The Consumer Financial Protection Bureau, which is the new federal watchdog agency, adopted a rule Monday that will let it keep an eye on the nation's credit reporting industry.
Starting in September, the CFPB u will monitor the country's big credit bureaus and conduct on-site examinations to see if these companies are following with the law.
This is the first time the federal government will take an active role in trying to clean up an industry that consumer advocates say has a reputation for sloppiness and arrogance.
Until now, no single federal government agency could access all the information necessary to generate a complete picture of what's happening inside these companies.
"Supervising this market will help ensure that it works properly for consumers, lenders, and the wider economy," CFPB Director Richard Cordray said in a prepared statement. "There is much at stake in making sure it is both fair and effective."
Consumer groups, which have urged better federal oversight for years, are extremely pleased with today's announcement.
"It's important because credit report mistakes are all too common," said Pamela Banks at Consumers Union, the advocacy arm of Consumer Reports. "We hear from people that when they find a mistake on their credit report. They contact the credit bureau and the bureau does little to investigate, or refuses to remove the mistake - even after the consumer has made a case that the information is wrong or inaccurate."
How can errors hurt you? A bad credit history can be devastating. You could be denied a car loan or mortgage, pay more for insurance, have higher interest rates on your credit cards, be unable to rent an apartment or even lose a job. And those negative consequences are the same whether the report is accurate or based on erroneous information.
No one knows for sure how many mistakes the credit reporting agencies make. Estimates are all over the map. The industry says it's less than 1 percent. Consumer groups say it could be as high as 25 percent. But even a 1 percent error rate would hurt about 2 million people.
Imagine if you're one of the few listed as dead when you're not. Try getting a credit card or car loan or even renting an apartment when the credit bureau says you're deceased.
In a statement released Monday afternoon, the trade group that represents the consumer reporting industry said it looks forward to working with the CFPB.
The Consumer Data Industry Association says 95 percent of people who disputed information in their credit file are satisfied with the process.
Credit bureaus to get federal oversight for first time