Imagine being branded as a possible drug trafficker, arms dealer
or even terrorist, but nobody bothers to tell you. If you do find
out and try to clear your name, you're told you can't.
That's what happened to Sergio Ramirez of Fremont, Calif. When
Ramirez went to buy a car in nearby Dublin, he was rejected for a
loan after a notation on his TransUnion credit report indicated he
may be a drug trafficker.
When Ramirez tried to dispute the false alert, TransUnion told
him there was nothing Ramirez or the credit bureau could do to fix
Even though the alert alleging Ramirez may be a drug trafficker
appeared on the car dealership's consumer report, it didn't show up
in TransUnion's massive consumer credit database. Apparently,
TransUnion was pulling the alert from somewhere else.
Because an OFAC alert didn't appear in Ramirez's traditional
credit file, representatives at TransUnion told him there was
nothing there for him to dispute.
"It's horribly embarrassing," says Andrew Ogilvie, a consumer
lawyer based in San Francisco, who is representing Ramirez in a
class-action lawsuit against TransUnion. "Nobody wants to be
sitting in somebody's finance office, [having someone tell you]
'I'm sorry, I can't sell you a car because you appear to be a
terrorist or a money launderer or a drug trafficker."
It's unknown how many people have similar black marks included
with their credit reports without realizing it. But consumer
advocates say that scores of people are likely to have been
mistakenly flagged as potential criminals because of the loose
criteria some credit bureaus use to match people to a publicly
available government blacklist called the Specially Designated
Nationals (SDN) list, which is more commonly known as the OFAC
list, after its agency of origin -- the Treasury Department's
Office of Foreign Assets Control.
When consumers try to dispute the alerts branding them as
potential criminals, they often hit a brick wall, say consumer
advocates, thanks to a confusing -- and some say misleading --
argument that credit bureaus make about the legal status of the
Some credit reporting agencies don't consider OFAC alerts to be
part of a consumer's traditional credit information. So when a
consumer tries to get the alert removed from his or her credit
history, the consumer is told that the OFAC alert isn't on file, so
it can't be disputed.
What are OFAC alerts?
OFAC alerts are notations that appear on lenders' credit reports
that state that a potential customer shares a name with someone
listed on the Treasury Department's SDN list.
The Treasury Department's Office of Foreign Assets Control
regularly updates the SDN list with names of suspected terrorists,
drug traffickers, money launderers and arms dealers who are
prohibited from doing business in the U.S.
Lenders are supposed to check the list each time they receive a
new application for credit and face steep penalties of up to $10
million if they don't.
The rule went into effect in 2003 as part of the USA Patriot
Act's broader efforts to kneecap terrorists' ability to finance a
life in the U.S. Around the same time, credit reporting agencies,
including the big three credit bureaus, TransUnion, Equifax and
Experian, began to sell OFAC alert services that check consumers'
names against the list and notify lenders if there's a potential
In Sergio Ramirez's case, his name was similar to two suspected
drug traffickers on the SDN list. So TransUnion added the flag to
his credit report, even though the individuals blacklisted by OFAC
had additional surnames that Ramirez didn't share.
The exact algorithm that TransUnion uses to match people, such
as Ramirez, to individuals on the list is unknown. However, "it
appears that if any two names match up with the consumer's first
and last name, it will be returned as a match," says James Francis,
a consumer lawyer in Philadelphia who has represented multiple
clients who have been mistakenly flagged by the credit bureau.
No other identifying information, such as Social Security number
or birth date, is used, he says. As a result, many people are
getting mistakenly flagged by the credit reporting agencies simply
because they have common names, says San Francisco-based lawyer
"You look at the OFAC [SDN] list and there are a huge number of
Hispanic names," says Ogilvie. "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."
It's the lenders' job to check the list
TransUnion did not respond to a request for comment on its OFAC
alert program. However, Stuart Pratt, president of the Consumer
Data Industry Association, a trade group that represents the credit
reporting agencies, says that OFAC alerts aren't supposed to be
taken at face value.
"A lender is going to look at the OFAC list, regardless of
whether they are buying it from a company that is selling a credit
report," says Pratt. The purpose of the alerts included with a
credit report is simply to give lenders a heads-up early in the
process so they don't have to plod through the dense, 549-page list
every time they get a credit application, he says.
Lenders also aren't supposed to make a credit decision based
solely on the OFAC alert they receive from a credit reporting
agency, Stuart adds. Instead, if a lender receives an OFAC alert
from a credit bureau, Pratt says it's the lenders duty to check the
list released by the Treasury Department and do more research
before extending someone credit.
"The cases that are out there where there's been a problem, it's
been a problem because the lender or the auto dealer did not take
the proper steps that OFAC itself has laid out in its guidance,"
says Pratt. "If the lenders do it right, then the false positives
Consumer advocates disagree. Consumers shouldn't have to depend
on lenders to investigate whether the information the lenders
receive from the credit bureaus is accurate, they say.
Under the Fair Credit Reporting Act, it should be up to the
credit reporting agencies to do what they can to ensure the
information reported is accurate.
Consumers also shouldn't have to wonder if they're being flagged
as potential criminals without their knowledge any time they apply
for credit, say consumer advocates.
Consumer lawyers contend that credit bureaus are supposed to let
you know when you pull your report that you've been flagged if an
OFAC alert appears on a creditor's report. "They are legally
obligated to disclose to the consumer anything they have disclosed
to a credit grantor," says Francis.
Credit reporting agencies are also supposed to let you formally
dispute and get removed any inaccurate information on your report
linking you to the list, said the Treasury Department in a consumer
guide on OFAC alerts.
However, some credit bureaus argue they don't have to
reinvestigate OFAC alerts on a consumer's credit report because the
OFAC alerts are sold separately from a credit report and aren't
included in the credit bureau's primary credit reporting
"Consumers may be confused by the fact that the OFAC report came
from a company that they recognize as a credit bureau," says Pratt,
from the credit bureaus' trade association. But in many cases,
credit bureaus are delivering the OFAC alert as a separate product
from a consumer's traditional credit report, he says.
If a credit bureau chooses to merge the OFAC listings with its
primary credit reporting database, then that information would
appear on your credit report when you requested it and you'd be
able to dispute it, says Pratt. But if it's being delivered as a
separate product, then the alert isn't generated until a creditor
has requested the service after a consumer has applied for credit,
says Pratt. So, "it's only at that time that a match occurs and so
there's no possible match before that."
Legal status of alerts in dispute
TransUnion made a similar argument in 2009, after being sued by a
woman who was mistakenly flagged as a possible drug trafficker from
In that case, Sandra Cortez of Colorado was trying to buy a car
when her credit report showed an OFAC alert. The car dealership
threatened to call the FBI and made her wait for hours before she
could take her car home.
Cortez later contacted TransUnion several times trying to get
the alert removed. However, the bureau kept telling her the alert
didn't exist on her credit report so she couldn't dispute it.
During that same period, Cortez saw the alert still appeared on
other lenders' credit reports, including one pulled by a potential
landlord a year after she visited the car dealership.
The case eventually made its way to the 3rd U.S. Circuit Court
of Appeals, which rejected TransUnion's argument that OFAC alerts
aren't covered by the Fair Credit Reporting Act.
In the 2010 3rd Circult case Cortez vs. TransUnion, the court
ruled TransUnion violated the Fair Credit Reporting Act by keeping
the OFAC alert secret from Cortez and not letting her dispute it --
and for failing to maintain reasonable procedures that would ensure
her report was as accurate as possible.
The case was the first of its kind to be decided by a federal
appeals court. Since then, consumer lawyers say the credit
reporting agency appears to have done little to change how it
treats OFAC alerts. "It's our view that they remain in willful
violation of the Fair Credit Reporting Act," says
Philadelphia-based lawyer James Francis, who represented
Since August 2012, at least two more people, Brian D. Larson of
Northern California and Ronald Miller of Pennsylvania, have filed
lawsuits against TransUnion for failing to properly disclose OFAC
alerts on their reports.
According to media reports covering the cases, both Larson and
Miller found OFAC alerts buried at the bottom of their credit
reports, under "additional information." The alerts appeared below
a subhead that said "end of credit report" and said they were being
disclosed to the consumer as a courtesy.
The language disclosing the alerts was confusing, complained the
men, and made it appear as if they couldn't get rid of the false
alerts from their credit histories if they tried.
"That type of language that they throw in there would lead the
consumer to believe that they're not legally required to provide it
to the consumer and perhaps the consumer doesn't have a right to
dispute it and that's not true," says Francis, whose firm is
representing both Larson and Miller.
Some alerts appear directly on reports
TransUnion appears to be the only credit reporting agency that has
been taken to court for the OFAC alerts it sells to creditors.
However, all three credit reporting agencies sell the alerts to
It's not clear how the alerts are represented to lenders and
consumers since publicly available information about the product is
However, a review by CreditCards.com found multiple sample
credit reports, including a sample TransUnion report copyrighted in
2011, that included the OFAC alert information directly on the
credit report itself, near other, more traditional credit
Additional documents posted by and for lenders, such as an
advertisement for enhanced OFAC alerts, and messages posted in
lender forums also refer to the OFAC alerts as part of consumers'
credit reports, showing that even if credit bureaus don't consider
the OFAC information to be part of consumers' credit reports, many
Q&A with 'Fine Print' Author David Cay Johnston