From corporation-watch at countercorp.org Mon May 10 05:12:50 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Mon, 10 May 2010 02:12:50 -0700 Subject: [Corp. Watch] Corporate greed and indifference has long-lasting effects Message-ID: <7CEE7AA9-F206-4AED-BAA0-F1E1A4635607@countercorp.org> Alaska Fishermen Still Struggling 21 Years after Exxon Spill by Dan Simon and Augie Martin (CNN, May 10) -- For third-generation fisherman John Platt, the 1989 Exxon Valdez oil spill is a financial and psychological nightmare that won't end. Three years after the 11 million-gallon spill in Prince William Sound blackened 1,500 miles of Alaska coastline, the herring on which he and other Cordova fishermen heavily relied disappeared from the area. Platt and some others stuck around, fishing for salmon and hoping things would improve. The herring never returned to Cordova. Platt's income plummeted, severely straining his marriage and psyche. He dipped into his sons' college funds to support his family. Platt and other people in the Alaskan village of about 2,500 people say they still are suffering economically and emotionally 21 years after the oil disaster. "People's lives were ruined," Platt said. "There were damn good fishermen here in the Sound, and they just said, 'Screw it' and left, and tried to make a living elsewhere." As for Platt, who stayed: "I wasted 20 years of my life," he said. About 3,400 miles away, an oil leak that started last month in the Gulf of Mexico is threatening the Gulf Coast. "Here we go again," Platt said of the oil leak in the Gulf. "I feel real bad for the people who are going to potentially go through what we did here." The herring loss alone has cost the region about $400 million over the past 21 years, according to R.J. Kopchak, a former fisherman who is now developmental director at Cordova's Prince William Sound Science Center. The average fisherman suffered a 30 percent loss in income after the spill, but those who specialized solely in herring lost everything, Kopchak said. Sociologists who spent years around the Sound after the disaster concluded that one-fifth of all of the area's commercial fishermen suffered severe anxiety, and as many as 40 percent suffered from severe depression. "People went bankrupt. People lost things," said Mike Webber, a Cordova fisherman. He said perhaps 30 to 40 families have left Cordova since the disaster. Webber, who fished for herring and salmon before the spill and continued fishing for salmon in the years after, said he began drinking heavily after 1989. He then lost his marriage. "I blame my divorce on Exxon -- the oil spill," Webber said. "It was just aggravation and frustration that tore us apart." The surface oil from the spill had largely disappeared within three years of the spill, according to studies conducted by the National Oceanic and Atmospheric Administration's Office of Response and Restoration. But oil residue still can be found on the shore. "It is a lingering problem, as they say, with no easy solution," Kopchak said. Money from Exxon hasn't made the fishermen's problems disappear. Besides the $2.5 billion that Exxon is estimated to have paid for the clean-up, it reportedly paid $300 million soon after the disaster to 11,000 fishermen, fish processors, and others affected. In 1994, a federal jury ordered Exxon to pay $5 billion in punitive damages, but that award was reduced to $507.5 million on appeal. Last year, a federal court ordered Exxon to also pay $470 million in interest on the punitive damages. Platt says he has received about $600,000 from Exxon. But most of it was used to clear liens on his fishing permits and boats, he said. Before Exxon's successful appeals, fishermen were expecting a lot more, Platt said. "I think the general perception [outside of Cordova] is that we were compensated a long time ago, that everything is rosy," Platt said. "That's not the case." Exxon says the spill had nothing to do with the herring disappearance. In a statement, Exxon said the herring catches were outstanding for the first three years after the spill, and that scientific studies showed that the subsequent decline was caused in part by ocean factors that led to poor nutrition, and perhaps by disease. Other studies, Exxon said, pointed to competitive interactions between young herring and young salmon, and to predators. "The Valdez oil spill was a tragic accident and one which ExxonMobil deeply regrets," Exxon said in a separate statement. "We took immediate responsibility for the spill and have spent over $4.3 billion as a result of the accident, including compensatory payments, clean-up payments, settlements and fines." "As a result of the accident, Exxon undertook significant operational reforms and implemented an exceptionally thorough operational management system to prevent future incidents. ExxonMobil has a long history of community support throughout Alaska and we continue to expand that focus," the statement said. For Platt, the nightmare continues. "We got hosed here in Cordova, and nobody cares," Platt said. From corporation-watch at countercorp.org Tue May 11 16:42:49 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Tue, 11 May 2010 13:42:49 -0700 Subject: [Corp. Watch] Big Greed wins Round 1, but has open cut above the eye References: <1273601214.13488@lists.wallstreetwatch.org> Message-ID: Round 1 to the Banks, More to Come By Robert Weissman (Wall Street Watch, May 11) -- The Senate resumes debate today on the Wall Street reform bill, having already rejected probably the most important measure proposed to reduce Wall Street power, strengthen financial stability and fortify our democracy: breaking up the banks. By a 33-61 vote, the Senate defeated the Brown-Kaufman amendment, which would have forced the largest banks to get smaller. Three Republicans, including Richard Shelby, the ranking minority member of the Banking Committee, joined 30 Democrats in supporting the measure. This was a very big loss. But things aren't over by any means. There are many important issues still up for grabs in the Senate bill -- controlling derivatives, strengthening and protecting the consumer financial protection bureau, eliminating a global deregulatory scheme on insurance issues, and much more. One vital measure would reduce bank size indirectly, while also restraining the Wall Street speculative impulse. An amendment proposed by Senators Jeff Merkley (D-Ore.) and Carl Levin (D-Mich.) would implement the "Volcker Rule" -- the proposal from former Federal Reserve Chair Paul Volcker to keep commercial banks out of speculative investing. The Merkley-Levin amendment would eliminate loopholes in the reform bill, and ensure commercial banks stop betting on the equity, bond, and derivatives markets. It would also prevent banks from running their own hedge funds. At the same time, it would make large, non-bank financial companies hold more capital against the risk of loss on speculative bets. And it would prohibit Goldman Sachs-style conflicts of interest, with firms betting against securities they sold to clients. Merkley-Levin would force commercial banks to sell off their internal betting divisions, and to re-focus on core banking functions. In other words, it would make banks be banks again. Although the defeat of Brown-Kaufman was crushing, it was ironically an indicator of the strength of the populist call to break up the banks and reduce Wall Street power. One sign of Wall Street's ongoing dominance on Capitol Hill had been its success in defining the call to "break up the banks" as outside the bounds of legitimate debate. It succeeded at this in the House, which did not seriously consider proposals to break up the banks, but it could not block the issue from an airing in the Senate -- where, once aired, the proposal gained substantial support, notwithstanding opposition from the White House and the chair of the Banking Committee, Chris Dodd (D-Conn.). The defeat of Brown-Kaufman does not mean the issue will go away. Wall Street hopes that it will be able to weather the storm from this round of legislation, and escape further scrutiny and control. But as the recent Securities and Exchange Commission charges against Goldman Sachs reveal, there are still a lot of buried bodies yet to be uncovered. The growing tide of scandal may well lead to subsequent rounds of reform, with momentum building to break up the banks that are clinging desperately to their hold on Capitol Hill. In the meantime, opportunities for real reform remain on the table right now. A host of named and anonymous industry lobbyists recently admitted in the Washington Post that they fear they are losing control of the Senate debate. "You've got an environment, six months before an election, where politicians are acting like politicians," Sam Geduldig, a financial lobbyist and former Republican staffer, told the Post. "They are viewing any vote as a potential campaign ad. And that might not be good for any of us." Well, not good for any of the industry lobbyists, perhaps, but ideal for democracy -- and the democratic imperative to exert control over Wall Street. From corporation-watch at countercorp.org Wed May 12 15:24:20 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Wed, 12 May 2010 12:24:20 -0700 Subject: [Corp. Watch] Draining the derivative swamp Message-ID: <31304A3B-1A0C-4BAC-9F6F-EA4A42EE5E58@countercorp.org> Banks Must Be Barred from Dealing Derivatives It's NOT a normal part of the business of banking By Jane D'Arista and Gerald Epstein (Huffington Post, May 10) -- The furor over the inclusion of an amendment by Senate Agriculture Committee Chair Blanche Lincoln (D-Ark.) in the Senate financial reform bill is becoming somewhat ludicrous. Good, knowledgeable people such as FDIC Chairman Sheila Bair and former Federal Reserve Chair Paul Volcker have stepped up -- no doubt at the Fed's and Treasury's bidding -- to strew misinformation in the path of what, to date, is the most powerful structural change in the bill in terms of both mitigating risk and preventing future bail-outs. The controversial part of the amendment -- Section 716 -- would ban Federal Reserve assistance through a credit facility or the so-called "discount window", or loan or debt guarantees by the FDIC to any dealer in swap contracts. This would mean that banks that are insured by the FDIC -- including the large banks that now dominate the market -- would have to spin off their derivatives desks. Like the Volcker rule itself, the intent is to remove risky activities from the core banking functions that are essential to the economy, and to ensure that those risky activities will not trigger the need for a bail out to prevent systemic collapse in the future as they did in the 2008 crisis. Bair's concern was that forcing derivatives dealers out of banks would move the business into less regulated and more leveraged entities. While saying that banks should not engage in speculative activities, she argued that banks have an important role in creating markets for their customers while needing to hedge interest rate risks related to their core lending business. Volcker, too, took the position that providing derivatives is a normal part of a banking relationship with a customer and should not be prohibited. These assertions need to be questioned. First, if banks' role in selling derivatives is so important and if it is part of the usual course of a banking relationship, why do only five banks -- J.P. Morgan Chase, Citibank, Bank of America, Goldman Sachs and Morgan Stanley -- account for 90 percent of the market? Surely that kind of oligopolistic domination of the market makes clear that it is not an activity normally undertaken by banks. Moreover, the level of concentration among swaps dealers is in itself systemically risky in addition to being anti-competitive. Second, separating swap-dealing operations from the business of banking does not mean that banks will be unable to hedge their banking risks. They will become end-users with an interest in seeing that the dealers from whom they buy derivatives are well managed, well regulated and well capitalized. In addition, the largest dealers will be able to retain what for them has been a major profit center by moving their swaps desks into subsidiaries under the bank's holding company. Their only loss will be the inability to sell and trade without disclosing the prices they charge, since most of their business will be conducted through clearing houses and exchanges and thus be subject to requirements for disclosure and reporting that the off-balance-sheet, over-the-counter markets are designed to evade. But third and perhaps most important, the assumption that taking derivatives desks out of banks will make the business less regulated and more leveraged is simply wrong. For one thing, the requirements for prudential oversight under Title VII of the bill will apply standards for capital adequacy, transparency, anti-fraud, and anti-manipulation to stand-alone derivatives dealers. But the equally important point is that they couldn't possibly be less regulated and less well capitalized than the bank dealers are now. Chairman Lincoln's provisions have the enormous value of getting the vast derivatives dealing and trading operations out of the shadowy off-balance-sheet world where they are now. This will have very substantial systemic benefits for the derivatives market, and for the banking system as well. Moving the selling and trading of these instruments into separate entities will increase transparency by bringing derivatives out of the shadows so that dealers can be more easily regulated, and the prices and volume of purchases and sales in the market will be readily available to counterparties. It will also ensure a better capitalized derivatives market since, as the crisis revealed, there is so little capital backing the off-balance-sheet liabilities of the large banks where the majority of the business is still being conducted. In addition, it will shrink the enormous exposure of a few, very large banks that can threaten the stability of other financial institutions and the many non-financial companies that use this market. Chairman Lincoln's amendment is sensible and prophylactic. It goes to the heart of the interconnectedness that has been exacerbated by oligopolistic market domination. Requiring a stand-alone structure for dealers will tend to encourage new entrants and bring the benefits of competition to end-users in all sectors of the economy. If, as critics of the amendment argue, derivatives have become such a critical part of the financial system in the few decades since their invention, it is time they emerged from underground to be bought and sold in an open market. To permit the ongoing domination of an opaque market by so few banks ensures that the subsidies and bail-outs needed to keep these firms viable will also be ongoing. A vote against the Lincoln amendment is a vote to perpetuate Too Big to Fail banking. ----------------------------- D'Arista and Epstein are members of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst, and coordinators of the Economists Committee for Stable, Accountable, Fair and Efficient Reform (SAFER). From corporation-watch at countercorp.org Sat May 15 03:19:03 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Sat, 15 May 2010 00:19:03 -0700 Subject: [Corp. Watch] Big Brother, Inc: Google snooped open wireless networks Message-ID: <5BDDCCE6-F9A0-43E6-AD3B-73B9D294B352@countercorp.org> Google's 'Street View' Snooped WiFi Networks for Personal Data Network payloads collected 'by mistake' By Cade Metz and Dan Goodin (The Register [UK], May 14) -- Google has said that its world-roving Street View picture-taking cars have been collecting information sent over open WiFi networks, contradicting previous assurances made by the company that no user data was ever intercepted. This means that Google may have collected e-mails and other private information, if the data traveled over WiFi networks while one of the Street View cars was in range. In a blog post published this afternoon, the company said that it collected the data by "mistake" and that it has not been used in any Google products. [Google uses the Street View cars to take pictures of both sides of public streets, enabling its Google Maps service to provide viewers with a 360-degree image of a given location.] Street View cars have now been grounded, according to the post, and the company has promised to delete the data. Google declined to comment further on the matter. It comes less than three weeks after the company said that no such data was being collected. But since then, Google conducted a review of the data being collected by its Street View cars after the data protection authority (DPA) in Hamburg, Germany requested such an audit. Ginger McCall, a staff counsel with the Electronic Privacy Information Center (EPIC), a public watchdog, called the data collection a "violation of customers' trust," and questioned Google's claim that it was collecting the data by mistake. "People need to ask why was Google was collecting this information," McCall said. "It's difficult to believe that this would be done accidentally. This really flies in the face of their assertion that customers should just trust them." On April 27, in response to a complaint from the German DPA, Google said that its Street View cars scanned open WiFi networks only to collect information to identify the network and specific network hardware, including routers. Google uses this data in services that rely on location data, such as Google Maps. But the company now says that when Street View cars began collecting this data, it accidentally included some additional code with the cars' software. "Quite simply, it was a mistake," its blog says. "In 2006, an engineer working on an experimental WiFi project wrote a piece of code that sampled all categories of publicly broadcast WiFi data." "A year later," the blog continues, "when our mobile team started a project to collect basic WiFi network data using Google?s Street View cars, they included that code in their software -- although the project leaders did not want, and had no intention of using, [personal] data." There's some question whether Google has violated U.S. wiretap laws by collecting such data. Federal wiretap law criminalizes interception of communications only if it was intentional, and that requirement is generally read fairly strictly, said Jennifer Granick, a senior staff attorney for the Electronic Freedom Foundation. Google is "saying it's an accident, and that may be a good enough excuse to get them out of the wiretap liability," she said. If an inquiry "confirms what they're saying, then there's not criminal intent, but they may still be subject to criminal investigation." Most state laws have the same requirement, although European laws may be stricter. EPIC's McCall said that Google's admission undermines trust in the company, and Google seemed to acknowledge as much. "Maintaining people?s trust is crucial to everything we do, and in this case we fell short," the company said. In response, the company said it will ask a third party to review the its WiFi data collection software, and confirm that it deleted the personal user data appropriately. It also says it will review its "procedures to ensure that our controls are sufficiently robust to address these kinds of problems in the future." Separately, the company will soon offer encryption for its core search service. In July 2008, Google added an encryption option to its Gmail email service, and in mid-January, just after announcing that Chinese hackers had allegedly nabbed intellectual property from its internal systems, it turned it on by default. "This incident highlights just how publicly accessible open, non-password-protected WiFi networks are today," the company said. "Earlier this year, we encrypted Gmail for all our users, and next week we will start offering an encrypted version of Google Search." It also offers encryption as an option with its Calendar, Docs, and Sites services, and just recently, it began doing the same with Google Web History and Google Bookmarks, after a security vulnerability was found in the search personalization service that taps Web History. Competing Internet search providers Yahoo and Bing have yet to offer encrypted versions of their services, except when users are logging in to their accounts. Google says that following today's admission, its Street View cars will stop collecting WiFi data entirely, including network and hardware information. But presumably, they will not stop collecting photos of every street on the planet and posting them online. From corporation-watch at countercorp.org Sat May 15 17:44:32 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Sat, 15 May 2010 14:44:32 -0700 Subject: [Corp. Watch] Think Johnson & Johnson lacks the money to run its plants properly? Message-ID: <99417BDA-F52B-4879-97F7-B0F9088916DF@countercorp.org> 'Shocking' Conditions at Tylenol Plant By Parija Kavilanz (CNN, May 14) -- The quality and safety violations that led to the shutdown of a Tylenol plant were extremely serious, and could lead to tough action by regulators on drugmaker Johnson & Johnson. "It's absolutely shocking," said David Lebo, a professor of pharmaceutical manufacturing at Temple University in Philadelphia, referring to the May 6 Food and Drug Administration (FDA) inspection report on the facility in Fort Washington, Penn., operated by Johnson & Johnson's McNeil division. "This inspection report is pretty close to being the worst I've seen," said Lebo, who briefly worked for Johnson & Johnson in 2002. "It suggests that basically the FDA found an issue with almost every system at the plant." Lebo said he stopped working for the company after nine months because the work required too much travel. On May 1, McNeil recalled some 50 children's versions of non-prescription drugs, including Tylenol, Motrin, and Benadryl, and Johnson & Johnson suspended production at the plant. The FDA report listed 20 violations, which included consumer complaints about the recalled products. Johnson & Johnson has not revealed details of those complaints. Congress has opened an investigation into the recall, and given both Johnson & Johnson and the FDA a May 17 deadline to hand over details about the consumer complaints and any other FDA inspection reports on the Fort Washington facility. On Friday, the House Committee on Oversight and Government Reform announced that it would hold a hearing on May 27 to examine the recall. The panel said it had invited Johnson & Johnson Chief Executive William Weldon to testify. The most damning violations in the FDA report, according to Lebo, was the charge that the plant "does not maintain adequate laboratory facilities for the testing and approval (or rejection) of components of drug products." The report also said that McNeil failed to follow up on 46 consumer complaints received from June 2009 to April 2010 "regarding foreign materials [described as] black or dark specks," in the medications that were recalled. "When you get consumer complaints, you want to make sure you at least investigate them," said Albert Wertheimer, professor of health economics at Temple University .Neither the FDA nor Johnson & Johnson would provide more details about the complaints. The FDA also said that lack of proper controls in the manufacturing process led to some batches of infant's Tylenol being "super-potent," or having too much of some ingredients. The report noted that employees at the plant were not trained in current manufacturing practices. The FDA inspectors further detailed dusty and filthy conditions at the plant, including "incubators with a large amount of visible gray and brown dust/debris, a large hole in the ceiling, and thick dust covering the grill inside a filtered cabinet." In addition, the FDA said some drums used to transport raw materials to the Fort Washington facility were contaminated with a bacteria identified as B. cepacia. Johnson & Johnson maintains that the contaminated drums never reached its plant, and all finished products tested negative for the bacteria. According to the Centers for Disease Control and Prevention, B. cepacia poses little medical risk to healthy people. However, those with certain health problems such as weakened immune systems or chronic lung diseases and particularly cystic fibrosis, may be more susceptible to infections with B. cepacia. It was unclear what action the FDA would take next, but the agency has said that it is considering a full range of actions. One option is to shut down the plant completely. Wertheimer said that would be a tremendous blow to Johnson & Johnson. "The company would lose an enormous amount of market share in the over-the-counter drugs category," he said. Another option is that the FDA could issue a consent decree. McNeil would be able to continue production at the plant, but would have constant third-party inspection. "It's a very expensive settlement for a drugmaker," said Lebo. David Rosen, who worked at the FDA for 14 years and now advises major pharmaceutical companies on FDA regulation and compliance, agreed. "This is a very serious situation for the company," he said. "Having repeated recalls will cause reputational and trust damage for Johnson & Johnson," he said. The latest recall is Johnson & Johnson's fourth in the past 7 months. In November 2009, the company recalled five lots of its Tylenol Arthritis Pain 100 count with the EZ-open cap product due to reports of an unusual moldy, musty, or mildew-like odor that led to some cases of nausea, stomach pain, vomiting and diarrhea. In December, McNeil expanded that recall to include all available product lots of Tylenol Arthritis Pain caplet 100 count bottles with the red EZ-open cap. In January, it recalled an undisclosed number of containers of Tylenol, Motrin and other over-the-counter drugs after consumers complained of feeling sick from an "unusual" odor. Johnson & Johnson spokesman James Freeman would not comment on how long the facility will remain shut. However, in a statement emailed to CNN, the company said it will not re-start operations until "we have taken the necessary corrective actions and can assure the quality of products made there." Freeman also declined to comment on the number of employees at the plant or whether the workers are still on payroll. From corporation-watch at countercorp.org Sun May 16 16:49:21 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Sun, 16 May 2010 13:49:21 -0700 Subject: [Corp. Watch] Credit hell: Million-dollar companies' mistakes are your problem Message-ID: Pitfalls of Credit Reports by Jonathan K. Nathan (SF Chronicle, May 16) -- Rhoda Ausman prides herself on being a responsible consumer. The executive administrative assistant from San Jose says she pays her bills on time. She doesn't buy what she can't afford, and saves money whenever she can. It isn't always easy, but she's been able to stay afloat. In November 2008, American Express denied her a creditcard because of a 7-year-old bankruptcy filing that didn't belong to her. In fact, Ausman has never filed for bankruptcy. But American Express told her that Experian, one of the nation's leading consumer credit scoring bureaus, reported a 2001 bankruptcy filing on her credit report. On Feb. 22, 2009, an e-mail from a representative of Consumer Action, a San Francisco non-profit consumer advocacy organization, told her that the filing was so deleterious to her credit score that she didn't appear to have a future with American Express. Ausman's story isn't uncommon. A 2007 Zogby poll showed that 37 percent of Americans have discovered incorrect information on their credit reports. Half of these people were unable to repair the damage. According to a January 2009 study by the National Consumer Law Center, about 25 percent of Americans have had their credit so damaged by such mistakes that they've had significant difficulty with credit-related transactions. There is a reason these glitches have surfaced. Loan denials and dropped creditcard accounts have risen during the recession. Creditors are watching consumers more closely, looking to jettison potentially toxic accounts as quickly as possible. They are reporting negative information more quickly, and responding to it more decisively. In Ausman's case, she had gone through this before. An erroneous bankruptcy had first appeared on her credit reports when her ex-husband filed in 2001. Although she had divorced him earlier that year, some company with outdated records had posted the filing to her credit reports as well as his. It took a year of struggle, but she finally got the entry removed from all of her reports. When it popped up again seven years later, she assumed she would be in for the same fight but would eventually prevail. This time, though, she's had no luck. Experian told her it never reported the bankruptcy to AmEx, and the bureau refuses to hear an appeal. Lisa Gonzalez, manager of public affairs for American Express in New York, declined to comment on the case. Roslyn Whitehurst, a public relations representative for Experian also declined to comment. Domino Effect According to Ausman, that's not the worst of the damage. Even though her credit score is 780, other creditcard companies and banks have been raising her interest rates, often without notice, because of the error. Chase Bank has notified her that her finance charges will be increasing, and U.S. Bank has increased her interest rate from 5 to 15 percent. Steve Dale, a senior vice president of U.S. Bank in Minneapolis, would not comment on Ausman's case, and Chase Bank did not respond to requests for comment. "I've been paying on time, paying a lot more than my minimum payment," Ausman said. "Even after I lost my job, I was able to do this, but (the system) doesn't reward that." In fact, the system punishes it. While the largest factor in the credit score -- also known as the Fair Isaac Corporation (or FICO) score -- is payment history, a very close second is what's called credit utilization -- the ratio of debts to credit limits. A very low ratio of debt to credit is just as bad as a high one. While this does punish profligate spending on credit, it also discourages full payment of debts. The FICO score increases if a cardholder keeps spending on credit, paying the minimum balance, and taking as long as possible to pay off the full amount. An example of an ideal spender, in the metric of the FICO score, is one who has a relatively high limit on a creditcard, such as $8,000, but never approaches that much debt, using about $1,000 of his credit line and paying the minimum required, always on time. Steven Katz, director of TransUnion's consumer brand, wouldn't confirm or deny that the formulas used to determine credit scores are designed to reward spending, saying that only Fair Isaac could discuss their algorithms in detail. Stacey Stevens and Craig Watts, public relations representatives for Fair Isaac, declined to do so. Irresponsible spending habits, such as living beyond one's means, can be rewarded because the algorithms appear to value someone who spends on credit and doesn't immediately pay off the balance, accumulating interest and creating profit for creditors. But this same kind of behavior can also indicate a risky consumer with little financial acumen and weak personal assets, so the consumer can also be penalized. Similarly, responsible spending habits -- like paying more than the minimum balance and reining in one's spending -- can be rewarded, because they suggest a more responsible consumer. But this behavior can also sometimes be punished, because it means a consumer isn't utilizing credit to full capability, creating less profit for creditors. These inherent contradictions set up a spectrum of behavior with a limited middle ground. Repayment Likelihood "A credit score is simply a number that represents the likelihood (that) a borrower will re-pay a debt as agreed," said Experian's Whitehurst. She stressed that the algorithms are not designed to encourage a specific outcome, but declined to discuss their effects. While some people struggle with the ramifications of their inaccurate credit histories, retired dockworker Gary Cortopassi from Anderson, Calif., has been wrestling with an error that appeared, then disappeared. In December 2008, TransUnion reported Cortopassi's score to U.S. Bank as 410. His score had been 760 a month earlier. In response to his suddenly low credit score, Visa dropped the limit on his credit card from $20,000 to $700, and the limit on his $33,000 U.S. Bank credit line fell to what he owed, $12,300. Not knowing why this was happening, Cortopassi was confused and indignant. But before he had a chance to investigate more thoroughly, he checked his report the following month and found that it was back to 760. He called a U.S. Bank underwriter who, upon Cortopassi's insistence, ran another TransUnion check and confirmed that the report showed 760. The underwriter told Cortopassi that he wasn't the first victim of TransUnion's errors, but that the credit limits could not be reinstated. Dale, of U.S. Bank, declined to comment. The damage to Cortopassi's credit score may be irreversible. Some claim that's common, in large part because of a computer program used to process the majority of complaints about credit mistakes. The program, called E-OSCAR, was developed by the three major credit bureaus, along with a fourth but lesser known company, Innovis. The bureaus say that it's the only efficient way to handle up to 20,000 consumer disputes per day, but consumer advocates question its effectiveness. According to a Smart Money study, the vast majority of complaints are simply forwarded to the company that originally reported the disputed debt. The most frequent response by the debt reporter is to deny the validity of the customer's complaint, and re-report the incorrect data, according to the study. Because the system favors the creditor's word over the debtor's, the information often goes unchanged. Whitehurst and Katz both disputed the allegation that debt reporters usually re-report the same information, but could not give any data to refute it. Both also emphasized the regulatory responsibility of information furnishers to tell the truth. "It is a violation of (the law) for a credit grantor to intentionally report incorrect information," Katz said. However, when pressed for details, he wouldn't provide any. There is, however, one way to ensure that a complaint is viewed in detail. According to the TransUnion employee handbook, complaints from politicians, legal workers, professional athletes, and entertainment celebrities are to be given special treatment. Katz could not confirm or deny this. But in response to the claim that TransUnion relies on a computer program and doesn't provide a human response, he said that "consumers can speak directly with a customer-service representative through our toll-free number about items they wish to dispute." Katz added that people can dispute claims online or via mail as well. Live Agents "Experian uses live agents to convey the dispute to the data furnisher," Whitehurst said. However, she did not indicate that Experian uses live agents to investigate the data, and would not disclose how many it employs, citing corporate policy. In June 2009, FICO released a study showing that between April and October 2008, 16 percent of consumers saw their credit limits quickly and drastically cut, and have watched their credit scores drop as a result. Like Cortopassi, 11 percent -- or about 5 million -- of those whose limits were cut had good credit scores, according to the study. They committed none of the actions classified as "risk triggers," such as late payments, collection accounts, delinquent balances, and bounced checks. When a creditor files a report with the bureau against a consumer, the bureau informs the consumer, but does not check the report's veracity unless it is disputed. "When disputes are filed, Experian does check with the source of the information to verify its accuracy, and then sends the consumer an update," Whitehurst said. "If that consumer continues to disagree with the information, they have the option of adding a statement of dispute to the credit report." The information furnisher's word, however, remains the binding one. According to Katz, "All furnishers of data to TransUnion are vetted to ensure they meet highly stringent reporting criteria." He wouldn't elaborate on the criteria. Although many consumers feel that they have no means to fight the credit system, options do exist, including the courts. In 2006, the number of lawsuits against credit bureaus began growing. Despite this, Whitney Huston, a consumer law attorney with the Sturdevant Law Group in San Francisco, doesn't think that will lead to more class actions. "Despite what the public perception is, class actions are not that easy to bring," Huston said. She said "there are issues with proving claims and getting information from companies. There are issues with whether they're actually breaking the law, because the Fair Credit Reporting Act is pretty favorable to the bureaus." Huston calls for changes to federal credit law, and for sweeping credit reforms to give consumers more control of the system and make it easier to file and win complaints. "The (credit law) could be reformed to increase the availability of information to the consumer, and make it easier to bring a class action," she said. "You can improve the level of liability in the law," she continued. "You can improve statutory damages, so that if the agency makes a mistake and you can prove there's a mistake, then there's an automatic fine for damages." Most importantly, according to Huston, the law needs to make it easier for consumers to prove a dispute. Currently, "what the consumer has to do is write a letter and provide verification, and even if the consumer provides verification, if the company has its own verification, then the company trumps" it. Canadian System Some point to the Canadian credit bureau system as a possible model for reform. Canadian credit bureaus must submit all materials and evidence produced by the consumer to the original information furnisher as part of the complaint process -- something American companies aren't required to do. If an entry on the report is discovered to be false, the bureau is required to immediately update all entities to which it had provided erroneous information. In perhaps the most important difference between the two systems, Canadian credit bureaus must remove information, whether it's valid or not, if it can't be verified. Aside from legal recourses, the options for fighting American bureaus are largely self-initiated and self-propelled. There is a little-known line of defense called the security freeze, which allows consumers to deny any potential creditor access to their credit reports. Bureaus are required by law to offer the service in every state except Michigan, Missouri, and Alabama. The service was originally envisioned as a method for stopping identity theft, but it can also be used as damage control while a consumer works on a complaint, disallowing creditcard issuers and banks from accessing the reports, and from raising rates and fees because of false negative entries. In addition, the Federal Trade Commission is asking the public to help overhaul annualcreditreport.com, the credit-checking site sponsored by the three major credit-reporting bureaus -- a move that may signal the agency's desire to consult with consumers on a broader range of credit bureau issues. Still, the major credit bureaus have a strong opinion about the cause of the problem. Katz said several times that he believes most credit-scoring disputes are the result of people either intentionally or accidentally misrepresenting their true credit histories. Whitehurst, of Experian, went so far as to state, "There are no mistakes here." ======= SIDEBAR: Understanding Your Credit History The rules for determining credit history were standardized with the advent of the FICO scoring model, created in 1958 by Fair Isaac Corporation. The FICO formulas are algorithms that take many facets of a consumer's financial life into account. There are five major categories according to FICO: -- Credit utilization (the ratio of debt to available credit) -- Payment history -- Length of credit history -- Types of credit history -- Recent credit history Today the three major bureaus are Experian, Equifax, and TransUnion. Credit bureaus receive reports on consumers' debts and payments from creditcard issuers, landlords, and lenders, and plug them into algorithms. The resulting FICO score is measured on a scale of 300 to 850. Various sources list the average score as in the high 600s, and the median score as 723. Those scores are sold to any entity that asks for them as a credit report. The credit report usually takes the form of a document breaking down the reasons for the all-important score assigned, and may be the most crucial document about a consumer's finances. A low credit-rating means that the best banks, creditcards, loan programs, and even employment and housing opportunities are off-limits. Low credit-scores are difficult to escape; in fact, because a low credit-score can send people to more predatory lenders, low credit-scores often prompt a downward spiral into financial ruin.