DealBook: Over a Million Are Denied Bank Accounts for Past Errors

Your Money: An $18 Million Lesson in Handling Credit Report Errors

That indifference should surprise no one who has ever tried to deal with any of the three big credit reporting agencies, Equifax, TransUnion and Experian. “You feel trapped, like you are in a box,” said Ms. Miller, a 57-year-old nurse who works in a dermatologist’s office. “You have no control over this, and you can’t call them up and say, ‘You’re fired.’ ”

So she tried suing. That worked.

A jury in Federal District Court in Portland, Ore., last week awarded her a whopping $18.4 million in punitive damages, which, according to consumer lawyers, is the largest individual case on record.

If you think this has taught Equifax and the other credit reporting companies a lesson, you are a lot more optimistic than close observers of the industry. They say that despite the huge judgment, little is going to change for the millions of Americans who discover errors in their credit reports.

The credit bureaus are willing to tolerate these errors — and settle with consumers out of court — as a cost of doing business, according to credit experts and lawyers who work on these cases.

“Their business model is to keep doing the same thing over and over again,” said Justin Baxter, the lead lawyer on Ms. Miller’s case. “They can buy off a number of consumers with small dollar amounts and get rid of the vast majority of cases. To Equifax, that’s the cost of doing business.”

Ms. Miller made every effort to fix her report, exactly as consumers are advised to do. She initiated the company’s dispute process about seven times, and in most instances, Equifax would spit back a form letter saying it needed more proof of her identity. So she sent her pay stub and her phone bill. When that didn’t work, she sent her pay stub and her driver’s license. And when that failed, she sent her W-2 form and an insurance bill — at least three times.

But nothing ever changed: Ms. Miller, a model financial citizen who once had the credit score to prove it, had become mixed up with another, much less creditworthy Julie Miller. After she was denied a line of credit from KeyBank, she discovered 38 collection accounts on her credit report, none of which belonged to her, along with an inaccurate Social Security number and birth date. Her financial life was no longer her own.

Mixed files, as they are known in the credit industry, most frequently involve people who share common names with individuals who have similar Social Security numbers, birth dates or addresses. These errors are notorious for being among the most difficult to fix, credit experts said, and require human intervention to untangle the mess. But given the huge number of disputes, the process to address them is largely automated. And that is the excuse the industry advances to consumers who get stuck in its web.

The bureaus often outsource thousands of disputes daily to workers overseas. Those workers, often overwhelmed by the sheer volume of cases, are largely told to translate the problem into a two- or three-digit code that defines the gist of the problem (account not his/hers, for instance) and feed it into a computer.

But that process won’t untangle a mixed credit report. The reason files become mixed to begin with can be traced back to the computer formula the bureaus use to match credit data to a specific person’s credit report. It allows credit data, say a late payment on a credit card, to be inserted into a person’s file even if the identifying information isn’t an exact match. In other words, the system might add a late payment to the credit report of someone like Julie Miller even if the Social Security number is off by two digits or a birth date is off by two years, but enough of the other identifying information matches. That’s roughly what happened to Ms. Miller.

Partial matches aren’t always wrong, of course. Solid estimates on the number of mixed files are hard to find, though a 2004 study from the Federal Trade Commission said that partial matches occurred in about 1 to 2 percent of credit files, citing data from the bureaus. That might not sound like much, but when you consider that there are 200 million individuals with credit files at each of the big three bureaus, that translates to two million to four million consumers.

Kitty Bennett contributed reporting.

DealBook: More Errors in Checks Meant to Aid Homeowners

David Zalubowski/Associated PressA foreclosed home in Denver.

8:58 p.m. | Updated At least these checks cleared.

Three weeks after checks sent to homeowners as compensation for foreclosure abuses were rejected for insufficient funds, the consulting firm at the center of the mishap erred again: a fresh round of checks was written for the wrong amounts.

In recent days, according to officials briefed on the matter, Rust Consulting issued nearly 100,000 checks for less than the homeowners were owed. The mistake potentially cheated consumers out of millions of dollars they were owed under a deal reached between the government and the nation’s biggest banks.

Federal regulators ordered Rust to fix its mistake. And in a statement, Rust said late Wednesday that it had “corrected the error and plans to mail supplemental checks to affected borrowers as soon as May 17.” It attributed the mistake to a “clerical error.”

But the developments cast another harsh spotlight on Rust, which had been selected as the distributor of checks for the $3.6 billion settlement deal that regulators struck with the banks. The continued problems with Rust also raised questions about the government’s oversight of the firm and the wisdom of hiring it in the first place.

What’s more, some homeowners complain the problem is broader than Rust has acknowledged. Jennifer Lawson, whose husband is on active duty with the Navy, said she was stunned when she received a check on April 19 for $600. Under the terms of the settlement deal, Ms. Lawson expected thousands of dollars in compensation for her foreclosure.

“First we are wrongfully tossed out of our home while serving this country and then we get basically no money,” Ms. Lawson said.

The problems have alarmed Capitol Hill and prompted investigations into the settlement.

“This is the worst settlement I have seen in my life,” said Representative Elijah E. Cummings, a Democrat from Maryland, who has opened an investigation into problems with the settlement, including the use of Rust.

With more than 50 federal contracts to its name, and its own political action committee spreading campaign donations across Washington, Rust has become a favored middleman for class-action lawsuits and government settlements.

In the foreclosure settlement case, in which regulators accused 13 lenders of wrongful evictions and other abuses, Rust appeared to be the logical choice. In fact, when executives from some banks suggested a different consulting firm for the foreclosure settlement, regulators balked, according to people briefed on the matter. The regulators instead suggested that the banks hire Rust.

But problems emerged soon after the settlement was announced in January. The consulting firm, officials said, was initially slow to alert borrowers to expected payments. Then, the officials say, Rust delayed the checks for weeks as it struggled to gear up for the payments.

Once Rust issued the first round of checks in April, it failed to move money into the bank account used for the settlement. The decision prevented some homeowners from cashing their checks.

Rust played down the mistake at first, saying in a private e-mail to banks that the “perceived issues” with a handful of checks lack “merit,” according to a copy of the e-mail reviewed by The New York Times.

But, in effect, the checks bounced. And after the incident, Rust lost significant credibility with the regulators, officials said.

More recently, homeowners have complained about clerical errors at Rust, problems like checks sent to the wrong addresses or issued to deceased borrowers.

Norma Gammon, 54, said she thought things could not get much worse after her home in Evansville, Ind., was sold at foreclosure auction in June. But then she started dealing with Rust. After contacting Rust at least six times to update her address, Ms. Gammon said, she learned that the firm had sent the check to her foreclosed property. To receive another payment, Ms. Gammon has to fill out a new form. But Rust says the form has been sent three times, apparently to the wrong address.

“It’s so frustrating that I just want to cry,” she said.

The firm’s latest mistake — sending out checks in the wrong amounts — could also prove difficult to remedy.

The problem stems from last week, when Rust issued checks to customers of Morgan Stanley and Goldman Sachs. Unlike the other banks involved in the settlement, Goldman Sachs and Morgan Stanley’s foreclosures were not subjected to a long independent assessment by outside auditors. As such, the banks agreed to pay some of its customers an extra sum.

But Rust, according to the officials briefed on the matter, failed to follow the payout plan. Instead, it issued checks to customers of Goldman Sachs and Morgan Stanley based on a metric adopted by the 11 other banks, including JPMorgan Chase and Bank of America.

The misstep deprived some homeowners of thousands of dollars. For example, some Goldman and Morgan customers in bankruptcy who were wrongfully evicted deserved a $4,650 check. They received $3,750 instead.

The problem was wide-ranging. About 96,000 of the 220,000 Morgan Stanley and Goldman Sachs customers received the wrong amount, according to regulators. It most likely affected every borrower who was entitled to more money under the Goldman Sachs and Morgan Stanley plan.

Regulators detected the problem on Tuesday, when a concerned borrower called the Federal Reserve to complain, according to a person briefed on the matter. The Fed then ordered Rust to devise a solution.

Rather than cancel the checks, Rust decided to issue a second round of payments to the harmed consumers. In a statement, the Fed instructed borrowers to “cash both the original checks and the supplemental check.” It also noted that “Rust has determined that the error was limited to borrowers whose mortgages were serviced by Goldman Sachs and Morgan Stanley.”

But anecdotal evidence suggested that was not the case. Housing advocates point to the case of Ms. Lawson.

Under a federal law, banks are required to obtain court orders before foreclosing on active-duty members like Ms. Lawson’s husband. Some military members who were wrongfully evicted are eligible to receive up to $125,000 in compensation through the settlement. Ms. Lawson, whose home near Jacksonville, Fla., was sold at a foreclosure auction in 2010, said the “piddling amount” of $600 was an injustice.

Mr. Cummings, the congressman from Maryland, also notes that Rust does not include an explanation of what homeowners are owed under the settlement.

“Borrowers are not being told how their compensation under the settlement is determined,” he said, “so it’s impossible for them to know whether they are receiving the correct amount, which just adds insult to injury.”

Regulators have noted that many consumers have seemingly had no trouble cashing their checks. By the end of Tuesday, regulators say, homeowners successfully cashed or deposited about two million checks, or slightly more than half of the total checks issued.

Still, that leaves nearly two million people who have either delayed cashing the check or have had problems doing so. Cynthia Singerman, a staff lawyer with Housing and Economic Rights Advocates, said that some of the problems morphed from seemingly simple clerical fixes into a persistent problem for struggling homeowners.

One of Ms. Singerman’s clients whose home in Pleasanton, Calif., is in foreclosure cannot cash the $1,000 check she received from Rust in April. The problem, Ms. Singerman said, is that the check is made out to the homeowner’s husband, who died more than three years ago.

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