In October 2023, American credit reporting company TransUnion faced a class action law suit for violating credit reporting laws in USA. The lawsuit ended in a settlement with the government agencies who had filed it. Such lawsuits hold a lot of significance for renters, property owners, and people who have invested in these markets.
In this article, we will understand this issue in detail. Let’s look at who is TransUnion, what they do, and how they ended up facing a lawsuit. We will also understand how credit reporting companies work, the laws that regulate their work, and what happens when those are violated.
Who is TransUnion?
TransUnion is an American consumer credit reporting agency. Credit reporting companies basically compile and sell information about credit reports. They may gather information like the amount of a loan you have taken, loan payment status, the credit limit on your credit card, etc.
Credit reporting companies are also involved in tenant screening. When property owners rent out an apartment or a commercial space, they may have to choose from many applicants who want the space. So, they often conduct a thorough background check wherein they gather essential information about tenants, like their credit score, rental history, criminal record, employment status, etc.
An important part of this screening process is the tenant screening report. This report is a comprehensive document that includes necessary information about a tenant. Applicants often pay a fee to the property owner, who partners with a consumer agency for preparing these reports. When it comes to information about an applicant’s credit score, they seek the services of a credit reporting company.
TransUnion was originally formed in 1968, and it offers products and services related to credit score data. The company has a problematic track record that dates back to the early 2000s. In 2003, they were sued by a client for $5.3 million for failing to remove incorrect information from her credit report for six years.
After that they have been involved in multiple lawsuits by clients, individuals, companies, and government agencies. In February 2023, they were facing another lawsuit for a data breach that exposed the personal data of more than 200 consumers.
The lawsuit by FTC and CFPB
The FTC (Federal Trade Commission) and CFPB (Consumer Financial Protection Bureau) are two independent agencies of the United States. They both share a similar mission- to prevent unethical, misleading and fraudulent business practices, and to ensure consumer protection. They see to it that consumer protection laws are enforced in an appropriate manner wherever required.
In October 2023, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) filed a class action lawsuit against TransUnion, on grounds of violation of the Fair Credit Reporting Act.
The Fair Credit Reporting Act concerns the protection of information collected by consumer reporting agencies, medical information companies and tenant screening services. This Act prevents such organisations from distributing consumer information to third parties without a valid purpose.
When any significant action is taken on the basis of such reports, e.g. refusal to grant loan, or rejection of employment, these organizations providing this information are supposed to notify their consumers about it.
During the proceedings of the lawsuit, it was revealed that TransUnion was reporting inaccurate and unreliable information in background screening reports that were sent to property owners for tenant screening. They were selling furnished, false background screening reports to property owners all over the United States. They provided inaccurate information about public records, criminal records, rental history, etc.
For example, they have deliberately reported false information about eviction proceeding records, i.e., reports of court cases where tenants were evicted by their previous land owners. They would enter meetings of the same proceeding as two separate entries, mislabel information, omitted latest updates on the proceedings, etc.
The director of Consumer Financial Protection Bureau, Rohit Chopra, demanded that TransUnion should stop this illegal activity, improve their business practices, pay compensation to their clients, and pay penalty for violating the law.
How was the lawsuit settled?
A CNBC report dated October, 2023 stated that TransUnion, along with their Colorado based subsidiary, offered a $23 million dollar settlement to FTC and CPFB, which was accepted by these two government agencies. The FTC reported that it was the largest amount amount ever recovered in a tenant screening lawsuit.
Additionally, TransUnion offered to pay $15 million, out of which $11 million would be used for compensating consumers who were wronged by the company. The remaining $4 million would be collected as penalty by the CFPB. Lastly, the CFPB ordered TransUnion to pay $8 million for failing to comply with consumer requests to “place or remove security freezes and locks on credit reports” (Cox, 2023).
Importance of accountability for credit reporting agencies
Credit reporting agencies play a significant role in the financial lives of individuals and organizations.
Credit reports determine people’s access to loans, employment opportunities and housing. This information needs to be accurate and up to date. Holding credit reporting agencies accountable will ensure that you are not unfairly denied such opportunities based on erroneous data.
Financial transactions are rooted in trust. Consumers need to have assurance that the information that is being reported about them is accurate and reliable. Maintaining and restoring confidence of clients is heavily dependent on how readily a company accepts accountability for their actions.
Safeguarding confidential information
Sensitive personal and financial information is handled by credit reporting agencies. Accountability ensures that they adhere to strict laws of data protection and privacy. It protects the information from hacks, unauthorized access and misuse.
An emphasis on accountability ensures that when individuals are wronged by the company, there is a procedure for grievance redressal and dispute resolution before matters go in legal hands. It is a chance for companies to correct their errors and modify reports promptly, thus saving adverse consequences and bad publicity in the long term.
In this article, we looked at the class action lawsuit filed by the Federal Trade Commission and the Consumer Financial Protection Bureau, against TransUnion. We looked at the outcome of the lawsuit in the form of a financial settlement, where the penalty amount will go and how much will be utilized for compensating consumers. We hope it helps you stay informed on pressing issues and updates in the industry!