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Consumers mistakenly flagged as criminals on credit reports

Some Americans could find themselves with credit reports falsely labeling them as criminals, but consumer advocates say the negative marks derived from the U.S. Treasury’s Office of Foreign Assets Control could be difficult to dispute.

The OFAC list, as the Specialty Designated Nationals list is more commonly referred to, is a publicly available government blacklist. The Treasury’s OFAC updates the SDN list with the names of drug traffickers, money launderers, arms dealers and suspected terrorists who are barred from doing any business in the U.S., CreditCards.com reports.

OFAC alerts are notations that appear on a consumer’s credit report, indicating to the lender that a potential customer shares a name with an individual listed on the SDN list. Some credit agencies do not consider OFAC alerts to be part of the consumer’s traditional credit report, so the consumer may have difficulty identifying and disputing the error.

Lenders are required to check the list every time an application for credit is received, and they face up to $10 million in penalties if they fail to do so. The rule took effect in 2003 as part of the Patriot Act aimed at cutting off terrorists’ ability to finance life in the U.S. TransUnion, Equifax and Experian, the three largest credit bureaus, began to sell OFAC alert services to lenders after the rule took effect.

“You look at the OFAC [SDN] list and there are a huge number of Hispanic names,” California-based lawyer Andrew Ogilvie said, according to CreditCards.com. “You’ve got a number of Middle Eastern names that are confusing and probably shared by large numbers of people who immigrated and have similar last names and they are perfectly law abiding, good citizens.”

Credit reporting agencies are required to notify the consumer if they have been flagged with an OFAC alert and allow the consumer to dispute and remove any inaccurate information. Credit reporting firms, however, maintain that they should not have to reinvestigate OFAC alerts because the information is sold separately from credit history information.

TransUnion was sued in 2009 by Sandra Cortez, who was mistakenly flagged as a potential Columbian drug trafficker after trying to purchase a car. Cortez contacted the firm to try to have the OFAC alert removed, but TransUnion repeatedly told her that the alert did not exist on her credit report, so it was not disputable, CreditCards.com reports.

In the first case of its kind, a U.S. circuit court of appeals rejected TransUnion’s argument that OFAC alerts are not covered by the Fair Credit Reporting Act, ruling that the firm violated federal law by keeping the alert from Cortez and failing to allow her to dispute the claim, according to CreditCards.com.

Since August 2012, two more people have filed lawsuits against TransUnion for its failure to adequately disclose OFAC alerts on credit reports. In both cases, the plaintiffs found OFAC alerts under “additional information” below a subhead that indicated the end of the credit report.

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