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WASHINGTON -- Atlanta entrepreneur Mike Mondelli has access to more than a billion records detailing consumers' personal finances -- and there is little they can do about it.
The information collected by his company, L2C, comes from thousands of everyday transactions that many people do not realize are being tracked, such as auto warranties, cell-phone bills, and magazine subscriptions. It includes purchases of prepaid cards and visits to payday lenders and rent-to-own furniture stores. It knows whether checks have cleared and scours public records for mentions of names.
Pulled together, the data follow financial life far beyond what exists in the country's three main credit bureaus. Mr. Mondelli sells the information to lenders, landlords, and even health-care providers trying to determine to whom to grant credit.
Increasingly, the answer lies in the "fourth bureau" -- companies such as L2C that deal in personal data once deemed unreliable. Although these dossiers cover consumers in all walks of life, they carry particular weight for the estimated 30 million who live on the margins of the banking system. Yet almost no one realizes these files exist until something goes wrong.
Federal regulations do not always require companies to disclose when they share financial history or with whom, and there is no way to opt out when they do. No standard exists for what types of data should be included in the fourth bureau or how it should be used.
No one is even tracking the accuracy of these reports.
Arkansas resident Catherine Taylor didn't learn about the fourth bureau until she was denied a job at her local Red Cross several years ago. Her rejection letter came with a copy of a file at a firm called ChoicePoint that detailed criminal charges for the intent to sell and manufacture methamphetamines. She says the charges were for another woman with the same name and birth date, but the information has haunted her ever since.
Ms. Taylor said she has identified at least 10 companies selling reports with that information, wrecking her credit history. She must apply for loans under her husband's name and has retained a lawyer to force the firms to correct the record. She has settled one case, and a trial in another is scheduled.
For most consumers, credit scores are based on records of loans they have taken out in the past and how well they have paid them off. Information on credit cards, auto notes, and mortgages are all housed in the Big Three national credit bureaus -- Experian, Equifax, and TransUnion. Lenders use formulas developed by companies such as FICO and VantageScore to analyze the data and determine how likely each person is to repay.
Government regulators, financial firms, and consumer advocates have launched extensive education campaigns in recent years to make sure that consumers understand what goes into their Big Three credit reports and how that affects the cost of a loan. Lawmakers and federal officials have crafted rules to try to help consumers understand what's in their files.
But little attention has been paid to the firms that target consumers outside the mainstream financial system, many of them students, immigrants or low-income people who do not qualify for traditional loans or choose not to use them.
LexisNexis, whose parent company bought ChoicePoint three years ago, handles background checks, tax assessments, and criminal histories. Bounced checks can be tracked through Chex Systems, TeleCheck, or SCAN. Payday lenders report to a company called Teletrack. Alliant Data compiles information on so-called "installment payments," industry jargon for recurring monthly fees such as gym memberships.
The rules governing disclosures are not the same across the industry.
The Fair Credit Reporting Act, a law that aims to protect the personal information used to influence credit scores, requires the Big Three to give consumers a free copy of their report annually. But the fourth bureau can charge as much as $11.
The Big Three also must maintain a toll-free phone number and a Web site, annualcreditreport.com, to handle consumer requests. But firms that collect information on rental history, check writing, medical history, employment, or insurance claims need only to create a "streamlined" system for consumer requests, although the law does not define what that is. Firms that gather other kinds of data don't even have to go that far.
There is also no registry of fourth-bureau companies, which makes tracking down all the firms nearly impossible. The businesses that submit data to fourth-bureau companies have to provide only vague disclosures, if they provide them at all.
Federal law requires lenders to notify their customers that any late or missed payments could be reported to a credit bureau, but they do not have to specify which ones or at what point in the process.
But even the most reliable data are no help to consumers if the information is wrong. Estimates for the number of files in the Big Three that contain errors have ranged from 1 percent to 25 percent, depending on which group conducted the study. But no significant analysis has been done on fourth-bureau data.
Catherine Taylor said the errors in her files have persisted despite several attempts to correct them. Another woman with a similar name would miss a payment or commit a crime, and Ms. Taylor said she would suffer for it. When she tried to volunteer with her daughter's Girl Scout troop, she said, a background check turned up a woman named Cathy Taylor charged with indecent exposure before minors. Ms. Taylor was barred from helping out with the troop.
LexisNexis did not respond to questions on Ms. Taylor's case. It said in a statement that it makes changes to less than 0.2 percent of background reports because of consumer complaints.
It took Ms. Taylor four years to find a job after the Red Cross rejected her. She said she has been turned down for an apartment and now lives in a house purchased through her sister. The stress of dealing with the consequences has exacerbated her diabetes and heart problems, she said.
"I'm guilty and then I have to prove myself innocent, and that's just not how it's supposed to be," she said.