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As hard as it might be to believe there were actually was a time I early America when there were no credit reporting agencies. But them again there probably have been credit reporting agencies for a lot longer than you realize.

After the Revolutionary War young America started to expand its territory; often led by business interests. For the first few decades most credit was granted to local customers and well-known businesses. If an unknown businessman sought credit the potential creditor looked for someone to vouch for them either by signing a letter credit of credit of by co-signing the loan. This system worked well while communities were relatively small and commerce was conducted in close proximity.

But then along with steamships and the telegraph came the movement westward. Businesses began expanding beyond the well-known into far-off regions. So how was a businessman in Boston supposed to make a good decision about who to sell his goods to in Ohio? The new problem demanded a new answer and so the modern credit reporting agency was born.

The Fire that Started it All.
When a local business went bad everyone in town knew it and knew to avoid giving more credit to the failed businessman. But who knew what failures happened in far-off cities or worse yet when a businessman moved to a new state and tried to re-establish himself? The answer was provided by Lewis Tappan, himself a failed businessman. In 1827 he went broke milling textiles so he took a job as the credit manger for his brother Arthur, a silk importer.

The Tappans, great-grandnephews of Benjamin Franklin, were active social reformers promoting prohibition and Sabbath laws. In 1822 they co-founded the American Anti-Slavery Society. A year later they organized Oberlin College to promote interracial education. But in that same year mobs of anti-Tappan protester sacked the brothers' business and burned Lewis' home.

Another fire soon started to burn. In 1837 many of the Tappan brothers' customers began defaulting on their payments. Soon the brothers were faced with more than $1,000,000 in debts. Their default helped spark the Panic of 1837 that led to thousands of business failures. It also sparked Lewis' desire to tame the credit market by collecting reliable information about businessmen and making it available, for a fee, to potential creditors. But first social issues again took precedent.

In his quest to promote racial equality Lewis took up the cause of the mutineers of the salve ship Amistad. After two years of legal wrangling that led to a Supreme Court decision freeing the Africans Lewis was free to turn this attention back to business. In 1841 he opened the Mercantile Agency.

The Mercantile Agency
Early in the 1800s there were a handful of industry specific credit reporting agencies. I the 1820s some New York City merchants employed traveling agents to report on economic conditions in different regions of the country. In 1835 the law firm of Griffen, Cleveland, & Campbell created a network of attorneys to provide regular evaluations of local business. But a combination of factors including rapidly expanding business markets that led merchants to ignore caution and the failed real estate speculation of one of the partners led to the agency's demise.

After the rapid business expansion in the 1830s and the Panic of 1837, that the Tappans' failure helped trigger, the conditions were right for Lewis to act. In 1841 Lewis's Mercantile Agency opened its doors in Lower Manhattan on Wall Street.

The Mercantile Agency soon had offices in principle cities throughout the country. Using an expansive group of informants it was able to provide information about the credit and affairs of every businessman in the country. It didn't take long before the agency's success spawned imitators and competitors like J.M. Bradstreet & Son's Improved Commercial Agency.

In 1857 Robert Graham Dun was managing the Mercantile Agency and had opened offices in Montreal and London: the following year he bought the company. In 1933 Dun's Mercantile Agency merged with Bradstreet's becoming Dun & Bradstreet.

Spies like Us
The Mercantile Agency created its reports by using surveillance techniques and systems to monitor and classify people. Business informants had been used in America before there was an America. European firms wanting to do business in the colonies solicited business and financial intelligence form colonial insiders. The Mercantile Agency continued this process by obtaining information from local recruits who would either be in a position to know the dealing of local businessmen or would be able to do some discrete snooping. They were often attorneys, bank cashiers, or well established merchants.

The secrecy of the informants was crucial to the ongoing reporting so the agency shielded it's agents by using code numbers. It is quite possible that the original 007 was a bank teller in Ohio who supplemented his income by "spying" on local merchants.

The agents were expected to provide semi-annual updates and answer urgent queries. They were not paid directly for supplying reports but were given a cut of any money collected from local defaulters. This provided an earl conflict of interest because, as actually happened, they were in a position to recommend the denial of further credit to an existing merchant thus causing the business to fail while it still had collectable assets.

The nature of credit reporting required a serious and judgmental disposition but there is evidence that sometimes informants made jokes as perhaps a gift to relieve the tedium of the recording clerks that endlessly copied the reports. One such alleged report from an Illinois lawyer stated, "First of all, he has a wife and a baby together they ought to be worth fifty thousand dollars to any man. Secondly, he has an office in which there is a table worth one dollar and fifty cents, and three chairs worth, say one dollar. Last of all, there is in one corner a large rat-hole which will bear looking into. Respectfully yours, A. Lincoln." Yes that A. Lincoln.

Early Credit Reports
Spy-books and blacklists pre-dated Tappan's agency. Blacklists were filled with absconders and bankrupts. Spy-books kept track of shifty buyers and out-of-towners. One such book set off a furor when wrestled from its New York home and brought to Chicago, the home of its subjects. Only the Panic of 1837 kept the book from becoming the focus of a grand jury probe.

Tappan's goals for the agency went beyond providing information; he wanted to bring "Moral regulation" to the business community. That's why the Mercantile Agency's reports were more than just a financial record. They included morals, talents, past financial performances along with economic potential a summary judgment of character.

Their system institutionalized moral judgments – making such judgment a vital business tool. As example a credit report in 1854 stated, “The kind of credit that can get our recommendation must consist much more in a man’s virtue & general character than a few thousand in property that may be easily transferred."

The early reporting lacked numerical characterization but relied on colorful commentaries. Phrases like, "be sure & never trust him, will always be worthless," or "there is a strong possibility of his failure," related a person's business worthiness. But not stopping there the reports often challenged the character of the businessman. Reporting, "…don’t think he will succeed, he is unpopular. He is rather of an unhappy disposition," allowed the fixation of moral blame upon a potential failure.

    Early credit report entries included:
  • "Failed and Worthless"
  • "Hung himself – cause unknown – many think embarrassed by circumstances"
  • "A worthless cus never was worth anything"
  • "Broke and runaway"
  • "Not worth the powder to kill him"
  • "Too lazy to be honest"
  • "A bad egg"
  • "An idle loafer"
  • "Has always been unsuccessful"
  • "I understand he has no energy & will never make a dollar, I reckon."

The agency helped bring about a new lexicon for business failures. Names for losers included: bankrupts, deadbeats, broken men, down-and-outers, bad risks, good-for-nothings, no-accounts, third-raters, flunkies, little men, loafers, small fries, small potatoes, old fogies, goners, flops, has-beens, ne’er-do-wells, nobodies, & forgotten men.

An Example for Us All
Misgivings about the accuracy of credit reports surfaced as early as 1852 when Edwin T. Freedly, author of "A Practical Treatise on Business" wrote, "What man whose credit is his bread, does not feel anxious to know whether he has been misrepresented or not?"

Horace Billings was a successful businessman from Bridgton Maine. But in 1854 rumors started swirling that his business was about to fail, in fact his rating at the Mercantile Agency was, "is worse than nothing." But Billings was a businessman who was on top of his financial affairs. Knowing his business was in good shape he sued.

Credit reports were commonly provided to potential creditors orally. This is they would go to the Mercantile Agency and a clerk would read aloud the report. While creditors weren't allowed to see the files they were allowed to make notes enabling them to pass on what they'd heard. This word-of-mouth transmission made it back to Billings.

Since there was only one copy of the report, a master book, it was a simple matter to erase libelous reports and replace them with innocuous material. Even admitting to this in court didn't keep the agency from winning an acquittal in the case.

The first suit brought against the Mercantile Agency was filed by a country merchant named John Beardsley. The case of Beardsley v. Tappan ran from 1848 to 1871 and made its way to the Supreme Court.

At the heart of the case was the contention that a slanderous report caused Beardsley's business financial harm. This was a common cry from failed businessmen. They reasoned that the main factor in their failure was the inability to continue to receive credit and that the inaccurate credit report was the cause of the denial. Yet the Beardsley case was even more sinister because at its core was not a business condition or a character flaw but a report of a pending activity by Beardsley's wife, the filing for divorce.

The report stated that credit should be denied because Beardsley was shifting assets to his brother's name to avoid the pending divorce and that once filed it would lead to a quick demise of the business. The problem was Mrs. Beardsley didn't file and the business although hurt by the reports didn't fail.

This case opened the secret workings of the Mercantile Agency to public scrutiny. It revealed a number of potential cracks where the truth might fall though. Even if the initial informant had provided accurate information it could be changed during the transcription into the master book or could simply be read incorrectly during the clerk's oral presentation. In addition the fact that the clerk's tone could color the report or that additional improvised material could be added provided ample opportunity for variations from the original report.

The Beardsley case was not only filled with the intrigue of opening a secret system to public eyes but also included jailing for months for contempt of court and the discovery that the ultimate filing of divorce by Mrs. Beardsley was filed not by her but probably by an agent of the agency trying to make its report come true. Although the jailing of an agency manager failed to pry loose the informants name the investigation into Mrs. Beardsley produced damaging information about the agency and Mrs. Beardsley. This bolstered Mr. Beardsley's personal and business reputation as a man of honor and responsible businessman.

The trial highlighted the conflict between the business community's need for information versus the individual's right of privacy. Ultimately the trial showed that when the agency had been presented with conflicting and truthful accounts of Beardsley's affairs that they held on to their original story. With the jailing and release of their manager they successfully protected their secret source but maintained the privilege of the revealing Beardsley's intimate affairs, true or not.

The December 17, 1851 verdict provided fodder for nations' headlines. The $10,000 damages awarded to Beardsley translated into the bold print of "HEAVY DAMAGES," in the New-York Times. In Norwalk the paper proclaimed Beardsley's moral and legal victory by exclaiming, "A Righteous Verdict--$10,000 Damages!"

As it today's legal system an award of damages was not the final word. The agency filed appeals for years before finally receiving a favorable decision. Based upon narrow grounds concerning the divorce testimony the verdict was vacated in January 1871. At the age of sixty four John Beardsley never pursued another trial.

Federal courts ruled in 1882 that credit reports were privileged communications and gave them copyright protection in 1896. The law defined information as the property of the seller, not the buyer of the subject of a report.

Although Beardsley remained successful for a number of years the final entry in his credit report estimated his worth at only $8,000. In a cruel twist the Supreme Court’s vacation of the original verdict carried a provision that required Beardsley to pay the agency's legal costs. Probably in the neighborhood of $20,000 they contributed to his financial demise. He died broke. But he lived on in the agency's brochures as an example for any person contemplating proceedings against the agency.

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