He calls Washington, D.C., "corporate occupied territory," and says we're living under "corporate fascism." Ralph Nader continues to pound away at the same themes he did in the 1960s when he first took on the automobile industry, alleging intentional neglect of safety measures. Today, though, he has broadened his targets to include banks, credit card companies, binding arbitration clauses and, of course, his rival presidential candidates.

While he's universally regarded, and even revered, as the father of the consumer movement, Nader's presidential campaigns are roundly criticized by liberals as counterproductive, and even destructive. As part of Red Tape Chronicles' look at the consumer protection proposals of the presidential candidates, Nader agreed to sit down with me this week in Washington, D.C.

I was told to pick up Nader, quite literally, on the side of the road. Despite his public persona, he's a very private man and he works hard to keep the location of his Washington, D.C., home a secret. So I met him on Connecticut Avenue, on the sidewalk in front of a French restaurant a few miles from the NBC bureau where we conducted our interview.

It seems paranoid until you consider that Nader was the victim of aggressive spying by General Motors in the 1960s (the firm eventually apologized),then it's not so hard to understand. Nader has enemies.

Nader seems most angry and obstinate when he talks about what he sees as government's failure to protect its citizens from abuses by corporate America. He laid out conditions for dropping out of the race and supporting Democratic Sens. Barack Obama, Hillary Clinton, or even Republican Sen. John McCain. But his furrowed brow suggested that he considers that eventuality highly unlikely, and his defiant tone indicated he's not ready to abandon his third-party campaign any time soon.

I didn't want to talk politics with him, however. I wanted to hear his views on the state of consumer protection. Given the thousands of rabid complaints received every month by the Red Tape Chronicles, and the helplessness many people express, had his movement failed? If so, what went wrong? He addresses those questions in the video atop this post.

Armed with pamphlets

He sat down in my car with an armful of pamphlets he'd produced on confusing credit card statements, computer-generated overcharges, mysterious "processing charges," indecipherable bills, and so on. In one series, called "Buyer's Market," he described finding an undisclosed 50 percent surcharge on his hotel bills and surprise bank fees for dipping below a minimum balance. The pamphlets, in which he calls for "truth in billing" legislation, were published in 1986 and 1987.

The issues raised every week in the Red Tape Chronicles, he lets me know, are hardly new. He also gently scolds me for not knowing about some consumer advocates who've been fighting for health care reform and other consumer protection issues for decades -- a bit the way a grandfather might scold a grandchild for not knowing about Joe DiMaggio or Mickey Mantle.

Scolding is among Nader's best skills; as the quadrennial third-party presidential candidate, Nader might be considered America's scolder-in-chief. But if he seems angry while talking politics, he softens considerably when the discussion turns to students and education.

"It's a lot of fun!" he says of teaching students about grocery store tricks like placing junk food at eye level in checkout stands. "Students as consumers, it relates their outside of school activity … (to) the classroom. It's really interesting."

But he laments that schools spend far too much time teaching basic computer skills, and far too little time explaining about credit card interest rates, credit scores, mortgages and providing students with skills that would prepare them to be smarter consumers.

"There is a huge imbalance between computer skills to get a job and zero consumer skills," he said.

Of course, you can't talk to Ralph Nader without talking politics and, in truth, that's largely why he consented to our conversation. Last month, he announced his candidacy on NBC's "Meet the Press." But getting other media coverage is a struggle.

His pet subject

Earlier this week, I summarized the consumer protection proposals from the three major presidential candidates. Only McCain's campaign made a campaign official available for an on-the-record interview. But Nader jumped at the chance to speak about his pet subject.

As a presidential candidate, Nader has become a thorn in the side of the Democratic Party. His third-party presidential efforts have drawn votes primarily from Democratic candidates, most significantly in the 2000 election. Many Democrats blame him for George W. Bush's victory. But Nader never gives an inch when asked about this subject, replying that he has constitutional right to run for president. When I asked if he had "bit off his nose to spite his face," as my mother would say -- effectively hurting his own cause through his stubbornness -- he answered that many important new ideas, such as abolition of slavery and women's suffrage, rose to public consciousness through third-party candidates.

During the 2004 campaign, Nader said he met with Democratic Sen. John Kerry and showed him a list of 20 consumer protection issues. If Kerry picked three to champion, Nader promised to support him. That never happened.

In our interview Nader said he would make the same offer to Clinton, Obama or McCain.

"There are two ways to succeed," he said. "One is to beat them by getting more votes. … The second is to have them take our issues and run with them," he said. But he didn't seem optimistic. And while he generally has more positive things to say about Obama than Clinton, he called both "corporate Democrats" and stated that neither was a champion of the consumer.

Both Clinton and Obama have published statements and proposals describing their plans for new consumer protections, which were discussed in Tuesday's column. On Thursday, Obama discussed financial reforms with CNBC, including expanded oversight of lending institutions.

What happened to the consumer movement?

Nader and I talked a bit more about the presidential campaign, as described in more depth on our political blog, First Read, by producer Andy Merten. But I was much more interested in Nader's take on consumer protection issues. Chiefly, I wanted to know why the consumer movement he helped start in the 1960s seems to have faded, or at least stalled.

In the main video atop this story, you'll see his answers – he blames the dismantling of consumer protection agencies, abandonment of consumer education in schools, and American idol to name a few.

But the conversation ranged far and wide. As a victim of spying, Nader has a unique -- and troubling -- perspective on the state of American privacy (see video). Private lawsuits, he said, are the only tool left to restore privacy.

He has fond memories of an appearance on "Sesame Street" as the "neighborhood consumer advocate." In every community in America, he said, there are mini-experts who act informally as advocates for friends and neighbors. They are "influencers," he said, who help keep their communities from getting ripped off, and he whimsically imagines getting them all together some day in Yankee Stadium. (see video)

Finally he sees community organizing as the critical element to reviving consumer rights. He discussed ways for consumers to "band together and become powerful entities" that would "revolutionize consumer protection." (see video)

If you'd like to see a bit more discussion on Nader's alleged role as "spoiler," click here to watch his sit-down interview with Newsweek's Howard Fineman.

With worries about the economy and the war in Iraq dominating campaign debates and speeches, there hasn't been much discussion about consumer protection issues. That might not sit well with Red Tape readers, who complain constantly about bank fees, credit card policies, misbehaving cell phone firms and even unsafe toys.

But Barack Obama, Hillary Clinton and, to a lesser extent, John McCain all have staked out positions on these vital issues.

Democrats Clinton and Obama both have released detailed proposals calling for a number of consumer protections, with a heavy emphasis on credit card policies and mortgage lending practices. Most of Obama's proposals are laid out in a white paper available online; Clinton's proposals have been made in a series of statements issued by the campaign.

Republican McCain hasn't proposed any specific consumer protections, but his campaign, which was the only one of the three to agree an on-the-record conversation on the subject, says it will be laying out his positions on a number of issues as the campaign goes on.

"The basic instinct of the senator is it's not enough to go in after the fact and trumpet a lot of regulations," said Doug Holtz-Eakin, McCain's chief economic adviser. In some cases -- such as the mortgage lending market -- government must intervene on behalf of consumers to ensure "fair and open competition," he said.

Credit cards

The two Democrats' plans for protecting consumers against credit card and lending abuses are fairly similar -- both call for new limits on credit card interest rates and fees. Clinton, however, has called for a hard cap on credit card interest rates at 30 percent -- a proposal that lenders say would ultimately restrict the flow of credit to consumers.

She also calls for creation of a Financial Product Safety Commission, which would review lending products in the same way that the Consumer Product Safety Commission reviews toys and other products.

"There is currently minimal enforcement against abusive practices," Clinton's campaign said in a January 2008 statement announcing her "Fair Credit for Families Agenda." The new commission would "ensure that the government is fulfilling its responsibility to protect the public from predatory financial products."

Clinton's credit card proposals would also mandate that issuers could not raise rates without gaining written consent from the consumer.

Obama calls for a new consumer "Credit Card Bill of Rights," which would prohibit credit card companies from raising rates and retroactively applying the new rate to old balances. It also would bar issuers from charging interest on penalty fees, and it would make banks apply payments to highest-rate balances first, rather than low-rate balances -- a sticking point with consumers who take advantage of cut-rate balance transfer offers.

He also would create a five-star rating program for credit card offers. The Federal Trade Commission would be instructed to rank credit cards and banks according to a series of consumer-friendly practices and publish these ratings.

Bill Hardekopf, who runs consumer information site LowCards.com, said he was glad credit card issues were being raised during the campaign -- but he is skeptical of some of the particulars.

"I don't know how practical it is to get written consent before raising interest rates, for example," he said. He also thought Clinton's proposal concerning uniform payment due deadlines was impractical, and he wasn't fond of Obama's five-star rating plan either.

Home loans

On home lending, Clinton would require federal registration for mortgage brokers and urge new licensing standards. She would also end mortgage prepayment penalties, which largely impact subprime borrowers.

Obama calls for creation of a simple indicator to tell consumers how expensive their mortgage might someday become -- called a HOME score, or Home Obligation Made Explicit. This score would call attention to possible unexpected costs of adjustable rate mortgages and other potential booby-traps in home loans. Obama would also change the tax code to make it easier for low and middle-income tax filers to get home mortgage tax deductions.

On other lending issues, Obama would create a 36 percent cap on all short-term payday loans. Already, such loans are capped at 36 percent when granted to military families.

Holtz-Eakin, McCain's adviser, said that while the presumed GOP nominee has made no specific proposals about home lending, the candidate would back changes that would "raise lending standards." Some of those changes are already in the works, he said, and "maybe by January 2009 we'll have done the right thing with our regulatory agencies. If not, (McCain) will fix it."

Student loans

Both Obama and Clinton have talked a lot about rising college costs and the burden of student loans during the campaign; their proposals to revamp college financing, however, are incremental. Click here to see a comparison of their proposals.

Both would replace the current public-private lending program known as FFELP (Federal Family Education Loan Program) with loans issued directly by the federal government in an effort to cut costs. And both would add tax credits for college students. In January, Clinton issued a statement calling for creation of a Student Borrowers' Bill of Rights that would address abusive lending practices by private college loan issuers. Both candidates support income-based repayment plans for students that would tie monthly payments to job income.

Mark Kantrowitz, who runs college loan information site FinAid.org, said that neither of the Democrats' plans offers the most important upgrade to college loan programs -- direct aid to students which would make them less reliant on loans.

"I personally believe that we need to double the maximum Pell Grant now, not at some indefinite point in the future, and that this will require an influx of new money," he said.

Toy and food safety

Obama and Clinton also have similar plans on consumer product safety issues. Obama talks frequently in stump speeches about the dangers of lead paint and the need to ensure toy safety. Clinton would require third-party toy inspections for imported toys. She also would move all food safety issues to a single federal agency. And Clinton would mandate "country of origin" labels on all imported products.

When asked about top consumer issues for McCain, campaign officials pointed to his record of supporting the "Do Not Call" list, the Internet tax moratorium, and reduction of excessive cell phone taxes. They also said McCain has supported creation of a simple one-page mortgage form, as a way of cracking down on unscrupulous mortgage brokers, and new protections for consumer privacy.

Holtz-Eakin said McCain had not issued more specific policy statements yet on other issues, but in general, the Republican candidate supports "fair and open competition. Sometimes that means you intervene on behalf of consumers and at times on behalf of (industry)."

Many conservatives philosophically reject regulation and government intervention as a solution to social or economic ills, but Holtz-Eakin said McCain would support new marketplace rules when warranted.
"Everyone would acknowledge there's a role for government in setting the framework for markets to work well," he said. "That's not at odds with conservative values."

Of course, any of these proposals could be at odds with Congress. In recent years, Congress has passed several bank-friendly laws, such as the 2005 bankruptcy law. Since few of these proposals could be implemented without persuading Congress to pass legislation enacting them, new consumer protections likely face an uphill battle no matter which candidate heads to the White House next year.

If you think the State Department passport privacy debacle is an oddity, it isn't. Data voyeurism is actually a sign of the times. Low-level employees at government agencies and private companies browse personal information for sport all the time. Outside of the occasional public flogging, little has been done to stop this unnerving practice.

It now appears no candidate will win extra sympathy points for the passport privacy invasion at the State Department, because all of them have been victims. It's too early to know if any of the culprits saw data that could have hurt any of the candidates politically, but that matters little. In fact, let's give all those involved the benefit of the doubt, and say this was merely a database joy ride. The real question is this:

If the State Department can't protect presidential candidates' personal information, how can anyone protect ours?

Data voyeurism stories can be found across the news spectrum. Hospital workers caught browsing celebrities' medical records; cops caught checking out cute women by running their license plate numbers. Computer security expert Avivah Litan, a consultant at Gartner, said most firms don't go to great lengths to keep employees away from such data.

"When I saw this article the first thing that crossed my mind was that this kind of thing happens all the time," she said. "It's not uncommon at all kinds of organizations. It brings up the question of how private our data is. It's not."

Didn't need the data
The State Department incident could have been something much more serious than a computerized peep show. These data thieves could have been looking for information, like Social Security numbers, to commit identity theft. Identity thieves often begin their crimes by obtaining data stolen by employees. One study conducted several years ago by Michigan State University researcher Judy Collins found that in most cases of ID theft traced to an employee, that the employee did not need access to the victim's data to do his or her job.

In other words, there were lax or no internal controls.

Privacy consultant Larry Ponemon recently completed a survey of security professionals about the lack of internal data controls, and his results were alarming: 78 percent said employees at their company have too much access to data, and 69 percent said access rules were poorly enforced. The longer an employee stays at a firm and changes jobs, and the more often that firm changes systems, the more difficult it is manage database access rules.

"Even at the most sophisticated companies, identity management is often an Achilles' heel," he said.

Litan says things don't have to work this way. Employees' access to databases with personal information should be strictly limited. Instead, many workers have blanket permission to look at everything.

"It's called identity access management, or access controls," she said. "No one has to see that information unless they have privileged access."

Either the State Department had no such access rules to data belonging to Sens. Barack Obama, Hillary Clinton and John McCain – which would be crazy, since they are surrounded every day by men in black suits sporting concealed weapons and wireless ear pieces -- or someone with high-access privileges was involved in the data snooping. Both prospects are disturbing. And both could easily happen to you.

Now, which candidate will be the first to support a new, comprehensive privacy law?

Having taken a look at what credit scores are -- and what they aren't – in Friday's column, we're ready to look at how they came to be used for purposes for which they were never intended and how they gave birth to a cottage industry aimed at manipulating them.

You might be surprised to learn that even the people who invented credit scores say their use has gotten out of hand. And if lenders learn a simple lesson – that they should rely a little less on a number and a little more on interpersonal skills when making loans -- the current credit crisis might have a silver lining.

"There became an over-reliance on credit scores," said Lisa Nelson, vice president of global scoring for Fair Issac, who is in the unusual position of telling banks they put too much stake in her product. "Lenders became came too overly focused on credit scores."

Express mortgage vetting that leaned too much on credit scores made a lot of companies a lot of money during the go-go days of the housing bubble. Bear Stearns was one. Now, many of those companies are in the cross-hairs.

Bear Stearns' collapse was precipitated by the implosion of two hedge funds last year that invested chiefly in risky mortgages. That turned out to be a mortal blow to the company, and Bear Stearns' collapse may yet do wider damage to the economy.

But can credit scores themselves be faulted?

'Very smart but very limited'
You can blame credit scores for a lot of things -- unfair mortgage interest rates, sneaky auto insurance premium hikes, to mention a few. But you can't blame them for the housing meltdown, say supporters of the three-digit numbers that control so much of consumers' lives.

"Credit scores are very smart but very limited in what they do," said John Ulzheimer, who worked at Fair Isaac for nearly a decade and now runs consumer advice Web site Credit.com. He's also recently wrote a book called "You're Nothing But a Number."

Fair Isaac is on a crusade to correct overly ambitious descriptions of just what credit scores can do. They do not, strictly speaking, predict a borrower's ability to repay a loan, says Fair Isaac spokesman Chris Groppa.

"The score actually quantifies the odds that borrowers will become seriously delinquent in repaying ANY creditor within the next two years -- card issuers, banks, retail stores, etc," he wrote in an e-mail. "The score does not predict the risk for one specific loan or credit account unless, of course, the consumer only has one credit account on file at the credit bureau. This mischaracterization is a subtle but common misperception about FICO scores (the original credit score invented by Fair Isaac)."

The distinction apparently was lost on banks, which during the past 10 years came to rely more and more on credit scores. Some even bet their business on the numbers, and lost.

Credit score fixers
Meanwhile, the increased reliance on credit scores forced home buyers in competitive markets into a shadowy den of thieves -- credit score fixers. There are now hundreds of companies who say they know the secret sauce that goes into calculating a credit score and claim they can help you improve your number quickly -- for a fee.

The shroud of secrecy around credit scores encourages this behavior. There are, in fact, legitimate ways to improve your score quickly, through what the industry calls "rapid rescoring." But it's nearly impossible for consumers to tell the difference between legitimate rapid rescoring and the snake oil salesmen.

The latter may take hundreds of dollars from consumers and merely send in automated disputes of every item in a credit report in an effort to remove one or two black marks.

On the other hand, the rapid rescoring industry has the blessing of the credit bureaus. Generally, consumers only discover mistakes in their credit reports when they are applying for a loan, when time is of the essence. It normally takes 30 to 60 days to clean up mistakes on a credit report because creditors only send in items to the bureaus once each month, Ulzheimer said. Rapid rescoring firms can fix errors and update credit reports within a day or two -- for $50 per report, per item, Ulzheimer said.

"You could spend $1,000 or more just to update your own credit reports," he said. "That's a joke."

While the service can be a life saver for consumers struggling to get a decent rate on a loan, its mere existence points out problems in the system, he said. If someone can change their credit score from 620 to 670 overnight, which number is the accurate reflection of their risk to a lender?

Credit 'scorecards' are key
Consumers can easily be tempted to use illegitimate firms to improve their scores – in part because it seems some consumers really do win the credit score lottery. There are countless stories from consumers who say they've removed one black mark on their report and pumped up their credit score 30 to 40 points -- which as we've seen could means thousands of dollars in savings each year.

If any single credit item could have that much of an impact on a credit score, it would cast some doubt on the efficacy of the scoring system, which would seem fragile if it were subject to such wild swings.

Both Ulzheimer and Nelson say no one change could have such a dramatic impact on a score. In fact, they say, there is no way to assign a point value to individual items. Each time a lender gets a credit score, the scoring formula is re-run on an entire credit report, and a new score is generated from scratch. Because account balances are generally fluid, there is no way to assign exact values to any item.

There is an explanation, though, for large swings. Ulzheimer says that consumers fall into different buckets, or scorecards, within the Fair Isaac formula. One scorecard is for those with short credit histories, or "thin" credit files. Another is for those who have filed bankruptcies. Another is the "derog" scorecard, for those who have derogatory (unpaid) accounts in their files. Each scorecard uses a different formula. When a consumer shifts from one to the other -- something called "scorecard hopping" -- their score can shift dramatically up or down. So, a consumer who jumps from the "derog" scorecard to the "clean history" scorecard may indeed see a big credit score increase, for instance.

That means consumers with perfect credit can suffer much more from a single mistake, or a single dispute with a lender, than a consumer with bad credit.

Meanwhile, the Internet is awash with ways to improve your credit score by small increments. One that seems to work is to shift balances among your existing credit cards -- it's better to have several cards with modest balances than one card with a huge balance and several cards with a zero balance.

Changes coming
Many score-enhancing tricks will be "gamed" out of the system, however, by FICO 08, the new credit scoring system that Fair Isaac is expected to release later this year.

One trick that will lose its oomph is the practice of adding "authorized users" to an account. Consumers have been able to tack other users onto their credit cards and essentially "borrow" their good credit. A small cottage industry formed during the housing boom to match up willing credit "donors" with consumers who had poor credit scores.

Fair Issac says the new scoring formula in FICO 08 will eliminate that trick and do a better job of assessing risk for consumers with so-called "thin" credit files, meaning they have few credit accounts. Recent immigrants frequently fall into this category.

But still unaddressed is the problem of unfair scores that arise from inaccurate credit reports, and the difficulty consumers can have fixing them. Ulzheimer said that simplest thing the industry could to do to clean up its act would be to force the credit bureaus to quickly repair errors.

"The score is only as good as the report it's based on," he said.

But even that isn't enough to save lenders from themselves when they rely too much on credit scores and don't take into account other obvious factors like income and assets. In his recent book, "The Two Headed Quarter," mathematician Joseph Ganem talks about the seductive power numbers have over people. Many can't resist the notion that numbers are objective and infallible, when in fact, they often require context to understand and can easily be manipulated. SAT scores, for example, once measured students' verbal and math ability. Today, they largely measure students' ability to afford expensive preparation classes, he says.

"People are very adaptable and very responsive to how they are being rewarded," Ganem said. Hyper-focus on credit scores naturally encourages lenders and banks to simply focus on improving those scores, rather than focus on being responsible borrowers. And mortgages lenders – and the investors who buy up mortgage loans – use credit scores to rationalize risky investments. "People give great weight to numbers so there can be accountability," Ganem said. "But in fact they have the reverse effect, because numbers can be manipulated."

De-emphasizing the credit score would get under control some of the lunacy of credit repair, rapid rescoring charges and credit score mythology. It might also take the jingle out of those credit score television ads, something that would likely benefit all consumers.

It was good to see the Hannaford Bros. grocery chain step forward Monday and admit it was the retailer that had suffered a credit card and debit card hacker attack. Criminals had access to account numbers from Dec. 7 to March 10, and stole a whopping 4.2 million credit and debit card numbers while they were transmitted for authorization, the company said. (see full story)

The company's announcement came only hours after the Massachusetts Bankers Association issued a statement indicating that it had been warned about a leak at a "major retailer" by Visa and MasterCard, while complaining that the credit card associations wouldn't reveal the name of the store chain. An initial version of this column offered the same lament.

The card associations routinely keep such information a secret, and banks are getting tired of that. You should be, too

"Releasing the name of the retailer would make all of our lives easier and safer," Daniel J. Forte, the association's CEO, said said before Hannaford was identified as target of the data theft. "Customers who didn't shop there would be put at ease, and banks could do more efficient investigations to better protect

Credit card users are often the last to know when a criminal has access to their data. That's because it usually falls to the affected banks to decide which consumers – if any -- to tell.

Even when the name of the retailer is made public, disclosure takes place in fits and starts. The infamous TJ Maxx data leak, which ultimately was determined to have affected nearly 50 million account numbers, occurred in December 2006. The company announced the leak one month later, but only recently did it begin notifying individual consumers.

In other data leaks, disclosure of the impacted retailer can take months. Sometimes, the name is never revealed.

"Consumers always want to know where the breach took place. That's one of the first things affected consumers ask their banks, right after 'will I get my money back?'" said Avivah Litan, a bank security analyst at consulting firm Gartner. "They ... have a right to know. After all it's their money and their time that is involved, and it may influence their future purchasing decisions."

One reason that credit card associations maintain a policy of not naming retailers involved in data leaks is that the fault might lie with the store's credit card processing firm or somewhere else along the data chain.

Chris Monteiro, a spokesman for MasterCard, the MasterCard spokesman, said that the credit card association also cannot release the information because it is "the subject of an ongoing law enforcement investigation."

Banks, on the other hand, are increasingly calling for early disclosure of data leakers, says Litan.

"The banks obviously want to be able to inform their cardholders where the breach took place, so that consumers don't blame their bank for the theft," she said.

Credit card associations like Visa and MasterCard are often the first to notice when a large block of account numbers is stolen, because they see the fraud pattern before the merchant. Consumers could benefit from early warning -- particularly debit card holders, who may find their checking accounts drained by thieves.

In either case, consumers are entitled to prompt refunds of money taken by account number thieves, and have zero liability for fraudulent charges made by credit card crooks.

RED TAPE WRESTLING TIPS
Sometimes when data is stolen or missing, it's not clear whether ID thieves actually have control of it. Not so in this case; Hannaford told the Associated Press it's aware of 1,800 cases of fraud related to the data theft.

Consumers simply have to challenge fraudulent charges with their credit card companies. Those who lose money in their checking accounts to fraudulent debit card transactions must get refunds from their banks withing 10 days, according to federal banking regulations.

Meanwhile, it's always a good idea to use online banking services to check account balances every few days and make sure nothing is out of whack. If there is, the sooner your report the problem the better.

If American consumers feel like they are back in school again, angling for a few more points and good grade, that's no accident. The aggressive marketing of three-digit credit scores has practically turned a high figure into a status symbol – but it's so much more than that.

Unlike that English 101 quiz, this grade can have a direct and severe impact on your everyday life. Credit scores now affect everything from car loans and mortgages to credit cards to auto insurance.

With the current credit crunch, scoring formulas are getting more scrutiny. Some lenders are even blaming the credit scores for the lending mess that is dragging the U.S. economy toward or into a recession.

Fair Isaac, maker of the original credit score, known as FICO, says a makeover is coming soon. Consumers' scores will be affected when called FICO 08 is released, but it's not yet clear how much.

Meanwhile, consumers are buying their credit scores from Web sites like never before. But despite their widespread availability, much about them remains shrouded in mystery, or distorted by credit score mythology.

On Tuesday we will examine the unintended consequences of that mystery – sleazy credit repair companies, confusion over what score is the "right" score, and the possible role that credit scores played in creating the housing bubble.

But before discussing the unseemly elements of credit scores, it's important to understand what they are – and are not.

Credit scores essentially distill all the information from a credit report into a single number in an attempt to quantify the odds borrowers will repay loans on time.

They are relatively recent invention. The FICO score was invented by Minneapolis-based Fair Isaac Corp. in 1988 as an attempt to quantify the odds borrowers will repay loans on time. The company's name is derived from those of Bill Fair and Earl Isaac, an engineer and a mathetician, who created the credit scoring concept and founded Fair Isaac in the 1950s.

That number is not, however, designed to paint a complete picture of someone's financial life. More on that in a moment.

A secret sauce
Credit scores until recently were kept secret from consumers, along with credit reports. With the passage of the Fair and Accurate Credit Transaction Act of 2003, lenders were required to provide scores for free to consumers who apply for a mortgage, and credit bureaus were required to offer them for sale to consumers at any time.

The secret sauce behind the FICO score remains in the shadows. The formula must be a secret, the credit industry argues, because if everyone knew the exact steps to get a good score, all consumers would do those things, and the scores would become meaningless. In other words, the score would become nothing more than an indication of how well consumers could "game" the system rather than their ability to repay loans.

Fair Isaac has on its Web site a diagram of what goes into a credit score and what doesn't. Every consumer should see the pie chart on this page. Boiled down, two factors account for most of a credit score, says said Lisa Nelson, vice president of global scoring for Fair Isaac: "Pay your bills on time, and don't max out your credit cards."

About 85 percent of the population has credit scores in the 500-800 range. Each lender uses different criteria, so it's hard to make sweeping statements, but here's how the system generally works:

If your score is over 720, you are golden. According to Fair Isaac, about 60 percent of the population has a score that's above 700, making them eligible for most banks' best rates.

If it's in the 600s, the action heats up. A few points here and there can make a huge difference. In fact, one point can make that difference. On Fair Isaac's loan calculator, a consumer with a 674 credit score will pay interest on a mortgage that is a full point higher than someone with a 675. On a $500,000 mortgage, the difference is $400 each month, or $150,000 over the life of the loan.

Sink into the low 600s, and the difference is astronomical. A person with a 619 credit score would pay double the interest rate of someone with a 720. The added interest would cost the former an extra $750,000 over the life of the loan.

A 100-point credit score drop could be the most important and detrimental event of a consumers' life, even worse than losing a job.

Income doesn't count
While mathematics doesn't discriminate, scores do. Credit scores, for example, take no account of a consumer's job or income -- something lenders call "capacity" to pay. Assets don't count, either. They are not intended to be a broad picture of someone's financial life, just a prediction of the likelihood that the person will repay a loan on time, based on past payments.

Because they also don't take into account for the kind of loan someone is seeking – whether a $10,000 car loan or a $500,000 adjustable rate mortgage on a home -- they provide only limited information to for banks to consider.

Still, many lenders rely heavily -- or even exclusively -- on scores, leading to some crazy discrepancies.

"I assist millionaires that can't get a credit card and 20-year-old kids that have a $200,000 mortgage," said Katherine Gregory, who runs Credit Resources Group, a firm that helps consumers improve their credit scores.

Making credit scores available to the public was supposed to clear up some of the confusion about the figures. But in some ways, it made matters worse.

Not all credit scores are the same. Consumers usually buy their credit scores from the credit bureaus, but when they do they are buying a product called a VantageScore, not the FICO score from Fair Isaac that most lenders use. And some lenders sometimes create their own variation on a FICO score, adding in their own criteria.

Credit bureaus deserve some of the blame for the confusion. Experian's FreeCreditReport.com, which also offers consumers a peek at their credit score when they pay for a monthly service, boasts it has 20 million customers. But the scores that Experian's customers see may differ greatly from their FICO score.

That's why Fair Isaac has sued the nation's three credit bureaus, alleging they are "misleading and confusing consumers" when selling their own version of the credit score.

There may be light at the end of the tunnel, however. The housing market collapse means that scores will likely lose at least bit of their influence in lending decisions. That could blunt our nation's ever growing obsession with credit scores, and that's a good thing for anyone who doesn't like being treated like a number. Still, great perils abound.

Next week, we'll look at the possible role of credit scores in the housing market collapse, and hear that even those who created the score believe it's overused. We'll also look at ways you can improve your score, and the myths that will accomplish nothing.

Editor's note: A prior version of this column indicated credit scores were not widely available before 2003. Credit scores were made available for consumers as early as 2001, according to Fair Isaac. MSNBC.com regrets the error.

You might call it a friends, family and ID thieves plan.

Last year, identity thieves wormed their way into Michael Carner's Sprint account, tacked on 14 new cell phones and began ringing up phone charges. Even though he reported the intrusion, things only got worse. For nearly a year, the real estate agent was hit with late fees, frequent automated collections calls, service interruptions, and a $5,000 bill.

When Carner finally gave up and tried to cancel his account, Sprint had one more piece of bad news: The imposters had extended his service contract for two years, meaning he'd have to pay a $200 early termination fee to get out of his contract.

"It was just maddening," Carner, who lives in O'Fallon, Mo., said. "Common sense should have prevailed, but it never did. ... I wonder how many other people go through this."

Last month, Sprint was still trying to collect about $250 from him. But after receiving inquiries from msnbc.com, the company reduced the balance to zero.

Sprint officials said they couldn't discuss details of a customer's account, citing privacy issues. But spokeswoman Roni Singleton confirmed the company was investigating the situation.

"When a customer accumulates incorrect charges on their account due to fraud, we will always work with the customer to ensure he or she is not charged for anything more than the appropriate balance," she said in an e-mail. "We are investigating the internal handling of Mr. Carner's situation, and we will work directly with him to resolve any remaining issue."

Michael Carner

Carner's fiasco began in February 2007, when someone added the 14 cell phones to his account without his permission. He didn't discover the problem until he was vacationing in Palm Springs two months later.

"I got an automated message from Sprint saying my account was overdue, and if I didn't pay it, 'We'll shut it off,'" he said. "Then it said I had a $3,500 outstanding balance. I called right away and said, 'There must be an accounting error, I never go over $95 a month.' "

Regular service interruptions
Sprint's fraud department spotted the problem immediately, Carner said., but resolving it was another matter.

Sprint began removing fraudulent charges, but only piecemeal. Each month, some fraud charges were refunded, but new ones appeared, and Carner's balance remained at several hundred dollars. Then, the late fees piled up. He wasn't receiving bills – they were going to an address in St. Louis used by the ID thieves -- so he computed the average of his prior 6 months' worth of bills and began sending a check to Sprint for about $95 each month.

He also spent, in total, about 25 hours on the phone getting transferred back and forth between Sprint's fraud department and its billing department, with ample time spent on hold each time.

"That just escalated my blood pressure," he said.

About once each week, he received an automated call from Sprint's collections department, even after he was assured the calls would stop. "That was just harassment," he said.

Worst of all, for a real estate agent who relies heavily on his phone, he suffered regular service interruptions.

He could receive calls, but he couldn't place them -- a common tactic used by cell phone providers to encourage bill payment. "I was exasperated. I need my phone, this was a very serious issue," he said.

ID thief termination fee
At one point, a Sprint operator told him he'd have to pay the remaining fraudulent changes. "We have extended to your account $4,200.00 and there will be no further credits. Pay your balance or we are not reinstating your service," he quoted the operator as saying.

In October, he decided enough was enough and decided to switch cell phone providers. He sent in his last payment of $96 on Nov. 8.

The next month, he received a call saying he still owed $200 because of an early termination fee. Carner thought his contract had expired months earlier, but when he called Sprint he was told the contract had been extended to February 2009 -- two years after the fraud had occurred.

In addition to stealing Carner's identity, the thieves had extended his cell phone contract, he discovered. And Sprint insisted that he had to pay the fee.

"I said to them, 'Produce a signed agreement saying I extended the contract,' but they said they couldn't do that," he said. "I told them 'That's insane. Anybody can extend an agreement on a whim?' "

Bickering over the $200 early termination fee continued through January and February, until Carner contacted msnbc.com. He soon received a call from a "gracious and apologetic" Sprint fraud expert, who immediately eliminated the fee.

Now, Carner says, he's a happy Verizon customer. But he's concerned that other Sprint customers might pay up in a similar situation, just to end the madness.

"Imagine the millions they unjustly collect using these intimidation tactics," he said. "I feel sad and angry for the Sprint masses that find themselves similarly in the middle of an unjust dispute."

If bank fees are a mystery to you, you're not alone. Government investigators dispatched by Congress last year to find fee schedules at banks around the country came back empty-handed 22 percent of the time. And at one-third of the banks, information on overdraft fees and procedures was nowhere to be found.

The Government Accountability Office study, which was released Monday, concluded that consumers lack the most basic information to "comparison shop" when selecting banks.

Lack of a clear and conspicuous fee schedule violates the 1991 Truth in Savings Act and Federal Reserve Regulation DD. But while banking regulators cited firms for ignoring fee disclosure rules 1,674 times between 2002 and 2006, the GAO found that significant consequences for violations are rare. Only twice did regulators undertake formal enforcement actions.

In other words, it's far more likely that you'll get a parking ticket for breaking parking rules outside a bank than it is the bank will be fined for disobeying federal lending laws.

While the fees may be a carefully guarded secret, their consequences are obvious. Last year, banks grabbed $36 billion out of depositors' accounts in fees, the GAO said. Fees are up 11 percent since 2000, and are becoming an ever more important part of bank business, accounting for 27 percent of banks' "non-interest income" last year, up from 24 percent in 2001, the report said.

The results echo those of a 2001 study by the Public Interest Research Group, which concluded that it was impossible at the time for consumers to intelligently compare the costs levied by banks.

"That's the fundamental issue," said Ed Mierzwinski, who conducted the PIRG study, added that nothing had changed since he examined the issue. "It's amazing that banks get away with all this," he said.

Mierzwinski said PIRG believes banks should be forced to publish all fee information on their Web sites -- more than half of banks don't, the GAO found -- so consumers could comparison shop from home. Such information would inevitably lead to creation of Internet sites where fee schedules are compiled and displayed for easy side-by-side comparison. Similar sites comparing credit card interest rates and terms are popular among credit card shoppers.

The GAO study was requested by Rep. Carolyn B. Maloney, D-N.Y., who has introduced legislation to improve bank fee disclosures related to overdrafts. Among other things, the Consumer Overdraft Protection Fair Practices Act would require consumers to affirmatively accept overdraft fees before a bank could enroll them in overdraft protection programs.

"This bill would cure one of the main problems reported in this report. It would eliminate the ability of banks to hide overdraft fees from consumers," Maloney said.

The GAO investigators spotted an interesting trend in analyzing bank fees over the past six years – the lower the interest rate set by the Federal Reserve, the higher the fees charged by the banks.

"Low interest rates combined with increased competition from other lenders can make it difficult for banking institutions to generate revenues from interest rate 'spreads,' or differences between the interest rates that can be charged for loans and the rates paid to depositors and other sources of funds," the GAO reported.

Watch for more fees soon
So when interest rates are down, banks don't make as much money from loans, and have to compensate by raising fees, the report suggested.

That means consumers should be on the alert for more fees, as the Federal Reserve's Board of Governors is now aggressively cutting interest rates.

Consumers also should be on the alert for banks ignoring the Truth in Savings Act, Mierzwinski said. But because consumers don't have the right to sue for non-compliance, their only recourse is file a complaint with regulators, which he says often falls on deaf ears.

"Banking regulators have never met a bank that they want to punish for anything less than money laundering or out and out fraud," he said. "And we have to rely on regulators. The way the law is written, if regulators don't protect us, we can't protect ourselves."

RED TAPE WRESTLING TIPS
If your bank does not have a fee schedule posted in an obvious area, you should complain and ask if it has been cited. But complaining isn't straight forward. To do so, you need to determine which of these five agencies regulate your bank. Follow the link to land on each agency's complaint page.

National banks (have the word National or the initials N.A. in their name) are regulated by the Office of the Comptroller of the Currency.

Some state banks report to the Federal Reserve Board. Call and ask your bank if you can't tell.

State banks that don't report to the Federal Reserve Board are regulated by the Federal Deposit Insurance Corporation.

The National Credit Union Administration regulates most credit unions (information on contacting some state-chartered credit unions is available at this link).

Federal savings and loan banks, along with federally chartered savings banks (identified by the initials F.S.B.) are regulated by the Office of Thrift Supervision.