Lawsuit Against Credit Rating Agencies
Connecticut is suing three credit rating agencies alleging that the rating agencies gave artificially low rates to municipalities, causing them to pay higher interest rates on bonds. Read more about it here.
I wonder if consumers who believe that they have been unfairly denied access to lower interest rate credit cards and debt could sue under a similar theory?
Credit raters have been the subject of investigation and litigation concerning their role in the subprime crisis. I think it is pretty universally accepted that they dropped the ball on their rating of mortgage backed securities. But the question of whether they can be held liable for their credit ratings is an entirely different question which will probably be extensively litigated in the years to come. If corporate plaintiffs are successful in holding a credit rating agency liable for a high rating upon which they relied, consumers may get the ammunition that they need for unwarranted low marks. However, credit raters could argue that there is a substantial difference between debt buyers and credit seekers.
That’s what makes the Connecticut lawsuit interesting. Connecticut is essentially a consumer in these transactions, and a beneficial ruling could aid consumers seeking to challenge the cost of their low credit score. While it might not make sense for an individual consumer to bring a lawsuit, the cost of an artificially low credit score across a large group (say 30 points low) could raise the cost of carrying debt by billions. If you could boost your credit score by 30 points, you would save an average of $105 a year - and if all Americans were to boost their credit score by 30 points, Americans would save $28 billion collectively.
