California Credit Law Blog

In November of this year, the US Supreme Court hear arguments in AT&T Mobility v. Concepcion, a case that could decide the fate of consumer and employee class actions for years to come.

The case involves the widespread practice of using standard-form contracts to ban class actions. Courts in California and other states have held that class-action bans are unenforceable, however AT&T Mobility has asked the Supreme Court to find that state laws are preempted by the Federal Arbitration Act.

The problem is that class-action bans are often disastrous for consumers and employees. Class-action bans in consumer contracts prevent consumers and employees from ever participating in class proceedings. According to attorney Paul Bland of Public Justice, companies love imposing class-action bans because they dramatically undermine enforcement of consumer- and employee-protection laws. It is no answer to point to government consumer protection agencies which which handle but few cases. Class actions and the threat of such actions in many cases are the only protection against corporations picking the pockets of consumers.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Consumer Credit 101

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Evan Hendricks is a leading expert on credit scores and credit reports. His book, aptly named Credit Scores & Credit Reports, How the System Really Works, What You Can Do, 3d Edition, is now available in paperwback on Amazon. Anyone interested in how the credit bureaus operate should read this book.

Hendricks covers credit scoring, obtaining your credit report, disputing errors, identity theft, mixed files, reinvestigations, so-called credit repair, debt collection, and other topics.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Consumer Credit 101 , Credit Reports , Credit Scores

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Last week, Prof Elizabeth Warren talked about credit reporting on the NPR program Fresh Air with Terry Gross. Ms Gross' husband had to hire an attorney to convince the credit bureaus that someone else's bad debts listed on his reports did not belong to him. In response to Ms Gross' questions how the inaccuracies occur and why it is so hard to correct them, Prof Warren said the credit system is "noisy" with, for example, data associated with social security numbers one digit off being attributed to the wrong person. She said the problem is the credit industry has no incentive to drive errors out of the system. Prof Warren said one in four credit reports have errors serious enough to affect the credit score, which increasingly are used by creditors, insurance companies, employers, landlords, utilities, cell phone companies and student loan companies to make pricing decisions.You can listen to the entire interview at www.npr.org.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Consumer Credit 101

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Consumers might assume that Experian, Trans Union and Equifax restrict the the information they collect to creditors to whom consumers have applied for credit. On the contrary, the credit bureaus sell personal and financial information to various companies. The credit bureaus were recently criticized by the national mortgage brokers' association for selling "trigger lists" containing personal and financial information on prospective borrowers to sub-prime real estate lenders. Introduced in 2005 by Experian, a basic trigger list includes the names and contact information of people who recently applied for a mortgage. A more complete list includes credit scores, credit card debt summaries and estimates of the equity owned by prospective borrowers. By late 2006, consumers were complaining to the Federal Trade Commission that they were getting calls from sub-prime lenders as explained in a December 2007 article in USA Today.

The FTC, which is supposed to regulate credit bureaus, has taken no action on the sale of trigger lists according to USA Today.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Consumer Credit 101

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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.

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Posted In: Consumer Credit 101

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Consumers Union has released a report on the "free" credit reports available on the Internet that are not really free. The study looked at 24 sites were consumers are enticed to obtain free credit reports but only if they agree to pay for their credit scores and other services at the same time. Some sites offer free credit reports and free credit scores, but only if the consumer signs up for a credit monitoring service.

Almost all the sites discouraged consumers from going to annualcreditreport.com, which is the one site where consumers may, once a year, get a free credit report from all three of the major credit bureas.

According to Consumer Reports, very few people need credit monitoring services. Consumers can check with their own credit for free or at low cost by periodically going to the credit bureaus own sites and paying a small fee ($5.95 for Experian and $7.95 for TU and Equifax).

Once a consumer signs up for credit monitoring, it can quite difficult to cancel. In 16 of 18 cases, the consumer has to call someone to cancel after going through an initial sign in process on the site. All to discourage consumers who want to quit.

Turns out Experian and TransUnion between the two of them own 15 of the sites. For example, Experian owns FreeCreditReport.com and TransUnion owns free-creditreports.com

Bottom line--don't go to any site other than annualcreditreport.com and the credit bureaus individual sites (Equifax.com, Experian.com and TransUnion.com).

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Consumer Credit 101 , Credit Scores

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The Fair Credit Reporting Act provides that a consumer may sue a business for actual damages if the business negligently violated the Act, but if the business willfully violated the Act, the consumer may sue for actual damage or statutory damages ranging from $100 to $1,000, and punitive damages. In cases in which actual damages are hard to prove, a consumer will be very interested in wanting to prove the defendant business "willfully" violated the Act in order to obtain statutory and punitive damages.

On June 4, 2007, the U.S. Supreme Court explained the meaning of the term "willful" as used in the Act in deciding a pair of class actions consumers had filed against GEICO and Safeco insurance companies. The Court held that to prove a willful violation, the consumer must show that business either knowingly or recklessly violated the statute. The Court said that recklessness in this context meant conduct involving an unjustifiably high risk of harm that is either known or so obvious that it should be known. Safeco v Burr, 2007 WL 1582951.

This decision strengthens cases in which consumers are seeking statutory and punitive damages against companies that furnish inaccurate credit information to credit bureaus. The decision will also strengthen consumers’ cases against credit bureaus that recklessly fail to correct inaccurate information in credit reports. The decision may especially be important in class actions in which the main object is to obtain statutory damages of $100 to $1,000 for each class member.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Consumer Credit 101

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On May 3, 2007, the 7th Circuit Court of Appeals held that credit bureaus such as Equifax, Experian & Trans Union must provide consumers credit disclosures that are not only accurate, but "clear." In Gillespie v Equifax, the plaintiffs requested their credit reports, which, among other things, listed the "date of last activity" on certain collection accounts. Depending on what event triggered the listing in this category, the report could lack clarity as to when delinquency had occurred. Having clarity on this point could be important to the consumer because, under FCRA, a consumer report may not include “accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.” 15 U.S.C. § 1681c(a)(4). Here's what the Seventh Circuit held:

We conclude that the consumer reporting agency must do more than simply make an accurate disclosure of the information in the consumer’s credit file. The disclosure must be made in a manner sufficient to allow the consumer to compare the disclosed information from the credit file against the consumer’s personal information in order to allow the consumer to determine the accuracy of the information set forth in her credit file. In writing § 1681g(a)(1), Congress requires disclosure that is both “clearly and accurately” made. An accurate disclosure of unclear information defeats the consumer’s ability to review the credit file, eliminating a consumer protection procedure established by Congress under the FCRA.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Consumer Credit 101 , Correcting Errors on Your Credit Reports

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What consumers don't know about credit can really, really hurt them, according to James Scurlock. Scurlock produced the excellent new documentary, Maxed Out, as a result of Scurlock's quest to find out why America can't get itself out of debt.

Scurlock's Newsweek article this week makes five points:

1) A high credit score doesn't necessarily mean you can pay your debts; it just means you have lots of available credit.

2) Banks will lend you more than you can afford to pay back because they make most of their profits on the least responsible consumers.

3) Bankruptcy is not an easy way out of debt; most bankrupt Americans finally resort to bankruptcy only after their banks have demanded upward of three times what they had originally borrowed.

4) The government is not looking out for you. Congress and the courts have repeatedly sided with industry over the consumer.

5) Credit card agreements and mortgage documents are so complex that even experts have difficultly understanding and interpreting them, let alone the average consumer.

Scurlock's observations serve to remind us that the consumer must be her own best advocate. About the most important thing you can do is obtain your credit report once a year and be vigilant about reporting anything that doesn't belong there. Although it seems counter-intuitive, you should complain to the credit reporting agency that reported the bad information (Experian, Equifax or Trans Union), not the credit furnisher (bank or finance company). The credit reporting agency then has a legal obligation to investigate the bad information and correct it. If it refuses to do that, you may have a right to take legal action.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Consumer Credit 101

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Maxed Out, an illuminating new documentary film about how the credit industry takes advantage of vulnerable consumers, arrives in theaters tomorrow. I had a chance to preview this film by director James Scurlock in November and was blown away. I highly recommend it to anyone who uses credit or credit cards at all.

In 1979, when I graduated from law school--with a great job--it took three tries before I could get a VISA card. The film demonstrates just how much has changed since then. Now creditors are luring college students into applying for credit cards as soon as they leave home. Many of these students find themselves deep into debt in just a few years. The film tragically documents two college students' suicides, as told by the students' grieving mothers, after they found themselves desperately in over their heads.

The film also explains why big banks don't discourage people from using credit that they can't afford--marginal borrowers are often the core of their profits.

Even worse, since many of our elected representatives have close ties to the banking industry, they actually encourage financial institution's predatory behavior.

Unless you keep all your money under a mattress and never use credit, I encourage you to see this film. You'll never look at credit the same way again.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Consumer Credit 101 , Credit Card Scams , Credit Cards

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