California Credit Law Blog

Victims of identity theft may opt to have their credit files frozen--meaning no one, not even creditors, may access their credit reports without the victim's consent. Laws in 39 states, including California, have mandated this option. The credit reporting agencies have opposed these laws, but on October 25, 2007, Equifax announced it would extend the right to freeze consumer files to all 50 states according to its press release.

The California Office of Privacy Protection website www.privacyprotection.ca.gov has details on how victims may freeze their credit files.

Millions of consumers are facing foreclosure due to risky adjustable-rate mortgages. Countrywide, one of the nation's largest mortgage lenders, has gotten a ton of bad press lately for its high-profile role in the crisis.

Yesterday Chris Arnold reported in a story on National Public Radio that Countrywide planned to refinance or modify some $16 billion worth of loans for more than 80,000 borrowers who will soon hit an unaffordable rate reset, or those who have already fallen behind after their payments rose. Some of those borrowers' interest rates had risen to as high as 13%.

It was good news for Neighborhood Assistance Corporation of America, a nonprofit national housing advocacy group that had organized protests outside Countrywide's headquarters just a few weeks ago. Countrywide even hired Neighborhood Assistance Corporation as a contractor to contact homeowners and figure out how much they can afford to pay.

But some critics are skeptical about how much far Countrywide's efforts will go to alleviate the crisis. Ira Rheingold, executive director of the National Association of Consumer Advocates, says the 80,000 loans Countrywide is committed to modifying is a small chunk of the 2 million people who face losing their homes.

On the other hand according to the story, critics also fault consumers for committing to more house than they could afford.

The Fair Credit Reporting Act requires the nationwide credit bureaus to provide everyone copies of their credit reports at no charge once a year. One way to order your free credit reports is to go online to www.annualcreditreport.com. But another and perhaps easier way to order the reports is to call 1 877 322 8228 and use an automated procedure set up for this purpose.

Consumers should avoid the websites set up by Experian, Equifax and Trans Union that promise free credit reports but are designed to induce the purchase or credit scores and credit protection schemes of little or no value.

Last month the Ninth Circuit Court of Appeals decided an important consumer protection issue concerning when creditors trying to collect consumer debts can permissibly pull consumers' credit reports. The Court held that creditors can only pull credit reports if the debt involves a "credit transaction," in which the consumer directly participated and voluntarily sought credit.

This was an important victory for our client, Maria Pintos. Her car was towed for a registration violation and sold, but the sale price didn't cover the towing and impound charges. The towing company assigned the outstanding debt to a debt collector, which pulled her credit report to assess whether she had sufficient assets to be worth pursuing for those charges. Apparently it decided she did, because she began to receive nonstop collection calls.

Andy Ogilvie of our firm sued the debt collector on Ms. Pintos' behalf under the Fair Credit Reporting Act (FCRA) on grounds that it could not pull Ms. Pintos's credit report in the absence of a "credit transaction." Ms. Pintos also sued Experian for violating the FCRA by furnishing the credit report to the debt collector.

The trial court ruled in favor of Experian and the debt collector, but the Ninth Circuit Court of Appeals reversed. That Court found that the FCRA only allows debt collectors to obtain credit reports "in connection with a credit transaction involving the consumer." In our case, Ms. Pintos did not voluntarily seek credit. Rather, the debt arose when the sale price of her vehicle failed to cover the towing and impound charges. Thus, the Court concluded that the debt collector had no permissible purpose under the FCRA to obtain Ms. Pintos's credit report.

The Court's decision has ignited a flurry of opposition. Experian and the debt collector have both asked the Ninth Circuit to re-hear the case or hear it en banc, meaning the entire Ninth Circuit would decide the issue, not just the three-judge panel that decided the case. They have been joined by a Who's Who of debt collectors, including the Association of Credit and Collection Professionals, the Consumer Data Industry Associaiton, the Commercial Law League of America, DBA International (f/k/a Debt Buyer's Association) and the Center for Enforcement of Family Support. All of these industry groups urge the Court to reverse its holding. Among other arguments, they complain that this case may deprive debt collectors of a "well-established" permissible purpose under the FCRA to obtain credit reports to collect judgment debts, liens, health care receivables, or overdue child support payments.

We believe that the FCRA is intended to provide important protections to consumers, including that a creditor may not access a consumer's credit report unless it is associated with a "credit transaction." In the view of the various industry groups listed above, a "credit transaction" can just mean a claim that something is owed. It remains to be seen whether the Ninth Circuit will take another look at his case and ultimately, whether it will continue to view the FCRA as an important consumer protection statute.

The case is Pintos v. Pacific Creditors Ass'n, --F.3d--, 2007 WL 2743502 (9th Cir. 2007).

Credit card companies love to market cards to college students. That point was eloquently and tragically made in the superb recent film Maxed Out. In the film, two mothers of college students describe how their bright and high-achieving children applied for credit cards as college freshmen. But they soon found themselves in serious credit card debt. Feeling profoundly depressed and overwhelmed, each of them committed suicide. These two moms have since made it their mission to stop credit card solicitation at college campuses.

A new BusinessWeek article tells the tragedy from a student's perspective. Ryan Rhoades, a freshman at the University of Pittsburgh, needed spending money. Citibank was offering jobs to college students to sign up new credit card users for $5 to $10 per application. Rhoades took the job. Citibank didn't tell Rhoades that the school had barred marketers from dormitories by then. So Rhoades marched right through the dorms and signed up about 30 of his fellow students.

Many college campuses have realized how dangerous on-campus credit card solicitation can be, and have accordingly banned solicitation on campus. But according to the article, "despite colleges' best intentions, the companies just set up shop across the street," says Linda Sherry, the director of national priorities for Consumer Action, a San Francisco consumer-education and advocacy group. "Students are constantly under attack."

The tragedy Rhoades tells isn't just that he "pushed" credit cards to unsophisticated students who had no idea how to handle credit--which Citibank said would be easily handled because students could easily pay off the balance once they graduated and got a great job. Five years later, Rhoades is still struggling with $13,000 of credit card debt--the "pusher" fell victim to the come-on himself .