California Credit Law Blog

VantageScore Ignores Paid Collection Accounts

Sat, 04 May 2013 08:12:32 -0800

The NY Times reports that a major credit score generator, VantageScore Solutions, has decided to ignore collection actions on credit reports — many of which are medical debts — as long as the collections are paid.

Vantage found that paid collections are less accurate at predicting future defaults than looking at unpaid collections and other factors.

VantageScore’s findings lend support to proposed legislation that was reintroduced in Congress this year to require consumer reporting agencies to remove fully paid or settled medical debt information from consumers’ credit reports. That would help some of the estimated seven million people who reported that a billing error prompted a collection agency to contact them in 2012, according to on study.

The problem is that a paid, isolated collection account can have a significant impact on scores, which is unfair to consumers.
Whether the leading score model, FICO, will follow suit is unknown.

Credit Scores Should be Free!

Wed, 10 Apr 2013 14:31:24 -0800

Karen Blumenthal of the Wall Street Journal asks why consumers have to pay get credit scores.

As important as credit scores are to consumers, they currently have to pay fees to Experian, Equifax, Trans Union or others to get their own scores. The report states this could change.

In March, bills were introduced in both the House and Senate that would give consumers access to free credit scores once a year.

The report points out that credit bureaus sell dozens of different credit scores, some intended only as "educational" for consumers, some generic ones for lenders and some tailored for mortgages or car loans. That means even when you get your hands on a credit score, it can be difficult to know exactly what you have received.

The familiar FICO score is reported on a scale of 300 to 850 is the most widely used. The three major credit bureaus joined together to create a competing score, the VantageScore, which some lenders now use. It has a scale of 501 to 990, making it hard to compare with the FICO score.

The bureaus make a lot of money selling credit scores to consumers. Experian recorded $410 million in revenue from its consumer division for the six months ended Sept. 30, up 7% from a year earlier. Equifax's "personal solutions" revenue grew 13% in 2012, to $204.5 million, and the unit had a gross profit margin of 30%.

CreditKarma.com offers a free TransUnion TransRisk score, on a scale of 300 to 850, as well as a VantageScore. CreditSesame.com offers a free Experian National Equivalency score, with a range of 360 to 840. Credit.com also offers a Vantage score adjusted to a scale up to 850, to be more comparable with FICO scores. Some banks are offering free credit scores to their customers.

Statutes of Limitation on Credit Card Debt Varies from State to State

Wed, 10 Apr 2013 14:08:34 -0800

Credit Cards.com reporter Fred Williams has posted an informative report on the statute of limitations that apply to credit card debts.

To determine how long a credit card issuer can file suit, a consumer has to figure out which state's law applies, how long the statute is in that state, and figure out when the statute began to run on the debt. Each of our 50 states has different laws that apply. In California the statute of limitations is 4 years. Generally, the statute begins to run when the debt first becomes delinquent.

The reporter found that some 17 states have "statutes of limitation" that say credit card debts become legally uncollectible after three or four years.

Courts usually apply contract law on a case-by-case basis. But in many states, a card debt may fall short of the legal definition for a written contract, giving it a shorter lifespan.

Another complication is that some card issuers say the law in their home state applies -- not the law in the consumer's home state. For example, Citi's card agreements typically state South Dakota law applies where the statute of limitations is a very long six (6) years.However, most judges apply the law of the consumer's home state regardless of what the fine print states in an agreement signed a long time ago, an agreement the consumer probably never read.

These statues are not to be confused with the 7 year period debts may remain on a consumer's credit report. The 7 year maximum is what is mandated by the Fair Credit Reporting Act.

The report includes what state's law applies according to the banks that issue the most popular credit cards:

Issuer State Years credit card debt is collectible in court

American Express Utah 4
Chase Delaware 3
Bank of America Delaware 3
Citi South Dakota 6
Capital One Virginia* 3
Discover Delaware 3
US Bank ** **
Wells Fargo South Dakota 6
USAA Nevada 4
Barclays Delaware 3

*Capital One says Virginia law rules, unless the cardholder's state has a longer statute.

**US Bank's terms and conditions agreement specifies which state law should apply to arbitration, but not for other matters, such as unpaid debt.

The FCRA's Limits on Access to Your Credit Reports

Thu, 21 Mar 2013 15:02:28 -0800

CreditCards.com has an informative report on who is permitted to view consumers' credit reports. The FCRA limits access to persons with a "permissible purpose." Persons may access a consumer's credit files if the consumer gives written consent or in connection with a credit transaction to which the consumer consented. Persons may also access a consumer's credits for the purpose of checking an applicant's employment history, in connection with an application for insurance, and for other limited purposes.

The most common permissible purpose violation is in the case of identity theft. CreditCards.com describes a case in which a clerk at a law firm that was representing a mortgage company who misused a consumer's credit report. The firm had legitimate access to the credit reporting system, but the rogue employee used it to set up credit cards and get loans in consumer's name.

Some cases arise out of family legal cases. If one spouse or his or her attorney pulls a spouse's credit report, there may be a violation of the FCRA.

The key to checking to see if someone is illegally reading your credit report is to look in the inquiry section. If you see anything you didn't set in motion (such as a loan or credit card application), make sure to investigate.

An exception is a bank or credit union's pre-screening before sending you a credit card offer, but any such inquiries will be clearly marked as promotional. Those inquiries are called "soft pulls" of your report and do not impact your credit score.

60 Minutes & the FTC Reports on How the Credit Bureaus Fail to Correct Serious Errors in Consumers' Credit Reports

Mon, 11 Feb 2013 09:15:44 -0800

Last night, 60 Minutes aired a fine report on the failure of Experian, Equifax and Trans Union to comply with the FCRA's requirement that they investigate and correct errors in consumers' credit reports.

Steve Kroft of 60 Minutes traveled to Santiago, Chile where Experian employs most of its credit dispute employees. Three ex-Experian employees, who handled disputes sent by US consumers, told Steve their only function was to reduce the dispute to a two-digit code and forward it to the creditor that made the report and if the creditor said its report was correct, they verified the report to the consumer. They had no authority on their own to change the customer's report if the creditor said the report was correct. They never contacted the consumer to ask questions and had no way to do so. The were required to handle 90 disputes a day which means they spent about 5 minutes on a dispute!

After interviewing consumers who explained they were not able to get the bureaus to correct errors on their credit reports, Steve Kroft posed as a consumer and called Equifax' 800 number to resolve a dispute; he was connected to an employee in Mumbai, India, who admitted he had no authority to change a consumer's report if the creditor said it was correct.

The credit bureaus' method of dispute resolution saves them tons of money, but does little for consumers.

The 60 Minutes story was based in part on a FTC study released today that found that 21% of consumers had verified errors in their credit reports, 13% had errors that affected their credit scores, and 5% had errors serious enough to be denied or pay more for credit.

The FTC study, which took 10 years to prepare, found that the percentage of serious errors was about 10 times the percentage reported by a May 2011 industry-funded study, which had claimed that only 0.51% of credit reports had errors serious enough to cause the consumer to be denied or pay more for credit. The FTC Chairman said on 60 Minutes that the new study provided “pretty troubling information” and that the error rates were “pretty high”.

Equifax Is Obtaining Workers' Salary Info & Selling it to Debt Collectors!

Wed, 30 Jan 2013 16:55:39 -0800

NBC news reports that Equifax is obtaining salary information from corporations and others and selling it to debt collectors and others.

The information is collected in a database created through an Equifax-owned company called The Work Number.

It is if folks posted their salaries on the Internet. The salary information for sale by Equifax through The Work Number is incredibly detailed with paystub information dating back years for many individuals, names of health care providers, and whether they ever filed an unemployment claim. In 2009, Equifax said the data covered 30 percent of the U.S. working population, and it now says The Work Number is adding 12 million records annually.

Organizations pay Equifax for the privilege of giving away their employees' personal information.

Companies sign up for The Work Number because it gives them an easy way to outsource employment verification of former workers. Firms hate taking these calls, which usually come when a former employee is applying for a new job, because they are a costly distraction for human resources departments and open the firm up to lawsuits if someone says something disparaging about the former employee. So they contract with The WorkNumber, which automates the process. In exchange, firms upload their human resources data to The Work Number, which was part of an independent St.Louis-based firm named TALX until it was acquired by Equifax in 2007 for $1.4 billion.

Companies sometimes tell employees their information is not accessible to others through this means, but that is not true. Kathy Sandy of Sommerville, N.J. was surprised to find that a debt collector had accessed information from her report two years ago, something she learned only when she obtained her "consumer disclosure" from The Work Number.

Equifax advertises sale of the data representing that The Work Number specializes in employment and income verification direct from the employer.

Consumers who want to see what information The Work Number has on their employment history can visit TheWorkNumber.com.

Factors That Do Not Impact Your Credit Score

Fri, 11 Jan 2013 12:27:24 -0800

The inner workings of the FICO credit scoring system are secret, but FICO does disclose the general components of its system. FICO says 35% of the score is based on payment history, 30% on your amount of debt (using more than 30% of your available credit will impact your score), 15% is based on the length of your credit history, and 10% of the score is based on such things as the number of new credit accounts opened.

According to information collected by creditcards.com, what does not count in scoring are factors that one might believe would be important in determining credit-worthiness--your income, your assets, interest rates on current loans, your marital status and demographics.

A Low Credit Score Can Ruin a Date

Fri, 28 Dec 2012 14:30:42 -0800

The NY Times reports that credit scores are now part of the dating scene. Young folks are being asked for their credit scores and a low score can be a deal breaker. One young lady thought things were going well when her date asked a decidedly unromantic question: “What’s your credit score?”

“It was as if the music stopped,” said Ms. LaShawn, 31, said, recalling how the date this year went so wrong so quickly after she tried to answer his question honestly. “It was really awkward because he kept telling me that I was the perfect girl for him, but that a low credit score was his deal-breaker.”

The Times reporter interviewed 50 daters under the age of 40 and found that one's credit score is widely used as a factor in dating decisions, sometimes eclipsing more traditional priorities like a good job, shared interests and physical chemistry.

Financial planners, marriage counselors and dating site executives say they were hearing far more concerns about credit than in the past. “It’s the only grade that matters after you graduate,” according to one such executive.

One 25 year old woman who has vigilantly monitored her credit score ever since graduating from Rutgers in 2009, has found that broaching the topic of her own credit score causes her suitors to open up, too.

A handful of small, online dating Web sites have sprung up to cater specifically to singles looking for a partner with a good credit score, including Creditscoredating.com, which allows members to view the credit scores of potential dates who agree to provide the numbers, and Datemycreditscore.com.

Sarah Klein, who manages myFICO Forums, an online discussion group, likens credit scores to dieting because both affect dating but often are shrouded in secrecy.

Consumer Agency Finds the Credit Bureaus' System of Dispute Resolution Does Not Work for Consumers

Thu, 13 Dec 2012 15:25:18 -0800

The Consumer Financial Protection Bureau has released a study of the operations of the three national credit bureaus.

The CFPB found serious problems with the credit reporting system, and in particular, the dispute system.The bureaus' automated dispute system in which the credit bureau often limits its role in disputes to little more than assigning codes as to what type of dispute is at issue. The bureaus do not examine documents, contact consumers by phone or email, or exercise any form of human discretion in resolving a dispute.

The vast majority (85%) of credit reporting disputes are passed on to the company (known as a furnisher) that provided the information. However, the documentation consumers mail in to support their cases is virtually never sent to furnishers for them to properly investigate and report back to the credit reporting company.

In 2009, the National Consumer Law Center documented the same problems with the credit reporting dispute system and the potentially devastating impact on consumers who can’t get errors in their credit reports corrected in their own report available on the NCLC website, Automated Injustice: How a Mechanized Dispute System Frustrates Consumers Seeking to Fix Errors in Their Credit Reports.

The CFPB report said a different system is needed for dispute resolution with respect to reporting by debt collectors, who generate 40% of disputes to the credit bureaus despite constituting only 13% of the accounts in credit reports.

Debt collectors have little incentive to correct errors in response to a dispute as removing negative information means losing the opportunity to collect the debt. Their main objective is to get paid and they don't care about their relationship with the consumer. They don't even care if they have the wrong person--they just want to get money.

Credit Reports Tag Consumers as Terrorists or Drug Dealers

Fri, 23 Nov 2012 11:05:24 -0800

Reports by Trans Union to creditors sometimes mistakenly tag law-abiding consumers as terrorists or drug dealers. The reports are not the normal credit reports consumers and lenders obtain on consumers. The reports are special reports Trans Union sells to lenders as method to screen consumers so the lenders are in compliance with the USA Patriot Act regulations.

Attorney Andrew Ogilvie of this firm and co-counsel at Francis & Mailman, a Philadelphia law firm, have filed a class action in the federal district court in San Francisco alleging that Trans Union's practices are in violation of the Fair Credit Reporting Act with Sergio Ramirez as the class representative.

When Mr Ramirez applied for a car loan at a dealership in Dublin, CA, but the dealer rejected his application after the finance manager pulled a Trans Union credit report indicating he may be a drug trafficker. When Ramirez disputed the report, Trans Union told him there was nothing Ramirez or the credit bureau could do to fix the problem!

Trans Union added Sergio Ramirez to the list it sold to lenders because his name was similar to two suspected drug traffickers on the SDN list.

Many people are likely to have been mistakenly tagged as criminals because of loose criteria Trans Union uses to match people to a publicly available government blacklist, the Specially Designated Nationals (SDN) list, commonly known as the OFAC list, after its agency of origin -- the Treasury Department's Office of Foreign Assets Control.

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 exact algorithm that Trans Union uses to match people to individuals on the list is unknown. It appears that if any two names match up with the consumer's first and last name, it will be returned as a match. No other identifying information, such as Social Security number or birth date, is used.

As a result, many people are getting mistakenly flagged by the credit reporting agencies simply because they have common names. The OFAC list has a large number of Hispanic and Middle Eastern names that are shared by large numbers of people who are law abiding citizens.

If a consumer learns that an OFAC alert tied to your name is being reported to lenders, the consumer should write or call the credit bureau that is making the report and ask to be taken off the list. If a credit bureau refuses to remove the false alert, the consumer may wish to contact this law firm for further advice.

The courts ruled against Trans Union in an earlier case. Sandra Cortez was told she was on the OFAC list when she applied for a car loan. The car dealership threatened to call the FBI and made her wait for hours before she could take her car home. Cortez later contacted Trans Union several times trying to get the alert removed. However, Trans Union told 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.

Ms Cortez retained attorneys and prevailed at trial receiving an award of substantial damages. Trans Union lost on appeal to the 3rd U.S. Circuit Court of Appeals. The appellate Court held that OFAC alerts are covered by the Fair Credit Reporting Act and that Trans Union violated the Fair Credit Reporting Act by keeping the OFAC alert secret from Cortez and not letting her dispute it. Cortez v. Trans Union, LLC (3d Cir. 2010) 617 F.3d 688.

Update and clarification: I prepared a draft of this post on November 23, 2012, but did not publish it on the Internet until after I had read a post on the same subject on the CreditCards.com site written by reporter Ms Kelly Dilworth. After reading her post, I revised my draft borrowing some of her words and phrases. I then published my post on December 7, 2012. I should have given proper attribution to Ms Dilworth and CreditCards.com and I apologize for not having done so.

Background Check Companies Errrors' Hurt Applicants

Fri, 09 Nov 2012 09:16:04 -0800

A MSNBC report focuses on the problem of background check companies confusing one person with another with the result that applicants lose job opportunities.

MSNBC interviewed a Ms Catherine Taylor who the Red Cross wanted to hire her as an accountant. She was not hired after a Choice Point criminal background check came back with a rap sheet of drug felonies. The rap sheet was for a different Catherine Taylor who lived in another state. In another case, after Leonard Smith applied for a job, Sterling Information Systems confused him with a sex offender, who was in prison at the time.

A major problem is that background check companies rely on computers to match the data with no one checking to make sure the results are correct. The companies do not want to spend the money to ensure their reports are accurate. Incredibly, an industry representative said the error rate is less than 10% as if that were an achievement!

The Fair Credit Reporting Act requires companies to use reasonable procedures to assure maximum possible accuracy. The Act gives applicants the right to dispute inaccurate reports, but the problem is that by the time the dispute process is concluded some days or weeks later, the damage is done and the employer has hired someone else. Persons who lose job opportunities because of errors in background checks have a right to sue the background check company for damages.

CFPB Finds Banks Do Not Comply with the FCRA

Wed, 31 Oct 2012 13:39:54 -0800

The Consumer Foundation Protection Bureau examines banks to see if they are in compliance with their obligations under the Fair Credit Reporting Act.

The Bureau has released a report in which its examiners found that bank employees did not have sufficient training or familiarity with the requirements of the FCRA to implement it properly. The deficiencies resulted in failure to communicate appropriate and accurate account information to the credit bureaus, failure to indicate when account information had been disputed by consumers, and inability to determine whether disputes had been fully investigated. Such failures caused the financial institutions to be unaware of and therefore repeatedly fail to respond to communications from consumers about their accounts.

The report confirms what observers have long said--the banks just don't do a good job investigating consumer disputes. Query, why don't they do a good job? Possible answers are, (A) They don't care? or (B) they are just cheap? If you answered A and B, you are right!

CFPB to Begin Regulating Credit Bureaus

Mon, 22 Oct 2012 12:02:18 -0800

Today the Consumer Financial Protection Bureau (CFPB) announced it is now accepting accepting consumer complaints about credit reporting.

The CFPB's press release advises consumers who have a problem with their credit reports to first send disputes directly to the credit bureaus before complaining to the CFPB.

The CFPB will accept complaints about the following issues:

· Incorrect information on a credit report;

· A consumer reporting agency’s investigation;

· The improper use of a credit report;

· Being unable to get a copy of a credit score or file; and

· Problems with credit monitoring or identify protection services.

The CFPB expects the consumer reporting agencies to respond within 15 days of receipt of a complaint forwarded by the CFPB.

To file a credit reporting complaint, consumers may contact the CFPB several ways:

· File online at www.consumerfinance.gov/Complaint;

· Call the toll-free phone number at 1-855-411-2372:

· Fax the CFPB at 1-855-237-2392; or

· Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244

The Fair Credit Dispute System is Broken

Fri, 19 Oct 2012 09:03:58 -0800

CreditCards.com has useful information on the credit bureaus and how they operate. Today's article is a good description on how the dispute process does not work in many cases.

To dispute an inaccuracy, the consumer must contact the credit bureaus directly. Let's say the dispute is a bit complicated. The consumer therefore has to explain the facts and may enclose documents proving that the current reporting is in error. What does the bureau do with the letter and documents? They compress it all into a two- to three-digit computer code and a 100-character summary, and send it electronically to the furnisher (usually a creditor or debt collector) via an automated system, where it may be reviewed solely by another computer or someone just looking at computerized, internal records.

However, under the FCRA, the credit bureaus are required to conduct "a reasonable investigation" into the disputed information and remove anything they can't verify as accurate. The reality, however, is that "the credit bureaus actually spend very little time -- only a few minutes, at best -- investigating a consumer's dispute."

American Express Caught Deceiving Customers

Mon, 01 Oct 2012 09:19:02 -0800

The FDIC and the Consumer Financial Protection Bureau (CFPB) have announced a settlement with American Express Centurion Bank of Salt Lake City concerning deceptive debt collection and credit card marketing practices. American Express will pay restitution $85 million to over 250,000 consumers and pay penalties of $27 million.

The authorities found American Express engaged in the following outrageous practices:

1. Misrepresented that if consumers entered into an agreement to settle old debt (that was no longer being reported to consumer reporting agencies), such settlement would be reported to consumer reporting agencies and thereby improve the consumers' credit scores. In fact, no such reporting occurred.
2. Told consumers who entered into settlement agreements to partially pay such debts that their remaining balances of their debts would be forgiven, when in fact the balances remained a debt owed to American Express.
3. Misrepresented the points and awards consumers would receive upon enrollment in one of American Express' credit card products.

As Consumer Reports once put it, they (the banks) are really out to get you!