SEVERE CREDIT DAMAGE FROM IDENTITY THEFTS:
A SILENT AND SPREADING EPIDEMIC

Not long ago, a major United States bank stated that a consumer’s credit rating is five times as valuable as his or her annual salary. However, at this time, the average consumer has less ability to control his or her credit rating than at any previous time in history.

Right now, our computerized economy has made "identity theft" a very lucrative, and relatively easy, crime. Armed with any significant personal information (your social security number, your driver’s license number, a number from one of your credit cards), sophisticated thieves can create an entire false identity, and then run up all manner of credit charges against your supposed accounts. In more extreme examples, thieves can use your personal information to gain access to your bank and investment accounts, which thereafter are no longer safe from plunder.

Most financial institutions and most utilities will immediately stop payment on any credit card-type transaction just as soon as you alert them to any problem of stolen identity, but the problem unfortunately does not stop there. Even though you likely will have any falsely-incurred debt forgiven, you yet face the very real threat that your "unpaid" accounts will be reported to a credit reporting bureau, whereupon your credit rating will sustain damage.

Sounds incredible that thieves who steal your identity then destroy your credit? Maybe this sounds incredible, but it’s all too true. My office, in fact, represents clients to whom this has happened, and the case history which follows is based on an actual pending case.

Susan and the Phony Phone Bills

Susan is a very hard-working businesswoman who had, for many years, maintained an excellent credit rating with no bad credit marks. On May 18, 1998, Susan received a copy of her Experian credit report and learned that there was a derogatory mark on it, showing an unpaid phone bill to Pacific Bell in the amount of $86.36 for calls made from a residential account located in Fresno, Ca.

Susan immediately suspected that someone had falsified her identity, because she had never resided in Fresno and had never received phone services from Pacific Bell. She contacted Pacific Bell and notified them that her name and social security number were being used by an unauthorized person in Fresno. She also immediately filled out Pacific Bell’s forms for reporting a possible identity theft. She then contacted the bill collection company which was collecting on behalf of Pacific Bell, Financial Credit Network, and filled out forms for them indicating a possible identity theft. She carefully supplied anyone who asked with copies of her utility bills, tax returns and other information to establish that she did not live in Fresno and had not incurred the phone bills in question.

On June 3, 1998, she received a letter from Pacific Bell, confirming its investigation into the matter which had determined that Susan was not responsible for the phone bills which had been charged to her.

She thought the matter had been taken care of. She was mistaken.

A year later, in June of 1999, she received letters from Credit Bureau of Mountain View/Palo Alto/Sunnyvale, demanding payment of $235.14 for unpaid Pacific Bell charges. She ordered her credit report from TransUnion, another of the major credit reporting agencies, which showed that the earlier "unpaid" phone bill had not been cleaned off of her credit.

This time, instead of writing the letters herself, she hired my firm to write the letters. My letters were ignored, and we were forced to file a lawsuit to correct Susan’s credit and recover damages for her.

A Primer on Credit Reporting and Credit Reporting Agencies

There are three major credit reporting agencies in the United States, and, unfortunately for consumers, they share information with each other freely. The three major agencies are Equifax, Experian and TransUnion. [Equifax can be reached at (800) 685-1111; Experian can be reached at (888) 397-3742 and TransUnion can be reached at (800) 888-4213.]

In essence, consumer credit companies make reports to the credit reporting agencies whenever you, the consumer, does anything which consumer reporting agencies consider worthy of reporting. Severe late payments, bankruptcies, foreclosures and repossessions are among the most noteworthy matters which get reported. However, most consumers do not know that mere inquiries are often reported. In other words, if you apply for any kind of consumer loan, or you apply for a credit card, the mere fact that you have made an application becomes a reportable event. Why? Because credit reporting agencies consider whether you are applying for credit to be an event which may affect your creditworthiness.

Any negative report to a credit reporting agency is called a "derogatory". Bad marks which appear on your credit history are known as "derogatories".

Moreover, depending upon the creditor, even mild late payments can be reported to the credit reporting agencies. And, as mentioned, the agencies share information, so reporting to one agency is usually the same as reporting to all three.

While reporting to one of the three agencies means that the other two will promptly be notified, the same is not true for reporting when a derogatory is false, or has been completely satisfied. Thus, a consumer who satisfies a late bill, with penalty payments, may be dismayed to find that, months later, the late payment reappears on his or her credit report. This can occur because, while the original agency that made the credit report may erase the derogatory, that agency does not ensure that the other two agencies similarly erase the derogatory. The other two agencies then continue to share credit information with the first agency, and -- lo and behold! – derogatory reports once erased get re-reported. Cleaning a derogatory from one’s credit can become a nightmarish, immensely difficult task.

The credit agencies use one’s credit report to arrive at a credit score, and the formula for one’s credit score is a highly protected trade secret. However, it is known that all three agencies use the same scoring system, and one’s credit score in turn is used by virtually all lenders in determining the interest rates consumers will receive on loans.

Why the Sudden Rise in Identity Theft Crimes?

Identity theft was a relatively rare crime in years past, because criminals in years past who wanted false credit simply manufactured phony credit cards with the correct number of digits. However, credit card companies began using more sophisticated security measures, including holograms and algorithms, in their credit cards to prevent such falsification. This left the "weak link" on the security chain the identity of the person applying for the credit card—this remained the one thing that the average thief, without access to sophisticated computerized equipment, could still falsify. Thus, identity theft was born.

Is There a Solution?

Right now, the credit reporting agencies are silent conspirators of the identity thieves. It’s bad enough that a crook can steal one’s identity, and use the stolen identity to run up false credit charges. However, it’s doubly bad when the innocent consumer discovers that he or she is virtually powerless to stop the theft.

Obviously, if you or someone you know ever runs into a situation where you believe your identity has been stolen, you must report it to the creditor and to all three credit reporting agencies immediately. It is worthwhile to fill out a police report at your local police station, and also to submit a report to the nearest branch of the FBI. The police agencies may not be able to catch the smaller crooks, but chances are good that they are hot on the tails of the biggest ones.

As with all situations, it is best to try to clean it up yourself if you can. However, if all else fails, it is time to seek legal assistance. In May of 1998, a Mississippi man won a judgment against TransUnion for $4.5 million for failing to clean up his credit report.

Susan did something which all consumers must learn to do: she documented her entire odyssey with painstaking detail. This makes my office’s job all the easier, since the puzzle is already in place.

I certainly hope that none of you ever suffers the nightmare of an identity theft, but if you do, there are remedies, if not with the credit agencies themselves, then in court. And you must not be afraid to do whatever it takes to handle the problem.