California Credit Law Blog

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.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 ("CARD" Act) goes fully into effect in February 2010. If you want to find out which credit card issuers are complying with CARD at this time, go to www.billshrink.com. You can write in the name of your bank and find out to what extent the bank is in compliance. The major credit card banks are in compliance on some, but not all of the CARD requirements. The site neatly summarizes the ten major protections afforded cardholders. They are protection from arbitrary rate increases through early notification, the right to have interest rates reviewed to see if they should be lowered, payments must be applied to the most expensive balances first, a ban on universal default, a ban on "double-billing," no extra fees for paying by mail, by phone or online, payments received by 5 PM must be credited that day, cardholders must get 21 days from the date the statement is mailed to pay, banks are to provide warnings against paying only the minimum payments, and no marketing to kids without parents' OK.

A Wisconsin woman has filed a class action alleging that Experian's FreeCreditReport.com ads led her to believe she could go to that site for a free credit report. Once she signed up for her "free" credit report she inadvertently ended up with a a $14.95 monthly bill for a credit monitoring service. The complaint alleges no one goes to the site for anything other than a free credit report.

According to Evan Hendricks, author of Credit Scores and Credit Report, a frequent critic of the credit reporting agencies, consumers have paid the agencies for 160 million credit reports over recent years. Congress mandated that the agencies make available one free credit report for each consumer in a given year. The truly free reports are available at www.annualcreditreport.com. Consumers have downloaded 52 million reports from that site.

Borrowers taking part in the Obama administration's mortgage modification program are being hit with "partial payment" notifications in their credit reports. This damages the borrower's credit even though the borrower may never have been late in payments. For more information, see the NY Times "bucks" blog dated January 5, 2010.

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.

Banks and other creditors commonly extend credit based on your credit score. Your score is based on such factors as late payments, missed payments, number of open accounts, length of one’s overall credit history, actual amount of available credit used and negative occurrences such as charge-offs and bankruptcy.

FICO, a company that created credit scoring, has long kept its exact formula secret. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The "damage points" information will be made available through its myFICO.com Web site starting this weekend.

FICO's information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit -- so-called prime borrowers -- put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score -- 780 -- that same delinquency can send a FICO score tumbling by 90 to 100 points.

Consumers are being bombarded with "free" offers for credit reports and credit scores, but there is usually a catch. The consumer may find the free report means being subscribed to requires monthly charges unless he or she remembers to opt out. Or in order to get a free report, there is a fee for the credit score. More ways Experian, TU and Equifax make money.

However, www.creditkarma.com really does offer a free credit score. The only catch, and it is not much of one, is a lot of advertising. The advertising seems easy to ignore. There is a fair amount of information on credit reporting and Credit Karma promises never to share your information.

George Washington once said:

Discipline is the soul of an army. It makes small numbers formidable; procures success to the weak, and esteem to all.

Letter of Instructions to the Captains of the Virginia Regiments [July 29, 1759]. The advocates of consumer rights, viewing the resources of defense firms and corporate defendants, can relate to the trepidation felt by the out-numbered and out-gunned Continental Army. Because of that disparity in resources, Consumer Attorneys of California ("CAOC") consolidates the voices of consumer attorneys throughout the state to (1) preserve and protect the constitutional right to trial by jury for all consumers, (2) champion the cause of those who deserve redress for injury to person or property, (3) encourage and promote changes to California law by legislative, initiative or court action, (4) oppose injustice in existing or contemplated legislation, (5) correct harsh, unjust and oppressive legislation or judicial decisions, (6) advance the common law and promote the public good through the civil justice system and concerted efforts to secure safe products, a safe workplace, a clean environment, and quality health care, (7) uphold the honor, integrity and dignity of the legal profession by encouraging mutual support and cooperation among members, (8) promote the highest standards of professional conduct, and (9) inspire excellence in advocacy. This post is a multi-blog effort to inform consumer attorneys about CAOC's value and encourage participation in CAOC through membership.

CAOC works tirelessly to protect or advance those causes of import to consumers and their attorneys in California. Often those efforts, though valuable, receive little fanfare. For example, CAOC recently sponsored SB 510, which affects the re-sale of what are known as "structured settlements," in which victims receive financial compensation over a period of time for medical expenses and basic living needs, as determined by a jury. Before SB 510 was signed by the Governor, Courts expressed frustration at their inability to prevent the sale of structured settlements on terms that might ultimately lead to long-term financial hardship for the victim. Now, SB 510 gives judges the information they need to make a reasoned decision about the propriety of a structured settlement sale.

Measures like CAOC-sponsored SB 510 help protect the most vulnerable members of our society and ask for nothing in return. They exemplify the spirit of CAOC. However, CAOC is only as effective in its mission as its membership allows it to be. When consumer attorneys join the ranks of CAOC, its voice gains in power and clarity. But if consumer advocates sit on the sidelines, hoping to benefit from the work of others, CAOC is stretched thin, and we are all at risk as a result.

Now, consumer advocate bloggers from across the state are combining their voices to call upon each and every lawyer and firm that regularly represents plaintiffs to join CAOC, thereby strengthening the consumer's first line of defense. The blogs participating in this unified call to action are:

• The Complex Litigator (H. Scott Leviant)
• The UCL Practitioner (Kimberly Kralowec)
• Bailey Class Action Daily (Matt Bailey)
• California Employee Rights Blog (James J. Peters)
• An Appeal to Reason (Donna Bader)
• California Personal Injury and Insurance Blog (Jonathan G. Stein)
• California Debt Blog (Jonathan G. Stein)
• TrialLawyerTips.com (Mitch Jackson and Lisa Wilson)
• California Injury Blog (John Bisnar)
• San Diego Injury Lawyer Blog (Ross A. Jurewitz)
• San Diego Car Accident Lawyer Blog (Ross Jurewitz
• San Diego Injury Accident Lawyer Blog (Ross A. Jurewitz)
• California Nursing Home Abuse Lawyer Blog (Walton Law Firm LLP)
• San Diego Injury Law Blog (Walton Law Firm LLP)
• California Personal Injury Law Blog (Norman Gregory Fernandez)
• Biker Lawyer Blog (Norman Gregory Fernandez)
• California Credit Law (Mark F. Anderson, Carol Brewer & Andy Ogilvie)
• Lemon Law Blog (Mark F. Anderson, Carol Brewer & Andy Ogilvie)

Show your support of consumers' rights by joining and supporting CAOC. Together we can make an impact that we cannot make alone.

Identity theft victims are often required to obtain a police report in order to help prove they really are victims of identity theft. A problem is that some police departments will not take such reports and the great majority never take any action to solve the crime. A better alternative is to register a complaint with the U.S. Post Inspectors.

The U.S. Postal Inspectors have agents throughout the country and are far more interested in helping victims and investigating the thefts than local police departments. Their website is set up to allow victims to report online. Once the form is filled out and sent, a confirmation screen appears that be printed. A reference number is provided that can be noted in Identity Theft Affidavits. They also accept telephone calls; the telephone number for the nearest office is easily obtainable on their website.

A federal statute, 47 U.S.C. Section 415 (a), provides that the statute of limitations for civil actions to collect on unpaid telephone bills is two (2) years. Most state statute of limitations are much longer. California's statute is four (4) years for debts based on contracts. New York's law is six (6) years.

In an interesting decision, a trial court in Queens County, New York, recently held that the two year federal statute preempts state law. If the decision is upheld on appeal, a significant number of collection actions involving telephone bills will be subject to dismissal. The key factual question is whether more than two years have passed since there was any activity on the account.

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.