A report by the National Consumer Law Center entitled Past Imperfect: How Credit Scores and Other Analytics “Bake In” and Perpetuate Past Discrimination shows how past discrimination perpetuates low credit scores. Credit reporting and credit scoring are supposed to be objective, with no room for flawed tools such as human judgment and biases. Yet for years, study after study has found that African-American and Latino communities have lower credit scores as a group than whites and Asians. The report discusses how credit scores perpetuate racial and economic inequality. Eliminating the impacts of past discrimination may require treating disadvantaged groups differently. The report includes some policy reforms and a list of studies and other resources that could assist advocates working on reform.
FICO credit scores are used by 90% of lenders. For a thorough explanation of how FICO scores are computed, go to FICO’s website, myfico.com. FICO’s booklet on the subject covers the subject, which you may download here.
Banks and payday lenders have had a good deal going for a while: They could break the law, trick their customers in illegal ways, and not have to face any consumer lawsuits. Armed by some pretty bad 5-4 Supreme Court decisions, they could hide behind Forced Arbitration clauses (fine print contracts that say consumers can’t go to court even when a bank acts illegally), even when it was clear that the arbitration clauses made it impossible for a consumer to protect their rights.
But the free ride is coming to an end. After an extensive study, that proved beyond any doubt how unfair these fine print clauses have been for consumers, the CFPB is taking a strong step to reign in these abusive practice. In a new rule, the CFPB says banks can no longer use forced arbitration clauses to ban consumers from joining together in class action lawsuits. That means banks can no longer just wipe away the most effective means consumers often have for fighting illegal behavior.
This is a common sense rule that will go a long way in combating some of the financial industry’s worst practices.
The Consumer Financial Protection Bureau has a report on the 26 million Americans who are “credit invisible.” The Bureau found that one in every 10 adults do not have any credit history with a nationwide consumer reporting agency. About 189 million Americans have credit records that can be scored.
The report also found that Black consumers, Hispanic consumers, and consumers in low-income neighborhoods are more likely to have no credit history with a nationwide consumer reporting agency or not enough current credit history to produce a credit score.
Another 19 million consumers have unscored credit records, which is 8 percent of the adult population. The credit scoring models, which are based on credit histories, don’t produce any score for people with insufficient credit history or a lack of recent credit history.
Consumers are often confused about the effect of inquiries on their credit scores. CreditCards.com consulted experts about the differences between hard and soft inquiries, how the big three credit bureaus’ report on inquiries, and inquiries’ effects on credit scores. Their experts explained that a hard inquiry means the consumer actively applied. for credit. Soft inquiries are reported anytime you review your own personal credit report, your credit is evaluated by existing creditors, or you receive a promotional credit card offer in the mail. Soft inquiries have no impact on your credit report or score.
How big of a hit on your score do hard inquiries create? It varies.“Applying for one credit card every so often is no big deal, but when you apply for more than one at a time, you look desperate for money that you don’t have to prove you have upfront, and that is why it can have a decent effect on lowering your credit score,” says Matthew Coan, owner of the credit card comparison website Casavvy.com.
The impact also depends on existing credit history. “The hit is usually about three to five points per inquiry” according to Priyanka Prakash, of FitBiz Loans. “While that may not seem like much, it adds up – particularly if you have borderline credit to start with. For some people, there’s no impact from a hard pull. In general, the shorter your credit history, the fewer accounts you have and the more recent inquiries you have, the greater the impact.”
Identity theft fraudsters used to steal consumers’ credit card information and run up charges. They still do, but now the fraudsters are stealing identity information to file fraudulent tax returns to get tax refunds in large numbers. In 2015, about 43% of the Federal Trade Commission’s complaints were related to use of stolen identities to get others’ tax refunds. Fraudsters also use someone else’s children as dependents in filing their tax returns to lessen their tax liability. Other crooks claim a tax refund using a deceased taxpayer’s information. Still others give their employers’ other persons’ social security numbers when providing information for wages.
In 2015, the FTC received 490,220 consumer complaints for identity theft of which 228,854 complaints were for tax or wage identity theft.
Fraudsters are increasingly calling taxpayers on the phone claiming to be IRS employees. The fraudsters try to intimidate people into agreeing to give out their credit card information leading to fraudulent charges on the card. The fraudsters tell people things like the sheriff will be coming to the door or they will go to jail if they don’t agree to pay immediately. (IRS never calls consumers to demand tax payments. If anyone wants to know if they owe taxes, they can call IRS at 1.800.829.1040).
Consumers are being bombarded with ads by credit repair organizations (CROs). Consumers are well advised to not contract for their services. Consumers who have inaccurate information on their credit reports should send their own disputes by letter or online to the credit bureaus. Consumers’ own disputes are far more likely to induce the bureaus to correct the inaccurate information than dispute letters generated by a CRO. CROs’ dispute letters are typically computer generated and in one-size fits all in form. Some I’ve seen are not comprehensible. Many CROs do not even send the consumer copies of what they submit to the bureaus probably because the consumer will see how worthless they are.
CROs advertise they will clean up, improve , or rebuild your credit score and to raise your credit score. They usually fail to accomplish anything.
To curb abuses by the CROs, in 1996, Congress enacted the Credit Repair Organizations Act (CROA). Under the CROA, it is illegal for any CRO to do any of the following:
In recent years, thousands of California homeowners sold their homes in short sales. In a short sale, the borrower sells the home to a third party for an amount that falls short of the outstanding loan balance. An open question has been whether the bank or mortgage company may collect the balance of the account from the borrower (absent an agreement to waive the balance). On January 21, 2016, the California Supreme Court held that no deficiency results after a short sale of an owner occupied property of four units or less. Coker v. JPMorgan Chase Bank, 197 Cal Rptr 3d 131. Given that the mortgage company has no right to a deficiency, it follows that the mortgage company cannot legally report to the credit bureaus that the consumer owes the mortgage company for the deficiency. Last year in Kuns v Ocwen Loan Servicing, LLC, 611 Fed. Appx. 398, the 9th Circuit held that Ocwen had no right to report a balance due on a loan subject to California’s anti-deficiency laws. The upshot is that mortgage companies should not now be reporting consumers owe deficiency balances following a short sale. If they are doing so, the homeowner should send dispute letters to Experian, Equifax and Trans Union asking them to change their reports to reflect a zero balance and nothing past due on the mortgage account. If the dispute process fails, please contact this office about the filing a lawsuit seeking damages and correction of his or her credit reports.
The CFPB has published a new report on all of the credit reporting agencies that report information on consumers. Besides the three national agencies, the report includes information on agencies that provide reports on employment screening, tenant screening, consumers’ use of bank accounts, medical histories, and other specialized areas of interest to creditors. Under the FCRA, consumers have a right to ask for a copy of their reports from these agencies.
Credit.com has a report on some relatively unknown credit reports. For example, Equifax has a report it calls “work number” that provides employment and income verification data obtained from private companies. Fannie Mae said mortgage companies could use this report in lieu of pay stubs effective mid-2016.
Landlords often look at applicants’ credit reports before deciding whether to rent an apartment or other living space. There are many such credit reports that include former addresses, eviction history and the like.
Cable companies and utilities have an “exchange” with information on customers’ history of paying their cable or utility bills, connection requests, defaults, and fraudulent information.