Equifax Error Results in Denied Loans, Higher Interest Rates

During a three-week period this year, Equifax, one of the nation's top three credit bureaus, provided inaccurate credit scores to lenders on millions of consumers seeking credit cards, mortgage and auto loans, according to reporting by the Wall Street Journal.

The problem, described as a "technology coding issue" by Equifax, reportedly resulted in denied loans or loans approved with higher-than-warranted interest rates. In a statement, Equifax said, "As part of ... extensive analysis, we have determined that there was no shift in the vast majority of scores during the three-week timeframe of the issue. For those consumers that did experience a score shift, initial analysis indicates that only a small number of them may have received a different credit decision."

Explaining the 'Technology Coding' Issue

In a statement, Equifax described a coding issue within on-site servers in the U.S. scheduled to be migrated to a new cloud infrastructure. The company says the issue was in place "over a few weeks between March 17 and April 6," resulting in potential miscalculations. The company noted that credit reports were not changed as a result of this issue.

Equifax confirmed that the issue was fixed and said it had determined there was no change in the vast majority of scores during the three-week period. The company insisted that, for those consumers who did experience a score change, only a small number received a different credit decision than they would have otherwise.

Reports of Denied Loans and Higher Interest Rates

Concerning the scope of the issue, a June alert from housing agency Freddie Mac said Equifax told the agency that 12% of all credit scores released from March 17 to April 6 may have been wrong.

Although Equifax said data showed that "less than 300,000 consumers experienced a score shift of 25 points or more," reporting by The Wall Street Journal and others suggest that some people may have been denied loans or subject to higher interest rates than should have been the case.

Equifax said it was collaborating with its customers to determine the impact on consumers saying, "Again, we do not take this issue lightly. The issue has been fixed, we are working closely with lenders, and we are accelerating the migration of this environment to the Equifax Cloud, which will provide additional controls and monitoring that will help to detect and prevent similar issues in the future."

On August 3, Florida law firm Morgan & Morgan filed a class action lawsuit against Equifax in U.S. District Court in North Georgia, Atlanta Division, the state in which the company is incorporated, on behalf of Jacksonville, Fla., resident Nydia Jenkins and others in the class affected by the error. The suit alleges that "millions of consumers" were affected.

In Jenkins's case, a letter refusing a Toyota auto loan for which she had been preapproved misstated her score by 130 points. Instead of paying $350/month for the loan, she had to get one that costs $252 every two weeks. It asks that Equifax "identify and notify each U.S. citizen who was affected by the Glitch" and reimburse them for actual costs, pay for lifetime credit-repair services and other damages.

Not the First Time for Equifax

This latest issue serves as a reminder that Equifax is not a stranger to data issues. In 2017, after it was revealed that 150 million people had sensitive information compromised due to a hacker attack, Equifax had to pay up to $700 million to state and federal regulators, the largest ever paid for a data breach.

News of the Equifax coding issue arrived not long after the Consumer Financial Protection Bureau (CFPB) penalized carmaker Hyundai for "repeatedly providing inaccurate information to nationwide credit reporting companies and failing to take proper measures to address inaccurate information once it was identified between 2016 and 2020." The $19 million settlement makes this the CFPB’s largest ever Fair Credit Reporting Act case against an automaker.

The Bottom Line

Equifax maintains credit information for more than 240 million U.S. consumers, which it sells to lenders. This information is used to compile credit scores, one of the most important pieces of financial information consumers have. Credit scores are a major factor used by lenders to determine whether an applicant should receive a loan and how much (interest) to charge if the loan is approved.

The importance of credit scores—and the fact there are only three major credit reporting agencies (Experian and Transunion are the other two)—are reason enough for diligence on the part of government agencies, journalists, and others to closely track and report on breaches and other issues that may impact credit data.