The most complained-about financial institutions aren't banks or credit card companies. They're credit reporting agencies -- and by a wide margin.
In fact, the big three credit agencies topped the latest Consumer Financial Protection Bureau (CFPB) monthly report.
Equifax attracted an average of 1,470 complaints during a three-month period from May to July. Experian took second place with 1,272 complaints, and TransUnion had 1,202 complaints. As a category, all of the credit reporting agencies are up by about 30 percent from the same period a year ago.
By comparison, the most complained about bank, Citibank, had only an average of 922 complaints during the same period.
Related story: Executive contacts for credit reporting agencies.
So why all the gripes? To answer that question, you have to take a closer look at a society that's heavily dependent on credit and at the companies that determine how much credit each member of society gets. But the answer also reveals a broken system and a few workarounds that could help you avoid becoming another statistic.
The CFPB did not respond to a request for a comment about its complaint data. Neither did two credit reporting agencies, Experian and TransUnion. Equifax deferred to the Consumer Data Industry Association (CDIA), the trade association for the credit reporting industry.
Decoding the numbers
A CDIA representative suggested the government's complaint numbers are inflated because they fail to distinguish between complaints and "innocuous" disputes.
"For example, consumers who are reviewing their credit reports for the first time might question an item they don’t recognize or understand and then lodge a complaint," says Bill Mashek, the CDIA spokesman. "A consumer might also lodge a complaint against one of the credit reporting agencies when their issue is actually with another entity such as a lender."
The credit agencies also say the government fails to verify any of the complaints; it simply reports them. And it has no way of weeding out potential errors, such as when consumers question an item they don’t recognize or understand on their credit report.
Consumers have a different perspective. They're people like Peter Hoagland, a consultant from Warrenton, Va., whose homeowner insurance bill rose unexpectedly this year. He hadn't made any claims, but soon discovered the reason: His credit rating insurance score taken a hit. He contacted his credit reporting agency. " I could find no one to give me a credible explanation," he says.
Hoagland contacted his insurance company and explained the problem, but the company stuck with its rate increase anyway.
"It feels to me that insurance companies are using these ratings as contrived reasons to raise rates," he says. "They can’t cite claims I have made or increased risk with my home. So they hide behind these dubious insurance score ratings as justification to raise rates."
David Reiss, a professor at Brooklyn Law School , says stories like Hoagland's are common because credit scores affect almost everyone. They're also difficult to explain.
"The credit reporting agencies have a big impact on whether someone can get a mortgage to buy a house as well as on setting the interest rate that they will ultimately pay," he says. "At the same time, they often act in mysterious ways in terms of what they include and do not include on their reports."
Josiah Nelson, a New York-based credit expert, says there's another simple reason people complain about the agencies: "They're the three biggest bearers of bad news."
And when they deliver the bad news -- that your credit is no good -- they don't do it efficiently.
"The main complaints are that they are slow to make updates, tricky to understand deeply, and hard to communicate with," he says. "Many people also may associate their poor credit decisions with the credit bureau and just want someone to blame."
The red tape that stands between consumers and a resolution to the credit reporting problems can be formidable, and the timing couldn't be worse, says Thomas Nitzsche, a spokesman for Clearpoint Credit Counseling Solutions, a nonprofit agency that offerings consumer credit counseling. "They can create a significant roadblock for consumers during moments of emotional transactions, like trying to secure a mortgage, auto loan or credit card approval."
Oh, and one other reason: Search for "credit report complaint" and the CFPB site is the top result. Thanks, Google.
What it means to you
Any way you look at it, these soaring complaint numbers are not good news. But there are fixes. The first step is to contact the reporting agency directly with any problem. Before you do, make sure the problem is with the agency -- not a bank or you. Experts say a careful look at the issue will often reveal that the credit reporting agency is just the messenger.
You can also complain to the CFPB -- ironically, adding to the complaint numbers -- and the bureau will help you get a response within 15 days. The CFPB supervises the large credit reporting agencies, so it has some enforcement authority and may be able to help with a resolution.
A long-term fix requires a change in the way credit reporting agencies operate.
"With lax oversight, each agency is left to be self-policing, but what are its incentives to do a good job of that?" asks Marina Krakovsky, author of The Middleman Economy (Palgrave Macmillan).
"In the case of the credit reporting agencies, you have to ask where the agency’s loyalties lie. Credit reporting agencies are mainly paid by creditors who buy credit reports, not by the people whose credit the agencies track, so the agencies have little financial incentive to do anything about consumers’ complaints about errors. On top of that, weak regulation fails to keep them accountable as well."
No kidding, says Michael Chadwick, a financial advisor. For him, the numbers tell a story of a broken system, of three large companies that operate with virtually no accountability.
"The fact that the credit bureaus do this without our consent, knowledge or approval and do screw it up, costing us money and time to fix, is truly a disservice to the public," he says.
The solution is clear to some: This is a problem begging to be legislated. "I expect in time the government will pass some type of law forcing the bureaus to protect people," Chadwick says.
For agencies that are barely regulated, not accountable to the people they serve and who draw far too many complaints, that may be the only solution -- and one that can't come soon enough.
Christopher Elliott specializes in solving intractable consumer problems. Contact him with your questions on his advocacy website. You can also follow him on Twitter, Facebook and Google or sign up for his newsletter.