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Lenders won't share data
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May 4, 2000: 8:07 a.m. ET
Groups say failure to report payment records hurts consumers' credit
By Lucy Lazarony
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NEW YORK (bankrate.com) - Regulators have turned up the heat. Credit bureaus have beefed up their policies. Federal legislation has been proposed. And yet some lenders still won't share information about customers with the credit bureaus.
 "It's a serious problem," said Matthew Lee, executive director of Inner City Public Interest Law Center. "It's really irresponsible for companies not to report the data."
Some major credit card companies are refusing to disclose credit line and balance information, fearing competitors will pillage their customer list for prospects. And many subprime lenders, whose customers are working to build or rebuild credit, aren't reporting on-time payments.
Cramping consumer credit
Holding back credit information allows lenders to shield their best customers from competing lenders that may offer better deals. It also skews credit scores, which means consumers who deserve better may be refused credit or forced to continue paying high interest rates.
Folks with little or blemished credit are hurt most by this trend.
Typically, it takes a year or so of on-time credit payments for people to build up enough credit to qualify for lower rates on credit cards and loans.
When lenders fail to report on-time payment history, all that good behavior is for naught. No one but their current lenders -- who are apt to keep charging high interest rates -- know about it.
"You've pulled yourself up. You're making all your payments. If your good payment history is not reported, you're stuck and you have no idea," said Frank Torres, legislative counsel for Consumers Union.
So folks who are already paying the highest interest rates around could continue to do so indefinitely.
"It's a practice that clearly injures people. This is a vulnerable population that I think believes if they pay back these loans they're getting somewhere," Lee said. "This is a predatory practice. You really are confining someone."
How bad can it get?
Valerie Coffin, a national researcher for Association of Community Organizations for Reform Now, pointed to the case of a Baltimore woman.
After more than a year of on-time mortgage payments, she wanted to refinance her loan so she could do some home repairs. The trouble was her  subprime lender had not reported her mortgage or any of her subsequent payments to the credit bureaus. Her lender, the very company who handled her mortgage, allowed her to refinance, but not before jacking up the interest rate. A key reason was her lack of credit.
"They didn't report it and they partially blamed that for giving her a higher rate," Coffin said. "That poor woman, right now, is facing foreclosure."
Leashing the predators
A joint bill introduced April 12 by Sen. Paul S. Sarbanes, D-Md., and Rep. John J. LaFalce, D-N.Y., aims to end this and other abuses associated with predatory lending.
The bill, titled the Predatory Lending Consumer Protection Act of 2000, would require mortgage lenders to report the complete payment history of customers to a credit bureau each quarter.
"Predatory lending practices represent a frontal assault on homeowners all over America," Sarbanes said. "The predatory lending industry plays on the hopes and dreams of home ownership to cynically cheat the people of this nation."
The whole issue of lenders trying to hold on to customers by holding back credit information first came to light last spring. John D. Hawke, comptroller of the currency, spoke out against this practice in May and called for full disclosure of credit information.
At the time it was estimated that lenders accounting for 50 percent of the U.S. credit card market were withholding information from credit bureaus. Little has changed.
"That's still accurate. That's still the game," said David Gibbons, deputy comptroller of the currency. "A couple of players in the business have chosen to report again. And a couple of others are not. They've decided to go the other way."
The news is not much better among subprime lenders. Research done by Bankrate.com in October showed that three of the top 10 subprime lenders in the United States report either none or just some of their customer loans to the credit bureau.
 Experts see little progress despite a slew of urgings and warnings from regulators and consumer advocates. The problem seems to be that lenders have more to gain by holding back credit information than from disclosing it.
"If you're a subprime lender and you have someone who's always made on-time payments, that's a very valuable account," says Lewis Mandell, dean of the School of Management at the State University of New York at Buffalo. "They're as valuable as a prime customer and you're charging a subprime rate."
Lee put it bluntly.
"You make more money gouging -- that's the problem," Lee said. "For strictly economic reasons, even with guidance and speeches by regulators, they're still not going to do it."
Holdback domino effect
It's a similar story with credit card companies. Big credit card companies, such as Discover and American Express, are better off holding back credit line information than sharing it. It helps them hold on to their best customers and keeps competitors away.
Here's how. A lender can check a consumer's credit report and see an American Express account with a $10,000 credit line. The lender may send out an offer to that consumer for a card with $15,000 of credit, or one with a lower interest rate.
"We don't want to make it easy for our competition to try to steal our customers," said Gail Wasserman, vice president of public affairs at American Express (AXP: Research, Estimates).
Once one credit card company starts holding back information, others follow.
"What happens is two credit grantors decide not to report credit line information. Two becomes four. Four becomes eight ... Someone else says 'I won't report balance,' " said Tony Jones, vice president of sales and services at Experian, a major credit bureau.
"We really start to disadvantage the consumer. The file gets weaker and weaker," Jones said.
Holes in consumer credit files affect credit scores. Some people may end up paying more for credit than they should because their credit score is lower than it should be.
"The underlying component is the data. If we don't have data, we don't have stable scores," Jones said.
Plus, as much as lenders hate the idea of competitors wooing their best customers -- consumers may come away with better deals.
"Reporting positive history opens up customers to competitors -- that's good for consumers," Torres said. "They sell everything else about you but they don't give this up. I think that frustrates a lot of people." 
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