The credit report as instrument of extralegal justice

A bad credit report can have serious consequences that can affect a consumer’s life for several years. It can also prevent the consumer from getting access to credit at a reasonable rate or can limit access considerably. In addition, it can be a source of problems when searching for a new apartment or a new job or when applying for property and damage insurance.

A creditor who claims that a consumer owes a him sum of money may make a negative entry in the latter’s credit report. In doing so, the creditor exercises his power to punish the consumer without having to prove the merits of his claim before a court of law. This raises ethical issues because, since the creditor controls the information released, it is as if he were at the same time judge and plaintiff.
Entering a negative entry in a credit report reverses the burden of proof. Even though it is the creditor who is claiming a right - the right to claim his due - if the entry is false, inaccurate, incomplete or disputed (which is common), it is up to the consumer to prove that it is so. To avoid the trouble caused by a negative entry on a credit report, the consumer can of course decide to pay the sum demanded under protest and then sue the creditor. But there again, the burden of proof rests with the consumer.

Admittedly, protection of privacy laws impose certain rules and guidelines regarding the accuracy of the information contained in credit reports and give consumers the right to correct information and add explanatory notes to their files. But how effective are the measures in place? Can an explanatory note really offset the negative perception created by a negative entry? Are such notes taken into in account in calculating the credit rating?

In this research, we wanted to examine the effectiveness of the existing rules and assess whether they adequately protect the consumer.