California Credit Law Blog

Banks and their mortgage loan servicing companies are increasingly reporting consumers late on mortgages when they were not late and even when the mortgages were paid in full. Reuters reports on these inexcusable practices causing consumers no end of financial problems.

Homeowners are finding that mortgages they thought were dead and buried are springing back to life. Sometimes, the end result is a foreclosure.

"It's the most egregious manifestation of an industry that's seriously broken," said Ira Rheingold, director of the National Association of Consumer Advocates.

An attorney with the National Consumer Law Center has seen hundreds of foreclosure cases and in nearly all of them, the homeowner was not in default. The main problem is faulty records on the part of mortgage servicers.

Consumers have remedies under the FCRA. When letter writing does not solve the problem, consumers should find an attorney to sue the responsible parties.

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.

Today's Washington Post reports on virtually unknown credit bureaus such as L2C, an Atlanta credit bureau that collects consumer credit information from such sources as magazine subscriptions, cable bills, auto warranty companies, prepaid cards, payday lenders, and rent-to-own companies. L2C's reports cover the 30 million people who live on the margins of the banking system.

L2C is not the only credit bureaus that are virtually unknown to consumers. ChoicePoint, which is owned by the parent company to LexisNexis, sells reports to creditors based on tax assessments, and criminal histories. Chex Systems, TeleCheck and SCAN report to banks and others on bounced checks. Teletrack has payday lender consumer information. Alliant Data provides consumer credit information on installment lending.

Some 63 telecom companies provide customer credit information to three companies, National Communications, Telecom and Utilities Exchange. Whether a consumer can get service or pay a deposit may depend on information collected by these companies.

When someone is rejected for a job or credit because of a report from one of these companies, the individual may not be told the source of the report or given a chance to correct errors in the report.

This situation cries out for regulation. Fortunately, the new Consumer Financial Protection Bureau, which goes into business on July 17 has the authority to regulate these companies.

To go to the Washington Post article, search the headline, "Little-known firms tracking data used in credit scores."

With exceptions, the Fair Credit Reporting Act requires credit reporting agencies to limit access to consumers credit files to persons with whom the consumer has a credit relationship. A credit relationship is one in which the consumer and a creditor agreed the consumer could defer payment. Persons who do not have a credit relationship with the consumer have no right to look at the consumer's credit files.

If a person's car is towed and stored off the street without his or her consent, the tow company will typically give the owner a notice to pay the tow and storage bills. If the owner does not pay the charges, the tow company sells the car in a lien sale. After the sale, the tow company is often owed some hundreds to thousands of dollars. The tow company then turns the debt over to a collection agency that specializes in attempting to collect tow bills.

The question is whether a debt collector attempting to collect such debts has a right to access the owner's credit files. In a case handled by Andrew Ogilvie of this office, in 2007 the 9th Circuit Court of Appeals ruled that debt collectors attempting to collect debts arising from involuntary towing and storage of vehicles may not access Experian's files on the owner.

In spite of the court's ruling, we allege in a new class action that Experian has continued to allow debt collectors seeking to collect on tow bills to access vehicle owners' credit files. The case is Holman v Experian, No. CV-11-000180-JF and is pending in the Northern District of California.

Experian has announced that starting this year, it will be reporting "positive" rental data from its RentBureau® division into the traditional credit files. Starting in 2012, Experian will start reporting negative rental payment information.

Experian claims this will help the 50 million underbanked consumers, such as college students and recent immigrants, to build credit with on-time rental payments. What it will mostly do is lower renters' credit scores if, as frequently happens, they are late on a rental payment. The ding on their credit will follow them around for seven years. There really should be some restrictions on reporting someone who is, say, 7 days late on a rental payment.

Equifax has a judgment against it for more than a million dollars to a Bay Area man whose identity was stolen. While the consumer was hospitalized, an impostor used his identity to open fraudulent accounts. He found the fraudulent accounts on his credit reports from Experian, Equifax and TransUnion and disputed them. (See my blog on why to dispute in writing, Certified Mail, Return Receipt.)

Equifax went to trial. The identity theft victim told the jury about trying to get Equifax to correct his report. Other witnesses testified about his damages. His expert explained why Equifax's procedures fail to meet the requirements of the Fair Credit Reporting Act.

The jury agreed with the identity theft victim. It awarded him over $6,000 for economic damages, $315,000 for non-economic compensatory damages and $700,000 for punitive damages. The consumer does not have to worry about paying his attorney either. The Fair Credit Reporting Act makes Equifax liable for all his attorney's fees and court costs.

Equifax made post-trial motions to get out from under this verdict, but the trial court denied them all.

As I said before, mixed file and identity theft cases can be great cases. The verdict here proves that. If you have such a claim, give me a call.

Frequently people ask me how they can get the credit bureaus to correct inaccurate information on their credit reports. I always tell them to dispute inaccurate credit reports via letter sent Certified Mail, Return Receipt. Why do that, you ask, when I can dispute on-line or by phone? If you look at their websites, you know the credit bureaus encourage consumers to phone or email. It is almost impossible to find an address to mail a written dispute letter to.

There are COMPELLING REASONS to do your disputes in WRITING, Certified Mail, Return Receipt. If you have put it in writing and kept a copy and obtained a receipt you can prove exactly what information you provided and that they received it.

You want to provide the credit bureau with as much information as possible so it can conduct a thorough investigation. If you have names and phone numbers of people they should contact, provide them. If you have documents that prove your claims, enclose copies.

Sending a written dispute letter does not guarantee that they will fix your report, but if they don't you at least have solid evidence to support your lawsuit. Phone conversations and emails are hard to prove. You don't have as good a record and the credit bureaus can dispute what you said. Emails get lost. You don't get any proof that they received them.

Please keep copies of everything you sent with the dispute letter, including all enclosures and a copy of your signed letter. (Sometimes it is important for them to have your signature so they can compare it to the signature on the fraudulent account you are disputing.) Your file copy of the dispute letter should be an exact duplicate of what you placed in the envelope to the credit reporting agency.

If Experian, Equifax or TransUnion are reporting accounts that are not yours -- either mixed files or fraudulent accounts -- and they will not correct it, give me a call. Those are good cases.

In 2003, Mrs Pintos sued a debt collector that had used her credit report to collect a tow company's bill for towing her car from a San Francisco street. Her claim is that the debt collector violated the Fair Credit Reporting Act because it lacked a permissible purpose to look at her credit report. The FCRA forbids persons who are not creditors from looking at consumers' credit reports. Mrs. Pintos also sued Experian, the credit bureau that furnished the report to the collection agency. Our law firm represents Mrs. Pintos in the case.

Both sides appealed the trial court's rulings. The U.S. Court of Appeals agreed with Mrs Pintos that the debt collector lacked a legally proper reason to obtain her credit report. The Court also agreed that Experian should not have furnished Mrs Pintos's report to the collection agency. It sent the case back to the district court for a trial.

Last summer Experian asked the U.S. Supreme Court to review the case. Recently we filed our brief in opposition to Experian's petition for certiorari.

The Pintos case establishes that a debt collector is not allowed to look at the consumer's credit report unless the "debt" arose out of a credit transaction involving the consumer. What this means is that collection agencies cannot pull credit reports to use in collecting all debts. Only those debts that arose out of a credit transaction that the consumer entered into voluntarily give the collector a 'permissible purpose' under the Fair Credit Reporting Act.

An offical of the US Treasury Department has issued a statement pointing to the sections dealing with the problem of inaccurate credit reports and consumers' inability to easily get the inaccuracies removed.

The official notes that credit reports are sometimes riddled with errors. And those errors can have a real effect on your financial future. Something as simple as having the same name as another individual who failed to pay their bills on time can prevent you from receiving a loan or the lower interest rate for which you’re eligible.

The official states that consumers have filed almost 150,000 complaints about their credit reports in the last four years, and even conservative estimates suggest that 6 million Americans have errors on their reports serious enough to result in a denial of credit.

The Dodd-Frank financial reform bill seeks to empower consumers and address these issues through stronger oversight and regulation:

The new Consumer Financial Protection Bureau that the Dodd-Frank bill creates would have authority to conduct regular examinations of large credit bureaus to evaluate their compliance with basic federal laws such as the Fair Credit Reporting Act.

Consumers will have the right to get their credit scores for free if they are turned down or charged a significantly higher price for credit than most other consumers because of their scores. This is on top of existing federal law that allows consumers to obtain their detailed consumer reports for free each year to check for inaccurate items and to purchase their credit scores at a reasonable price.

The Consumer Financial Protection Bureau is required to perform a study and report to Congress on variations in the credit scores that are sold to creditors and to consumers by the three large national consumer reporting agencies to determine whether such variations disadvantage consumers.

The Fair Credit Reporting Act currently requires consumers to send dispute letters to the credit reporting agencies even though the inaccuracy originated with a bank or other creditor. This twist in the law is confusing to many consumers as it is counter-intuitive. A consumer should be able to ask the creditor to fix the inaccurate information it sent to the credit reporting agencies in the first place.

The good news is that, starting July 1, 2010, consumers will have the right to send a dispute letter directly to the creditor. This change is due to a new Federal Trade Commission rule. It will still be advisable to also send dispute letters to the credit bureaus, Trans Union, Experian and Equifax.

In 2003, the federal Government required the three national credit agencies to establish a website where consumers could download their credit reports free, once a year. Unfortunately, the Government foolishly allowed the agencies to include advertising on the site, www.annualcreditreport.com. The agencies' advertising confused consumers into believing they had to pay for a credit score or credit monitoring services to get their free report.

The three agencies also set up their own "free" sites where consumers could download their credit reports. For example, Experian's site, www.freecrdeditreport.com, was heavily advertised on TV and purposely designed so consumers thought they were going to the true free site. Once there, consumers ended up paying for their credit score or worthless credit monitoring services.

Too late, but better than never, the FTC has imposed new rules effective April 1, 2010, to reduce the confusion. Under the new rule, any website that mentions free reports has to have a notice across the top of the site that the consumer may have the right to a free credit report at annualcreditreport.com. Similar disclosures will be required for TV and radio ads effective September 1, 2010.

On the Government site, beginning April 1, the credit agencies cannot advertise until after the consumer gets his or her free credit report from the site.

Question is, why did it take 7 years for the Government to get this right? I suppose one answer is that the Bush Administration did next to nothing for the consumer.

The Fair Credit Reporting Act provides that credit reporting agencies may not report records of arrest or any other adverse criminal action that are more than seven (7) years old, except for convictions of crimes. A growing problem is that many Internet based companies are selling criminal records over 7 years old. These companies claim to not be subject to the terms of the FCRA, but the courts have ruled that criminal records sold to potential creditors, landlords, insurance companies and employers are "consumer reports" as defined by the FCRA.

When someone applies for a job, it is very easy for the prospective employer to obtain the obsolete criminal records from one of the Internet sites. The applicant rights are violated when the employer denies employment on this basis. Under the FCRA, an applicant whose rights are violated in this manner has the right to sue the company that reported the obsolete criminal records.

Fannie Mae and Fannie Mac currently flag any mortgage loan application where the applicant disputes something on a credit report. As reported in the AARP Bulletin, that’s causing denials for applicants, no matter the strength of their qualifications.

Loan officers report that many flagged applications get put on hold or simply denied.

“Some of these underwriters … won’t process a loan” with the notation “consumer disputes this item,” says Eddie Johansson, president of Credit Security Group,a credit services company in Texas.

The law is clear that a consumer has the right to dispute any inaccuracy on his or her credit report. The Equal Credit Opportunity Act prohibits discrimination against anyone for exercising a right under the FCRA.

For their part, both Fannie Mae and Freddie Mac say having a credit dispute alone should not prohibit a consumer from getting a loan approved.

Federal law requires the credit agencies to make everyone's credit reports available at no charge on a single website. The feds allowed the three major credit agencies to design the site. Predictably, the credit agencies designed the website, www.annualcreditreport.com, to confuse and entice consumers to buy credit scores and various credit protection products. Equally egregious, the three credit bureaus have capitalized on the free website by advertising "free" credit reports that are not really free.

Fortunately, the Credit Card Act of 2009 requires the FTC to issue new rules to stop these abuses. To implement the law, the FTC has proposed a new rule that to prohibit any advertising on the centralized website until AFTER the consumer obtains his or her free annual credit report.

The same new law requires that advertisements for “free credit reports” include prominent disclosures designed to prevent consumers from confusing these “free” offers with the federally mandated free annual credit report. The FTC rule will require any advertisement for "free" credit reports to prominently disclose that the advertised credit report is not the free credit report provided for by federal law. Such ads would also have to give the website address of the federally mandated free report website.

The NY Times reports that employers are increasingly running credit checks on job applicants. While that may make sense if the applicant is going to be handling money or guard a Brinks truck, it makes no sense in the case of jobs that do not involve a risk of loss of money. Only a few states have laws barring the practice. However, there is a federal law requiring agencies that provide employment reports to employers to notify the applicant of the contents of the report if it is adverse. The idea is to give applicants a chance to dispute inaccuracies in the reports. This requirement is routinely ignored according to many reports.

A towing company towed our client's car from the public streets because the registration had expired. The towing company sold the car for nothing. Then it assigned its claim for the towing charge to a collection company, Pacific Creditors. Pacific Creditors pulled our client, Maria Pinto's credit report. Apparently it was trying to determine if she had enough assets to satisfy a judgment. Assured by her credit report that she was sufficiently well-off, Pacific Creditors then began to telephone Ms. Pintos repeatedly. Its agents told her that if she did not pay the towing charge, it would ruin her good credit. Pacific Creditors knew she had good credit because it had viewed her credit report.

Andrew Ogilvie of our firm filed suit against Pacific Creditors, charging that it had violated the Fair Credit Reporting Act (FCRA) by pulling Ms. Pinto's credit report without a permissible purpose.

Today the Ninth Circuit Court of Appeals, in Pintos v. Pacific Creditors Ass'n, issued an opinion confirming that Pacific Creditors violated the FCRA by obtaining Ms. Pinto's credit report without any Fair Credit Reporting Act-sanctioned purpose.

The FCRA only allows credit reports to be pulled “in connection with a credit transaction involving the consumer . . . and involving the . . . collection of an account of . . . the consumer.” Mr. Ogilvie did not believe that the mere fact of owning a car that was later towed constituted such a "credit transaction." The Ninth Circuit's opinion confirms that it is not a "credit transaction."

Continue reading "A Towed Car Does Not Establish A Credit Relationship Under the Fair Credit Reporting Act" »

Capital One Bank and the credit reporting agencies (Equifax, Experian and TransUnion) recently settled with our client who was the victim of identity theft. It took years for the identity theft victim to get Capital One to stop trying to collect on the account it opened for an imposter.

The story began when Capital One sent a pre-approved credit card application to our client at her former college apartment. Someone in the building got the application from the mail and used it to get a VISA card from Capital One in our client's name. The imposter took $500 from the account, but Capital One quickly learned the account was fraudulent--a law enforcement agency told it that professional identity thieves had opened the account--so it closed the account and charged off the account balance.

That should have ended the matter, but it didn't. A year later, Capital One sent another credit card application to our client at the same old address. The imposter again used the application to apply for credit in our client's name and again Capital One issued the imposter a VISA card. This time it gave the imposter a $20,000 credit line and sent "convenience" checks that the imposter used to withdraw almost $18,000. When the imposter failed to make the payments, Capital One located and began to dun our client. She disputed the account, retained a different lawyer, wrote lots of letters. Nothing worked. Capital One sued her to collect on the account.

Then she contacted us.

Continue reading "Capital One Settles With Identity Theft Victim" »

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.

The NY Daily News reports on an individual who noticed his credit reports did not show all his credit cards. He gathered his credit card documents and sent them to the credit reporting agencies asking them to add them to his credit history with the idea it would improve his credit standing.

Trans Union wrote back saying no dice. They won't accept credit information from consumers. It has to come from subscribers. A TU spokesman dodged the real issue why not by saying consumers "cannot dispute an item that does not exist on their credit report." Of course, the consumer was not disputing anything. He wanted to update his report.

The TU spokesman said to contact the creditors and ask them to update TU. Bottom line--the FCRA should be amended to allow consumers to add to their reports. The credit bureaus could check with the creditors to see if it is accurate before accepting it.

A recent court order in a class action will help millions of consumers who filed bankruptcy but have been plagued with old debts showing up on their credit reports. The old debts, which are typically forgiven by the courts in a bankruptcy filing, are still being reported as active on many consumers' credit reports.

As reported in the Wall Street Journal, Experian and TransUnion say they have already updated their credit files to be compliant with the court order. TransUnion also sent notices to some customers saying they "may experience a slight change" to their credit scores if any of their accounts are updated because of a bankruptcy.

Consumers with so-called zombie debt -- old loans they may have paid off years ago that can resurface when an aggressive debt collector erroneously demands payment -- are also likely to get some relief, if those debts also were discharged under Chapter 7 protection.

In many cases, old debts linger on credit reports if lenders don't update their records, or if collection agencies ignore the fact that debts were discharged in bankruptcy. The credit bureaus' new procedures should ensure that anyone who files for bankruptcy in the future will have more-accurate
credit reports.

The NY Times reports that Experian is spending $70 million per years advertising its FreeCreditReport.com site where many consumers log on deceived into believing they will get a "free" credit report. For example, one person provided his credit card information thinking it was needed for identification only to find Experian charged him $14.95 a month for a credit-monitoring service.

The Experian website is not the one site where the credit report is free--that would be www.annualcreditreport.com. In 2005, the FTC sued Experian for deceptive marketing of its FreeCreditReport; Experian paid the FTC a fine of $950,000 settle.

The Experian credit-monitoring service is almost worthless. Ed Mierzwinski of Public Interest Research Group, refers to the product as a "protection racket." Experian and other credit bureaus with similar products promise to protect consumers against identity theft, but they do no such thing. Neither do the products improve anyone's credit scores.