Certegy fined $3.5 million for violating Fair Credit Reporting Act

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A major credit reporting agency, accused of providing erroneous information about consumers, improperly responding to complaints and serially aggravating thousands of impoverished Americans and others whose checks bounced without good reason, is being smacked with a near record penalty.

Certegy Check Services Inc., an important force in deciding whether your check gets accepted by your local grocery, your pharmacist and other merchants, has agreed to pay $3.5 million to settle a smorgasbord of civil charges lodged by the Federal Trade Commission. The company stands accused of committing numerous violations of the federal Fair Credit Reporting Act , the same package of laws that applies to other credit reporting agencies and to credit card companies.

"This impacts a significant number of consumers who still write checks," said Katherine Armstrong, an attorney for the FTC's Bureau of Consumer Protection. "Certegy provides services to lots of merchants."

Consumer treadmill
In summary, a complaint filed by the FTC said Certegy, one of the largest check authorization service companies in the nation, maintained and frequently reported inaccurate information about the financial trustworthiness of people who paid by check -- and then forced those aggrieved consumers to run a combination gauntlet and treadmill as they struggled to set right what Certegy had set wrong.

"Inaccurate information in a consumer reporting agency's file can have a huge impact on a person's everyday life, starting with their check being denied at the grocery store," Jessica L. Rich, director of the Bureau of Consumer Protection, said in a statement when the settlement was announced July 15.

She said Certegy delivered a one-two punch to many Americans who still prefer to pay by check. This includes a significant number of financially stressed people who, in many cases, find themselves clinging to the lowest rung of the economic ladder -- unable to qualify for credit cards or other forms of credit and compelled to rely on their checkbooks.

"The company not only failed to assure that the information it provided to retailers was accurate, but it also failed to follow proper dispute procedures," Rich said. "Today's settlement will benefit consumers who use checks to pay for essential goods and services, including many older consumers and people without alternate means of payment, such as credit cards."

Consumer advocates agreed and they praised the FTC for its work in the case. In addition to reporting some erroneous information to point-of-sale merchants, Certegy also relayed those inaccurate reports to other credit reporting agencies, a rather unfortunate multiplier effect, from the perspective of affected consumers.

"We're pleased that the FTC is taking strong actions against sloppy practices by Certegy and other self-appointed gatekeepers to financial opportunity," said Ed Mierzwinski, consumer program director for U.S. PIRG, a Washington, D.C.-based federation of state public interest research groups. "Especially in this terrible economy, consumers seeking jobs, loans or even the right to cash a check or open a bank account should not be denied due to mistakes or other violations by companies that don't do their jobs well."

Company response
As is common in settlements of this nature, Certegy did not admit to committing any of the violations, but it promised never to commit them again. Once owned by Equifax, one of the big three credit reporting agencies, Certegy now operates as a subsidiary of FIS, formerly known as Fidelity National Information Services, Inc. Certegy is based in St. Petersburg, Fla.; FIS is based across the state in Jacksonville.

A spokesman for FIS acknowledged the charges and the fine levied by the FTC. "Consumer satisfaction is at the very core of Certegy's business," he said. "We are committed to continuing to bolster our internal processes and have addressed all items identified by the FTC in order to ensure full compliance and to achieve consistent outstanding customer service."

Certegy's check authorization program is designed to take into account the nature of the identification offered by the consumer at the point of sale, the number and magnitude of any previously bounced checks and a variety of other risk factors.

Details of complaint
But according to the FTC's complaint:

  • Certegy failed to follow "reasonable procedures" to assure maximum accuracy of consumers' previous transactions. "Among other things, Certegy failed to adequately track the handling and resolution of consumer disputes, resulting in its failure to promptly delete inaccurate or unverifiable information," according to the complaint. "This failure led to the retention and reporting of inaccurate consumer report information regarding consumers who may have been denied the ability to pay by check at the thousands of merchants who use Certegy's check-authorization services."
  • When affected consumers complained, Certegy often failed to properly reinvestigate the cases within the 30 days -- or, at most, 45 days -- required by the Fair Credit Reporting Act. As a result, the company often failed to promptly delete inaccurate information and otherwise resolve the problem.
  • Certegy dragged its heels in providing consumers with their free annual credit report, as required by federal law.

Demands on consumers
From the perspective of the aggrieved check writer, it gets even worse. "In many instances, when consumers notify Certegy that they dispute the accuracy or completeness of information in their file, Certegy attempts to shift the burden of conducting reinvestigation to consumers rather than fulfilling its legal obligations to reinvestigate disputed information," the complaint said.

The FTC said consumers who told Certegy they wrongfully were listed in the company's database as having bounced a check off a particular merchant were compelled by Certegy to contact the merchant themselves to resolve the issue. In other cases, if a check was not accepted because of an allegedly invalid driver's license or other form of identification, Certegy required the consumer to obtain and send driving records to Certegy to "prevent future declines."

Certegy also added this requirement, the FTC said: "When the consumer disputes that the consumer's bank refused to honor a check, rather than accepting a bank statement as proof of the bank's payment, Certegy requires that the consumers obtain a letter from the bank, on bank letterhead, signed by a bank employee before it will resolve the dispute in the consumer's favor."

$3.5 million fine, 180 days to fix problems
The settlement, which was signed by Certegy President Srikanth Kothur, but still must be approved by a federal judge, includes the second-largest fine ever imposed in a case related to the Fair Credit Reporting Act. The $3.5 million that must be paid by Certegy is exceeded only by the $15 million in civil fines and consumer rebates paid by consumer data reporter ChoicePoint Inc. to settle a 2006 case involving data security breaches.

Certegy has 180 days to correct the errors of its ways. Among other things, Certegy no longer can force consumers to resolve a bounced check dispute by contacting the merchant if Certegy has the wherewithal to do that. Certegy also must complete its reinvestigations within the 30-day or 45-day deadlines required by federal law, and -- importantly -- must fortify its efforts to maintain accurate financial information about those who pay by check.

In addition, for the next 10 years, Certegy must make available to the FTC a range of documents, including records of all consumer complaints.

Armstrong said the case was important for a variety of reasons, including this: It demonstrates that the government is serious about enforcing the Fair Credit Reporting Act that protects check writers, credit card customers and nearly everyone who engages in commerce.

"The act is really an important statute because it provides important rights to consumers when their financial information is being used, regardless of where they are on the economic ladder," she said.

See related: A guide to your rights under the Fair Credit Reporting Act ,  How to dispute credit report errors ,  FTC penalizes world's largest debt collector  

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