Trw Poised For Changes In Credit-Reporting Business

At TRW Inc., it's back to the drawing board. Recession aside, its consumer-reporting division in Orange, Calif., has been reeling from one embarrassment after another over the past year.

Mistakes in its basic credit reports have, in fact, so riled the public and political leaders that Congress is looking at ways to rein in the credit-reporting industry.

Besieged by irate consumers, increasingly tough state and federal regulators and razor-edged competitors, the Information Systems and Services unit posted a $138 million operating loss last year.

Even excluding a large restructuring charge - and TRW has been restructuring in one form or another since 1985 - its pretax profits fell for the second straight year.

The credit-reporting giant recently set in motion a renewal effort it hopes will recoup customer confidence and return the operation to double-digit profitability.

TRW officials decline to provide details of the effort or the timetable under which it is to unfold.

What they will say is that a select group of technical, marketing, systems and business professionals - "the best talent we have," one official said - is laying down a blueprint to rebuild the battered operation.

"We put a fence around people who are going to design a plan for the future," said John Taussig, TRW Information's general manager.

He hopes the future will look better than the recent past. In July 1991, for instance, a federal court in Wyoming found that TRW had negligently failed to correct errors in photographer Paul Jacques' personal credit history.

The jury ruled that TRW's recordkeeping system included "willful violations" of the law. Jacques was awarded $290,000. The decision is on appeal.

In October, TRW acknowledged that it had confused tax bills as tax liens in New England on as many as 1,500 consumer credit files. At fault was an inexperienced records searcher employed by a TRW contractor.

"That was a really unfortunate incident. It was not very large. But that it happened at all was inexcusable," said D. Van Skilling, TRW's gruff executive vice president, who is responsible for the Information Systems division.

Then in December, TRW signed a consent decree with the Federal Trade Commission over alleged violations of the federal Fair Credit Reporting Act.

Under that agreement, the basis for a related settlement with attorneys general in 19 states, TRW agreed to improve the accuracy of its credit records and be more responsive to consumer complaints.

At the time, John McGee, then TRW's vice president for public affairs, lamented, "We believe that a large segment of U.S. consumers has lost its trust and confidence in TRW and the credit-reporting industry."

"We've been trying to figure out what is the best way to regain that trust," said McGee, who resigned shortly afterward.

Particularly nettlesome were the recurring accuracy problems. "Hello once again. My name is Janeen Marie Hummer," began one typical letter to TRW. "Here are all the credit problems that belong to my mother, Jane Cranston Goodwin Hummer. She is not me or my a.k.a. She is in fact my mother, and she died about four and a half years ago."

Richard L. Beagle of Santa Ana complained: "Repeatedly, I have advised TRW of errors in its records. I have sent documentation showing that certain debts are cleared. I have pointed out that false claims are in one case 13 years old, and the law requires any past seven years be expunged."

Part of the problem was systemic: For each search, TRW must distinguish between 170 million records, every one of which contains information from a wide variety of sources.

"It is the classic needle-in-the-haystack problem," said Jeff Price, TRW's director of credit-scoring services.

More aggravating to the public was that TRW didn't seem to care even when it was wrong.

"I wrote to TRW disputing the accounts, telling that they weren't mine, explaining to them in great detail that this has been an ongoing problem . . . and they never did anything," said Jacques, the Wyoming portrait photographer.

TRW says it has evidence that Jacques requested credit under his grandfather's name, intent on confusing the credit files. It has entered motions for summary judgment and a new trial. A hearing is scheduled for early September.

And yet, TRW - which is in the business of baring intimate facts about millions of Americans -hasn't been wont to reveal much about itself. Even in interviews, Skilling, Taussig and their associates are guarded.

But in October, TRW announced the release of one free credit report each year, available upon written request. It also established toll-free consumer hot lines and raised spending for consumer-assistance projects to more than $26 million, up from $12 million two years ago.

"We need to do more, and we will do more," Skilling said. After TRW unveiled another massive restructuring program at year's end, by which it intended to remake the Information Systems division and divest non-strategic assets, many thought its experiment in diversification from its central automotive and aerospace businesses had ended.

"My perception was that the TRW credit-report business was up for sale," said Louis Giglio, security analyst with Bear Stearns & Co.

Instead, Skilling brought in two new managers to run the unit: Taussig, the general manager, and Larry Smith, vice president of sales and operations.

He also began mulling a strategic realignment that would jettison such non-conforming operations as receivables management, computer maintenance and even a tracking service that monitored gamblers' casino markers.

Skilling weighed heavily the prospect of consolidating TRW's data, administrative and customer-support operations, which were scattered in Anaheim, Orange and Dallas.

At the time, no one was sure what would develop. To end speculation, Skilling in May called Information Services' 1,100 employees to an unprecedented ballroom gathering at the Hyatt Regency Alicante in Garden Grove. Most thought TRW was going to pick up and leave.

Skilling says he didn't make a decision until the final moment, when Orange - together with TRW landlords Tishman-West and Metropolitan Life - offered substantial concessions for the company to stay.

Orange came up with $1 million over 10 years. TRW later opted to move the relatively small Anaheim data center and its 105 jobs to Dallas. Even the decision to keep administrative operations in Southern California was only a starting point. TRW still labored under competitive disadvantages that went beyond its cost structure.

"TRW operates off a 25-year-old assembly language. It was used to accommodate Los Angeles County. And it's accommodating the world," said Rick Rozar, president of CDB Infotek in Orange.

"We have, regrettably, an archaic system," Smith acknowledged. Skilling eventually decided to invest tens of millions of dollars and TRW's best minds in a top-secret project in Orange designed to upgrade the credit-collection and delivery systems.

The intellectual blueprint is expected to be ready by year's end. How or when it will be carried out remains to be seen.

It also is too soon to tell whether the latest restructuring will pay off, though Information Systems and Services enjoyed higher profits and sales in the second quarter. Revenue increased 4 percent to $201 million, while operating profit edged up to $16 million from $15 million in the same period a year ago.

Now, as Americans pay down their consumer debt - which totaled $718.4 billion in April, compared with $742.1 billion at the end of last year and $728.9 billion three years ago - many expect credit activity to increase once more. That would help TRW along its way.

"In general, consumers weathered the recession very well and they are in a position to start borrowing again," said Robert Milne, president of Duff & Phelps Investment Management Co. in Chicago.

Mark Parr, a securities analyst with McDonald & Co. in Cleveland, likes what he sees, crediting TRW with establishing "a viable third leg" in Orange to complement its automotive and aerospace operations.

"They've created a good business with a reasonable profit characteristic," Parr said.

"It's a good business that produces good returns," Skilling said emphatically, adding, "We think it's an appropriate time to look now at some of the future trends and changes and how they will impact our business."

That's not to say it will get easier. "We're in an era of very rapid change," Skilling acknowledged. "We need to make change our ally, not our enemy."