California Credit Law Blog

IRS has changed its rules concerning the filing of tax liens against taxpayers, which IRS reports to the credit reporting agencies. Tax liens dramatically reduce credit scores. It has been difficult to get the tax liens off one's credit reports even when the lien is paid.

IRS said it changes will help people with tax debts get a fresh start. One of the biggest changes is that people who pay their tax debt in full or enter into a direct debit installment agreement can ask to have the tax lien withdrawn. Once that is done, the taxpayer may ask the credit bureaus to remove the record of the lien from his or her credit report.

Naturally, IRS has a form, Form 12277 Application for Withdrawal of Filed Form 668(y) Notice of Tax Lien for this purpose. Once the taxpayer files this form and IRS approves, IRS will send the taxpayer a Form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien.

Formerly, the tax lien would remain on the person's credit reports even though it was paid in full. The credit bureaus would change the report to paid, but the record of the lien heavily impacted the person's credit score.

The article quotes an Experian representative saying that if IRS withdraws the lien, "We will remove it from the credit report."

Surveys by the Consumer Financial Protection Bureau have found that the nine largest credit credit card banks represeenting 90% of the market have stopped hiking interest rates on customers' existing balances, reduced penalty fees and all but eliminated overlimit charges as a result of the CARD Act enacted last year.

The CARD Act was passed to prevent vulnerable consumers from paying exorbitant interest rates and fees.

The Act allows banks to raise rates for new purchases and one bank periodically reviews accounts to do just that, according to the report. Five others raise rates on delinquent customers, and another bank is testing the practice.

The CARD Act sets new restrictions on late fees capping them at $25 for the first violation and $35 for the second not to exceed the minimum payment due. That has reduced late fees by 50%.

The law forbids issuers from charging over-limit fees to customers unless consumers opted in to the service. That has virtually eliminated the practice. Six of the largest card issuers never charge over-limit fees, even if they the process the transaction.

CFPB chief Prof Elizabeth Warren said that "much of the industry has gone farther than the law requires in curbing re-pricing and over-limit fees."