CATHERINE SMITH got the surprise of her life when she was rejected for a loan. Her credit record - information in a credit reporting agency's computer files - showed more than 40 notices of outstanding balances and delinquent accounts, but the charges were for things she had never bought. Apparently someone had discovered her Social Security number and used it to apply for credit in her name, listing a post-office box in Texas. When the bills came in, that person hadn't paid. Privacy in the United States is increasingly being invaded in today's world of computers and interconnected databanks. Never before, experts say, has it been so easy to obtain detailed information about a person and use that information for legitimate or illegitimate ends.
Trying to correct the record, Ms. Smith learned that the Fair Credit Reporting Act (FCRA), the 20-year-old law that regulates the consumer-reporting industry and is supposed to protect victims of credit fraud, doesn't work very well.
Under the terms of the FCRA, Smith asked CBI (now Equifax) and TRW - two of the agencies that maintain credit files on most Americans - to investigate the information in her file. The agencies wrote letters to the creditors who had filed the reports. ``The creditors either didn't reply or simply confirmed that I'm the culprit,'' Smith says.
Next she contacted more than 40 creditors herself. ``They say, `Thank you, we're putting the information in our fraud file,' but despite my requests to remove the inquiries from my credit report, they remain,'' she says.
Collection agencies started calling Smith at home and work, demanding that she pay the outstanding balances. ``This is a nightmare,'' she says. ``This will likely affect my credit - and who knows what else - for the rest of my life.''
Perhaps a lot else.
In the past, many employers used credit reports only to screen job applicants who were to handle large amounts of cash, says Jennifer Neu, a spokeswoman for TRW. Some now use them to verify information on application forms. Credit reports are even used to screen applicants for rental housing.
``The marketing strategy for credit reporting companies is to make it available to anyone that they can sell the information to,'' says David Dzernik, executive director of the Louisiana Consumers League.
Smith's case shows just how easily a person's financial affairs can be plunged into shambles by an unscrupulous individual who has a few key pieces of information: name, address, and Social Security number. With those keys the nation's databanks open up.
Nor is this an isolated case: Robert Ellis Smith (no relation to Catherine), editor of the Privacy Journal, has assembled more than 500 documented cases of people who have been victimized by invasions of their privacy.
``Many people are never aware that they are the victims of an invasion of privacy, as in the case of an inaccurate credit report that they don't know about, or a wrongful disclosure of a credit report that they never discover,'' says Mr. Smith.
Victims don't want publicity
Those who know they are victims rarely speak out, says Purcilla Reagan, a professor at George Mason University in Fairfax, Va. ``They want resolution of their particular case. Because the nature of their problem involves what they regard as private information, they also don't want their case publicized.''
Many credit reports contain information that isn't strictly ``credit.'' Credit-card companies often forward consumer addresses and employment information to the credit bureaus, who report it on future reports. Often included are complete account numbers for credit cards, says Neu; numbers that were improperly obtained have been used for fraudulent purposes. Some companies even report arrest records and divorce information, she adds, although TRW does not.
``Information is basically on the public record without the public being aware of it,'' says Massachusetts state senator Lois Pines, a privacy advocate.
Indeed, most consumers only become aware of the amount of private information stored about them when there is an error. At Congressional hearings last fall, Federal Trade Commission chairman Janet D. Steiger reported receiving 3,862 letters about the FCRA in the first eight months of 1989. ``Most of the letters about credit bureaus complain of information in a credit report that the consumer believes is erroneous ... or that the bureau has failed to reinvestigate ... in a timely manner,'' says Mrs. Steiger.
Nevertheless, says John Ford, a spokesman for Equifax, databanks of consumer information play an invaluable role in today's ``credit-driven society.'' Consumers are willing to put up with the occasional invasion of privacy for the perceived benefits, he says, pointing to a recently completed national survey of American views on privacy conducted by Louis Harris & Associates.
``More than three out of four Americans said they would be upset if they could not obtain credit based upon their record of paying bills,'' says Mr. Ford. ``About half of the public said that it would upset them if they could not use their credit card to buy goods or obtain services.''
Concern over threats to privacy
The survey of 2,254 people, sponsored by Equifax, also found that 79 percent of Americans are concerned about threats to their personal privacy, up from 64 percent in 1978. Of those surveyed, 27 percent had refused to apply for something because they had been asked to disclose information that they had considered ``too personal.''
``It is clear from this survey that the public today is not satisfied with the present laws and business practices,'' says Alan F. Westin, a professor of political science at Columbia University in New York, who presented the survey's findings this June before the ``Privacy in the 1990s'' conference held in Washington and sponsored by the National Consumers League and the US Office of Consumer Affairs.