California Credit Law Blog

Identity theft often results in accounts showing up on the victim's credit reports. When that happens, a first step is to go to the local police to report the theft and get a report. A next step is to send a copy of the report to each of the credit bureaus with a letter asking that the fraudster's accounts be deleted.

Police reports are important in this process because under the FCRA, 15 U.S.C. § 1681c-2, a credit bureau must block the reporting of any incorrect information in a consumer's file upon receiving: "(1) appropriate proof of the identity of the consumer; (2) a copy of an identity theft report; (3) the identification of the information by the consumer; and (4) a statement by the consumer that the information is not information relating to any transaction by the consumer."

A consumer in a lawsuit against a credit agency known as Early Warning System lost the case because he failed to file an "identity theft report" to the bureau. The judge explained that the FCRA defines that term precisely. To qualify, the report must be a document meeting the following conditions: "(A) that alleges an identity theft; (B) that is a copy of an official, valid report filed by a consumer with an appropriate . . . law enforcement agency . . .; and (C) the filing of which subjects the person filing the report to criminal penalties relating to the filing of false information if, in fact, the information in the report is false." 15 U.S.C. § 1681a.

The consumer never filed a report with the police. Instead, he relied on a report that a Maryland county police department wrote. The consumer said he sent a copy to EWS, but the court said that did not suffice. "The obstacle Thomas faces is that this report cannot qualify as an "identity theft report" under § 1681a because it was not "filed by a consumer."

The court explained that an identity theft report must be "an official, valid report filed by a consumer with an appropriate . . . law enforcement agency." A "consumer" is defined as "an individual." 15 U.S.C. § 1681a. The police department is not "an individual" and therefore cannot be a "consumer" as defined by the statute. Because the police report was not "filed by a consumer," it is not an "identity theft report" under 15 U.S.C. § 1681a. Without receipt of an "identity theft report," EWS did not have a duty to block the reporting of the incorrect information.Thomas v. Early Warning Services, LLC. (District Court, MD 2012).
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Responding to complaints that employers were unfairly using credit reports to screen out applicants for all sorts of jobs, the California Legislature enacted a new law effective January 1, 2012, prohibiting employers or prospective employers from using consumer credit reports for employment purposes unless the persons are applying for managerial or law enforcement positions or for jobs that involve handling money or having access to more than $10,000 in cash. The bill is AB 22.

The WSJ reports that debt collectors are teaming up with some banks to offer a credit card to consumers who have old credit card debts. The old debts are barred by the statute of limitations. The debt collectors send misleading letters to the consumers stating that upon payment of a few hundred dollars on the old debts, the bank will issue a credit card. What the solicitations do not make clear is that the payment will revive the old debts. In other words, payment starts the statute of limitations running again.

In California, the statute of limitations is four years from the date of last activity--the last payment or debit on the account. Some states, however, have statutes as short as 3 years or as long as 10 years!

The Consumer Financial Protection Bureau is proposing that banks adopt a simplified credit card agreement that consumers can read and understand. Currently, no one reads the dense, fine print multi-page credit card agreements banks send to customers. The Bureau is endeavoring to change that. The Bureau has separated the key terms from the legalese, leaving a clear, readable document. Check it the proposed agreement here.

Debt collectors are harassing individuals to pay the debts of deceased family members. Many of the targeted survivors are elderly. A WSJ article gives an example of a debt collector retained by Bank of America to collect $16K on a credit card debt from a retired 68 year widow. She received up to 10 calls a day from West Asset Management, Omaha, NE about the debt. The widow was not legally responsible for the debt, but that did not stop the debt collector.

The WSJ article has two recorded calls between the harassed widow and the debt collector. The caller starts with expressions of sympathy (really sincere!) and then goes into a discussion about how she could "get this taken off your plate."

Mrs. Long, of Cape Coral, Fla., told the debt collector she had "lost everything." She had sold the their motor home to help cover medical bills and funeral costs leaving only $2K from some life insurance. She offered to pay that "just to get this off of my head."

Debts don't survive one's death unless surviving family members co-signed on the obligation.

One debt collector focuses exclusively on deceased debts. DCM Services brags it "manages collections on more than $1 billion in deceased accounts per year with an extremely low complaint rate."
To target survivors, DCM Services built a massive database of the recently deceased.

Debt collectors often tell surviving family members that they aren't personally responsible for paying the debts of the deceased. But those words barely register with grieving relatives, according to interviews with a dozen lawyers who represent about 60 families pursued for money owed by dead relatives.

Debt collectors misled some people into believing they are required by law to pay the debts of dead relatives.

Lenders will soon be able to easily check the deepest recesses of your financial life accessing information that never before appeared on your credit report according to a NYT report.

CoreLogic, a credit reporting agency little known to consumers, is offering a new type of credit file based on the huge repository of consumer data it maintains on just about everything that most of the traditional credit bureaus do not: missed rental payments that have gone into collection, any evictions or child support judgments, as well as any applications for payday loans, along with your repayment history.

The new report includes any property tax liens, overdue homeowner’s association dues, whether your house is underwater, and a lot of mortgage related data. CoreLogic may in the future add information on whether you paid your cell phone bill on time. CoreLogic has a deal with FICO to soon provide credit scores. CoreLogic has data on 100,000,000 persons. Experian, in contrast, has files on 200,000,000 persons.

Credit monitoring services advertise heavily in the media. For a monthly fee, they promise to alert you of any adverse changes in your credit reports. They are a waste of money for the vast majority of consumers. This is Liz Weston's conclusion as she reports on the MSNBC Money site.

There are many reasons they are not worth the costs. Number One--they lie. They advertise free credit scores, but the credit monitoring they are selling is not free. Consumers often sign up for and only later realize they agreed to make monthly payments when the bills start coming in.

Some sites suggest they are official, federally mandated sites, but they are not. (AnnualCreditReport.com is the ONLY such site).

The free credit scores are worthless since they are not the FICO scores most lenders use. The three national credit bureaus sell their own scores.

Another lie put forth is that the credit monitoring will protect you from identity theft. It won't. You will only find out your identity has been stolen after the fact.

The insurance policies some companies advertise are worthless since identity theft victims rarely if ever have to pay out-of-pocket for losses.

The costs are exorbitant for what you get. Costs run $15 to $20 a month, or up to $240 a year, for credit monitoring. Some of the companies don't watch your reports at all three credit bureaus and not all creditors report to all three bureaus. That causes gaps in what's being monitored. Also, creditors can be slow reporting changes, especially new accounts, to the bureaus, so you might not be getting as much of a head start on cleaning up any problems as you think.

Most everyone's credit scores bounce around just because of the ebb and flow payments to creditors. Seeing the changes probably makes people nervous for no reason at all.

A better alternative is to buy your score from myFICO.com for $20 once every few months and following the detailed advice the site gives on how to improve your numbers.

Finally, what the credit bureaus that offer credit monitoring are doing is selling you data that they collect for free from their creditor subscribers. It costs them essentially nothing. The profits are enormous. Why subsidize such a business?

Gov Jerry Brown has signed a bill (AB 22) that prohibits employers from pulling credit reports on prospective employees, with exceptions. The exceptions include positions in management and in law enforcement, positions that require handling over $10,000 cash, and positions in which the employee will sign checks or transfer money for the employer.

According to the California Labor Federation 60% of employers routinely order credit reports on job applicants.

The proponents of the bill argued that a person's credit score says nothing about his or her character or ability to do a job effectively and responsibly. Secondly, credit reports contain lots of inaccuracies and it is unfair to the applicant for employers to rely on the reports. Third, supporters contend that the use of credit reports for employment purposes disproportionately impacts female and minority workers who are typically concentrated in low-wage jobs.

A union official has aptly commented that job seekers with dings on their credit are put in a Catch-22 because they cannot pay their bills because they cannot get a job and they can't get a job because they can't pay their bills.

Liz Weston, who is MSNBC's excellent consumer reporter, is the author of an excellent book on credit scores, Your Credit Score, Your Money & What's at Stake: How to Improve the 3-Digit Number that Shapes Your Financial Future (available on Amazon).

In the first chapter she explains that even a little ignorance about how to make your score higher can cost hundreds of thousands of dollars in higher interest payments over the course of a lifetime.

She dispels myths such as the idea that closing accounts will help raise your score. According to Weston, closing accounts will never raise your score and can frequently lower it.

The chapter headings indicate the topics she covers:

1 - Why Your Credit Score Matters
2 - How Credit Scoring Works
3 - VantageScore - A Revolution or Just More of the Same?
4 - Improving Your Score - The Right Way
5 - Credit-Scoring Myths
6 - Coping with a Credit Crisis
7 - Rebuilding Your Score After a Credit Disaster
8 - Identify Theft and Your Credit
9 - Emergency! Fixing Your Credit Score Fast
10 - Insurance and Your Credit Score
11 - Keeping Your Score Healthy.

An updated edition is available in a few weeks according to Amazon.

Remember the 1992 McDonald's "hot coffee" case in which a 79 year old woman spilled a cup of coffee and suffered burns? She sued McDonald's and a jury awarded $2.7 million. Business interests then misrepresented the verdict trashing the civil justice system and advocating for "tort reform." Susan Saladoff has made a movie about case and what really led to the verdict (which a judge reduced to $500K).

The movie is currently available on HBO. Besides the McDonald's case, the movie covers the mandatory arbitration problem--corporations' ability to force individuals to give up their right to go to court to get compensation for corporate wrongdoing. "Hot Coffee" also has interesting segments on corporate support of judicial candidates willing to do their bidding and caps on personal injury awards.

Under the Dodd Frank law, consumers denied credit or good terms are entitled to see their credit scores. The new law provides that any borrower who is denied credit or offered a higher than usual interest rate is entitled to see his credit scores without having to ask. The purpose of the rule is to add transparency to the lending process and to help consumers shop for a better deal. Without the new law, consumers cannot even see their credit score for free except when they apply for a mortgage.

There are some exceptions such as when a bank uses only its own scoring system with its own data to evaluate a borrower. Also, home and car insurance and utility companies may not be covered by the law.

Some insurance companies are using credit scores based on policyholders' credit histories. Insurance companies argue that the credit score correlates to the likelihood an individual will make a claim. Consumer groups cry foul asking why someone with negative credit entries on their credit reports should have to pay more for insurance.

Loretta L. Worters, who is with the Insurance Information Institute states that "Insurers use credit-based insurance scores in a variety of ways. Some companies use it for ratemaking, some for underwriting, others do not use it at all."

FICO, the company that started the credit score business, says that 95% of auto insurance policies and 90% of all homeowner's policies are awarded today based on credit-based insurance scores.

An Illinois insurance regulator states that his office receives complaints about insurance scoring not only from people with heavy debt loads, but also from those consumers with little or no debt at all. "We've had complaints (about scoring) from people who don't use credit."

For more on this topic, go to creditcards.com.