Weekend Question 3: Will This Lawsuit Result Force Changes at the Credit Bureaus?

Answer: Based on the amount involved, no. Based on what may have been a near-miss on a much larger amount, maybe.

A Nokesville, VA woman who had her identity stolen and credit score ruined scored a victory, but not at the level she and her husband wished (bold is mine):

Equifax owes damages in identity-theft lawsuit
Northern Va. woman sued credit-reporting companies and others
Saturday, August 5, 2006

MANASSAS — A federal jury has ordered Equifax Information Services LLC to pay a Nokesville woman $351,000 in damages in an identity-theft lawsuit.

The $45 million lawsuit against three major credit-reporting companies — Equifax, TransUnion and Experian Information Solutions — and creditor CitiFinancial Inc. was the second in Suzanne Sloane’s battle to reclaim her stolen identity.

In June 2003, Sloane gave birth to a son at Prince William Hospital. A few months later, a woman working in the hospital’s billing department lifted Sloane’s Social Security number from hospital records and used it to open several credit accounts, running up thousands of dollars in debt in Sloane’s name.

The identity thief, a temporary worker named Shovana Sloan, had previous convictions for identity theft and was on probation at the time she was working at the hospital, according to lawsuits filed against the hospital and the temporary agency that hired her.

Shovana Sloan was arrested in March 2004 and was later sentenced to two years in prison.

….. More than two years after her Social Security number was stolen, Sloane’s credit score was still hundreds of points lower than it was before the identity theft, she said in January.

After countless phone calls and letters yielded little progress toward restoring her credit, she and her husband, John, filed a federal lawsuit in November against the country’s three major credit-reporting companies. TransUnion, Equifax and Experian compile credit reports on people and provide them to lenders.

When the Sloanes discovered that they had been the victims of identity theft, they reported the crimes to the credit-reporting companies.

Their lawsuit says the three companies continued to show debts from the identity thief on the Sloanes’ credit report.

The suit also says the companies lack a mechanism to repair the damage identity theft does to a person’s credit report.

The suit sought a total of about $31 million from the credit-reporting companies.

….. The Sloanes said litigation wasn’t their first choice, but that it seemed to be the only way they could clear their credit history.

They tried for a year to work with the companies to fix the credit reports before resorting to suing, they said.

The bureaus claim that the bolded statement about their lack of a mechanism for REPAIRING damage from identity theft is not true. I frankly don’t believe them, as the consumer has to do all the cleanup work, or, at what is usually considerable cost, engage someone else to do the cleanup work for them.

One way to get around the considerable cost of a potential ID theft is to buy some form of ID theft cleanup/protection service from a financial institution or (guess who?) the credit bureaus themselves. Now that ID theft has turned into a profit center for the financial services interest, the incentive to clean things up is greatly diminished, consumer suffering be damned. In fact, if there aren’t occasional horror stories to advertise, sales of ID theft services will fall.

The amount of money in the jury award is chump change, and will be probably be paid by Equifax’s liability carrier. BUT….. if I were the carrier, I would insist that the Equifax and the other two bureaus (to the extent they can be persuraded even though they apparently didn’t end up having to pay damages) change how they handle identity theft repairs, and quickly. In the absence of reform, the carrier might threaten to withdraw coverage, and I doubt there are many other carriers who would be willing to fill the breach if the carrier did indeed fire its customers.

And maybe, just maybe, the bureaus will get a grip and realize that allowing consumers to freeze their credit would not only help prevent future lawsuits like the Sloanes’ but will also serve as a defense if future suits are filed. They saw the light in the late-1990s when California threatened to pass credit-scoring legislation and decided to release the scores after years of claiming that consumers would game the system if they received them. If they’re smart, they’ll get together and agree to put universally available consumer-friendly credit freeze and “unfreeze” procedures into place (only one call or one contact required to freeze or “unfreeze” at all three bureaus) to replace the hodge-podge of state laws that have already passed, with more coming soon.

There appears to be, at least from the facts presented, no excuse for what happened to the Sloanes. It happens too often, and it has to stop.