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FTC Consumer Credit Report Overblown: Evercore

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FTC Consumer Credit Report Overblown: Evercore

The FTC released a report today, which showed errors with millions of consumer credit reports. The FTC report states that 25% of all US consumers have credit reports containing “potentially material errors”. On the surface, the FTC document seems to reveal some extremely serious problems as millions of consumers are impacted. However, others think the issue is moot. After reviewing the 370 page FTC study on consumer credit reporting released this morning, analysts at Evercore Partners believe the negative 60 Minutes segment Sunday night may have overstated the materiality of credit reporting errors. The FTC study indicated that that approximately 98% of credit reports are materially accurate (see table on page A-4 in report), a statistic that the 60 Minutes segment did not cite. Accordingly, the analysts continue to recommend overweight-rated Experian and remain equal-weight on Equifax, largely given valuation. Overall the FTC results appear benign for both Equifax Inc. (NYSE:EFX)  and Experian plc (LON:EXPN), in their view.

The FTC study involved a small sample size, in their view, with only 1,001 study participants with 2,968 credit reports compared to a U.S. population (of over 300 million) with 200 million consumer credit reports.

The findings in the FTC study were in line with previous studies conducted on consumer credit reporting, such as the 2003 Federal Reserve Board (FRB) Study, the 2004 follow-up FRB Study and the 2011 PERC study funded by the Consumer Data Industry Association (CDIA)

The FTC study can be found at: http://www.ftc.gov/os/2013/02/130211factareport.pdf

A significant risk facing Experian and Equifax continues to be the future direction of regulation by the Consumer Financial Protection Bureau (CFPB) and the increased costs in conforming to these new regulations. Experian estimates such costs in the range of $10 – 50 million while Equifax gauges them to be in the single-digit million dollars annually. The CFPB released its initial study on credit reports in mid-December, although no regulatory actions have been taken as of date.

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