have been late with his car payments, and his personal file will record that without the mitigating explanation that he was ill at the time and unable to work. Another may once have argued with a department store over the quality of its merchandise; his credit report will label him forever as "antagonistic" or "a troublemaker." Yet another may be the victim of mistaken identity, sued for nonpayment of a bill run up by another person with the same name. The suit will be duly noted in his file, but not the fact that it was thrown out of court.

Until now, there has been no way to require credit bureaus and the people who run them to behave like sensitive and sympathetic human beings. But "some regulations are vitally necessary," Wisconsin Senator William Proxmire insisted after last week's hearings. To that end, he has promised to introduce legislation next month that would keep credit data confidential, allow people to correct errors in their own credit records, and eliminate irrelevant or outdated information from credit-bureau files.

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