WASHINGTON — Mississippi has sued Experian, the world’s largest firm that collects detailed information about consumers to evaluate their financial trustworthiness. The lawsuit — and a separate investigation of the industry by 32 other states led by Ohio — represent a significant new legal challenge to the industry over allegations of paperwork errors and violations of consumer protection laws.
Errors can jeopardize people’s ability to get loans and pass job-related background checks. Experian has even wrongly reported that consumers are on a federal terrorism watch list, the lawsuit alleges.
Mississippi Attorney General Jim Hood’s complaint accuses Experian Information Solutions of knowingly including error-riddled data in the credit files of millions of Americans, jeopardizing their ability to obtain loans, employment-related background checks and sensitive government security clearances.
The lawsuit against Experian was filed without fanfare last month in a Biloxi state courthouse and transferred to Mississippi federal court late last week.
Experian and its competitors gather and maintain records of consumers’ credit history from banks, debt collectors and other sources, keeping files on more than 200 million Americans. Banks, prospective employers and other parties pay the credit bureaus to review this data, using it to determine whether a borrower is financially stable and a good credit risk. Consumers with blemishes like missed credit card payments or recent bankruptcies on their credit will struggle to get loans, while those with a long record of timely debt repayment are courted by lenders.
Both Experian and a spokesman for its trade group, the Consumer Data Industry Association, declined to discuss the litigation or related questions about the quality of the company’s data.
Despite the errors added to credit files, the Mississippi lawsuit said, Experian provides no straightforward way for consumers to correct erroneous blemishes affecting them. When consumers file a dispute, Experian reflexively finds in favor of the bank or debt collector that reported the debt, Mississippi said.
And when consumers call to complain, the lawsuit said Experian employees attempt to sell consumers credit monitoring products of questionable value.
“Experian has turned its failures to maintain accurate credit reports and its refusal to investigate consumer disputes into a business opportunity,” Hood, a Democrat, said in a statement.
In Ohio, Republican Attorney General Mike DeWine has regularly criticized the credit bureaus for inadequate quality control and consumer protections. Attorneys general nationwide have demanded and received records from both Experian and its primary competitors, TransUnion and Equifax. Experian is the largest of the companies, with revenues of $4.8 billion last year.
Equifax also warned shareholders in February that it was under investigation by Ohio and 31 other states, separate from the similar investigations of the industry by Mississippi and New York, and also under investigation by the CFPB. The list of states working with Ohio has not been disclosed by that state. “We are unable to predict the outcomes of these investigations, including whether the investigations will result in any actions or proceedings being brought against us,” the company said.
TransUnion warned investors in February about the multi-state investigation, along with separate investigations by Mississippi and New York, and said it was providing internal documents to investigators. “We do not believe we have violated any law and intend to vigorously defend any claim that may result from these investigations,” the company said.
The key allegations in Mississippi’s complaint are not entirely new: consumer advocates, plaintiffs’ attorneys, the Federal Trade Commission and the Consumer Financial Protection Bureau have assailed credit bureaus for inadequately addressing erroneous credit reports. According to an FTC study, 5 percent of all consumers’ credit reports contain errors that could harm their ability to obtain credit.
TransUnion said the multi-state investigation led by Ohio was prompted by reporting in 2012 about improper or questionable industry practices by The Columbus Dispatch newspaper.
Experian warned investors earlier this year that the U.S. Consumer Financial Protection Bureau and its British counterpart were regulatory agencies responsible for protecting consumers and said, “It remains uncertain how these bodies may affect our credit and consumer business processes and business models in the future.”
Experian also told investors that, to the best of its knowledge, it complies with data protection requirements but warned that, “We might fail to comply with international, federal, regional, provincial, state or other jurisdictional regulations, due to their complexity, frequent changes or inconsistent application and interpretation.”
Experian’s alleged misconduct has harmed Mississippi consumers, the lawsuit said. Because of the company’s alleged failure to maintain reasonable procedures to verify credit information and correct mistakes — a violation of the federal Fair Credit Reporting Act — it said consumers have been wrongly hounded for debts they did not owe, blocked from taking out loans and threatened with the loss of top secret military clearances.
Mississippi alleges that even simple errors in Experian files — such as a credit file that wrongly stated that a Mississippi resident described in the complaint as “Consumer 5” was dead — can prove nearly impossible to fix.
“At first, Consumer 5 and his wife thought it was funny,” the complaint said. But months later, his unsuccessful efforts to fix the error cost him the ability to purchase a truck at a favorable interest rate.
In another example cited in the Mississippi complaint, a lieutenant colonel in the Army National Guard was denied credit and forced to buy numerous credit monitoring services due to Experian’s failure to distinguish between his credit history and those of other people in his family. Mississippi also alleges that consumers have lost access to the financial system after Experian wrongly confused their credit files with those of people on a U.S. Treasury Department terrorist watch list.
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