California Credit Law Blog

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04/08/11--11:17: Class Action Alleges Experian Illegal Access to Consumer Files (chan 1837872)

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.






04/11/11--10:35: Seven Different Credit Scores for Sale Cause Confusion (chan 1837872)

SmartMoney reports there are now seven different credit scores for sale available on more than 20 websites inevitably leading to confusion among consumers. Experian, Trans Union, and Equifax each sell their own credit scores. The FICO traditional score is the one used by the great majority of lenders.

A class action recently filed in a federal court in San Diego alleges that Experian's subsidiary Consumerinfo.com that operates www.freecreditscore.com is deceiving customers in selling Experina's PLUS credit score. The lawsuit alleges the score is not one typically used by lenders.

Read more: Which Credit Score is Best? - SmartMoney.com http://www.smartmoney.com/personal-finance/debt/which-credit-score-is-best-1302212043057/#ixzz1JEVwu8Eh






04/24/11--11:03: Credit Card Applications and Identity Theft (chan 1837872)

Identity thieves steal identities by retrieving credit card offers from trash cans and the filling sending them in using their own addresses. Law professor Jeff Sovern reports that
he told his class the Fair Credit Reporting Act requires the credit card issuers to allow consumers to opt out of the applications (15 U.S.C. § 1681b(e)), thus reducing the likelihood that an identity thief will steal their identity.

But most people don't opt out and instead tear up the applications and his students brought up a MSNBC story about how a consumer tore an application up, then taped it back together, and sent it in using a different address. Chase sent him the credit card anyway.

Prof Sovern recommends that consumers should opt-out of credit card solicitations. For the FTC's advice on how to do so, go here.






05/15/11--11:31: Credit Bureaus Give V.I.P.'s Get Special Treatment (chan 1837872)

Experian, Equifax and Trans Union maintain lists of V.I.P.'s like politicians, judges and other influential people who get special help from employees here in the U.S. in fixing mistakes on their credit reports. Everyone else is herded into a largely automated system under which an employee spends about two minutes reading the dispute after which the dispute is categorized using a two or three digit code. The coded dispute is sent to the source of the inaccuracy, which may be a credit card company or debt collector.

A front page story by Tara Siegel Bernard in today's NY Times contrasts the V.I.P. treatment with the slipshod methods used to handle others' disputes. The story quotes Ms Chi Chi Wu of the National Consumer Law Center for an important point--when it comes to credit reporting, consumers cannot vote with their feet. They and we are all forced to do business with the three national credit bureaus.






06/08/11--09:42: House Republicans Trying to Kill the Consumer Financial Protection Bureau (chan 1837872)

House Republicans are trying to kill or cripple the Consumer Financial Protection Bureau before it goes into business. An article in the Nation reports on their attacks on the new agency and Elizabeth Warren, the acting director of the agency.

The banks and finance company are contributing lots of money to the House Republicans who then do their bidding. The Center for Responsive Politics identified 156 groups engaged in such lobbying after the Dodd- Frank Act creating the Bureau was passed while the Chamber of Commerce still has a dozen lobbyists working solely on Bureau matters. The American Bankers Association has only 11 lobbyists.






06/13/11--16:50: 10 Ways to Avoid Lowering Your Credit Score (chan 1837872)

There are many ways you may inadvertently lower your credit score. One way is renting a car with a debit card. Consumer advocate Lynnette Khalfani-Cox writing for AOL’s WalletPop: says that paying for a car rental with a debit card can actually HURT your credit rating. The reason is that most rental contracts give the rental car company the right to check your credit rating if you use a debit card instead of a credit card. Each time someone checks your credit rating, its a negative – just like if your are seeking a loan.

Here are 9 other innocent actions you may take that may also damage your credit score:

Saying Yes to a Department Store Credit Card
Closing a Credit Card With a Zero Balance
Having a Credit Card Company Not Report Your Credit Limits
Disputing a credit card bill
Paying off an old debt or an account in collection
Buying a new motorcycle
Using a business credit card
Having multiple names listed in your credit reports






06/17/11--09:51: How Long Can Old Debt Remain on Credit Reports? (chan 1837872)

The Fair Credit Reporting Act prohibits credit bureaus from reporting most debts more than seven years old. The seven year clock starts ticking from the date of first delinquency.

Confusion about the date arises when the consumer brings a delinquent account current and then the account becomes delinquent a second or third time. The account will then have more than one date of first delinquency. The report of the first delinquency will remain 7 years and then fall off the reports. The report of the second and third delinquencies will run 7 years after those events. Most accounts become delinquent and stay that way.

If the account is sold to a debt buyer, the 7 year calculation does not change. Some debt buyers illegally re-age accounts to keep it on the consumer's credit reports. Victims of this practice have a valid claim for damages if their dispute letters to the credit bureaus do not get results.






07/17/11--09:49: Secretive Credit Bureaus Plague Consumers (chan 1837872)

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."






08/01/11--10:04: $1.26 million Jury Award Against Debt Collector that Garnished the Wrong Person's Wages (chan 1837872)

A federal jury in New Mexico awarded $1.26 million to a woman against collection law firm for twice trying to garnish her wages for a debt she did not owe. The case started when Target National Bank assigned a credit card debt to a debt collector law firm.

Ms Lucinda Yazzie told the law firm she never had a Target credit card and she often received collection calls looking for another persons with the same name. Nevertheless, the law firm sued her and obtained a garnishment order. Yazzie's employer interceded and the law firm withdrew the order. But two years later, the law firm obtained another garnishment order. This time Yazzie sued the law firm and the bank based on violations of the Fair Debt Collections Act.

The evidence showed that a law firm employee changed the Social Security number in the company’s system to that of the Yazzie named in the suit. The bank had provided the social of the Lucinda Yazzie that actually owed the money.

The jury awarded Ms Yazzie $161,000 in actual damages for emotional distress and $1.1 million in punitive damages.






08/03/11--10:10: Your Credit History May Impact Your Insurance Rates (chan 1837872)

Some insurance companies are using credit scores based on policyholders' credit histories. Insurance companies argue that the credit score correlates to the likelihood an individual will make a claim. Consumer groups cry foul asking why someone with negative credit entries on their credit reports should have to pay more for insurance.

Loretta L. Worters, who is with the Insurance Information Institute states that "Insurers use credit-based insurance scores in a variety of ways. Some companies use it for ratemaking, some for underwriting, others do not use it at all."

FICO, the company that started the credit score business, says that 95% of auto insurance policies and 90% of all homeowner's policies are awarded today based on credit-based insurance scores.

An Illinois insurance regulator states that his office receives complaints about insurance scoring not only from people with heavy debt loads, but also from those consumers with little or no debt at all. "We've had complaints (about scoring) from people who don't use credit."

For more on this topic, go to creditcards.com.






08/19/11--16:42: Persons Denied Credit to See Their Credit Scores (chan 1837872)

Under the Dodd Frank law, consumers denied credit or good terms are entitled to see their credit scores. The new law provides that any borrower who is denied credit or offered a higher than usual interest rate is entitled to see his credit scores without having to ask. The purpose of the rule is to add transparency to the lending process and to help consumers shop for a better deal. Without the new law, consumers cannot even see their credit score for free except when they apply for a mortgage.

There are some exceptions such as when a bank uses only its own scoring system with its own data to evaluate a borrower. Also, home and car insurance and utility companies may not be covered by the law.







08/23/11--15:22: What Really Happened in the McDonald's Hot Coffee Case (chan 1837872)

Remember the 1992 McDonald's "hot coffee" case in which a 79 year old woman spilled a cup of coffee and suffered burns? She sued McDonald's and a jury awarded $2.7 million. Business interests then misrepresented the verdict trashing the civil justice system and advocating for "tort reform." Susan Saladoff has made a movie about case and what really led to the verdict (which a judge reduced to $500K).

The movie is currently available on HBO. Besides the McDonald's case, the movie covers the mandatory arbitration problem--corporations' ability to force individuals to give up their right to go to court to get compensation for corporate wrongdoing. "Hot Coffee" also has interesting segments on corporate support of judicial candidates willing to do their bidding and caps on personal injury awards.






10/11/11--14:07: Liz Weston's Book on Credit Scores is Worth Reading (chan 1837872)

Liz Weston, who is MSNBC's excellent consumer reporter, is the author of an excellent book on credit scores, Your Credit Score, Your Money & What's at Stake: How to Improve the 3-Digit Number that Shapes Your Financial Future (available on Amazon).

In the first chapter she explains that even a little ignorance about how to make your score higher can cost hundreds of thousands of dollars in higher interest payments over the course of a lifetime.

She dispels myths such as the idea that closing accounts will help raise your score. According to Weston, closing accounts will never raise your score and can frequently lower it.

The chapter headings indicate the topics she covers:

1 - Why Your Credit Score Matters
2 - How Credit Scoring Works
3 - VantageScore - A Revolution or Just More of the Same?
4 - Improving Your Score - The Right Way
5 - Credit-Scoring Myths
6 - Coping with a Credit Crisis
7 - Rebuilding Your Score After a Credit Disaster
8 - Identify Theft and Your Credit
9 - Emergency! Fixing Your Credit Score Fast
10 - Insurance and Your Credit Score
11 - Keeping Your Score Healthy.

An updated edition is available in a few weeks according to Amazon.







10/13/11--09:45: New California Law Restricts Use of Credit Reports in Hiring (chan 1837872)

Gov Jerry Brown has signed a bill (AB 22) that prohibits employers from pulling credit reports on prospective employees, with exceptions. The exceptions include positions in management and in law enforcement, positions that require handling over $10,000 cash, and positions in which the employee will sign checks or transfer money for the employer.

According to the California Labor Federation 60% of employers routinely order credit reports on job applicants.

The proponents of the bill argued that a person's credit score says nothing about his or her character or ability to do a job effectively and responsibly. Secondly, credit reports contain lots of inaccuracies and it is unfair to the applicant for employers to rely on the reports. Third, supporters contend that the use of credit reports for employment purposes disproportionately impacts female and minority workers who are typically concentrated in low-wage jobs.

A union official has aptly commented that job seekers with dings on their credit are put in a Catch-22 because they cannot pay their bills because they cannot get a job and they can't get a job because they can't pay their bills.






11/03/11--13:03: Credit Monitoring Services Are Not Worth the Cost (chan 1837872)

Credit monitoring services advertise heavily in the media. For a monthly fee, they promise to alert you of any adverse changes in your credit reports. They are a waste of money for the vast majority of consumers. This is Liz Weston's conclusion as she reports on the MSNBC Money site.

There are many reasons they are not worth the costs. Number One--they lie. They advertise free credit scores, but the credit monitoring they are selling is not free. Consumers often sign up for and only later realize they agreed to make monthly payments when the bills start coming in.

Some sites suggest they are official, federally mandated sites, but they are not. (AnnualCreditReport.com is the ONLY such site).

The free credit scores are worthless since they are not the FICO scores most lenders use. The three national credit bureaus sell their own scores.

Another lie put forth is that the credit monitoring will protect you from identity theft. It won't. You will only find out your identity has been stolen after the fact.

The insurance policies some companies advertise are worthless since identity theft victims rarely if ever have to pay out-of-pocket for losses.

The costs are exorbitant for what you get. Costs run $15 to $20 a month, or up to $240 a year, for credit monitoring. Some of the companies don't watch your reports at all three credit bureaus and not all creditors report to all three bureaus. That causes gaps in what's being monitored. Also, creditors can be slow reporting changes, especially new accounts, to the bureaus, so you might not be getting as much of a head start on cleaning up any problems as you think.

Most everyone's credit scores bounce around just because of the ebb and flow payments to creditors. Seeing the changes probably makes people nervous for no reason at all.

A better alternative is to buy your score from myFICO.com for $20 once every few months and following the detailed advice the site gives on how to improve your numbers.

Finally, what the credit bureaus that offer credit monitoring are doing is selling you data that they collect for free from their creditor subscribers. It costs them essentially nothing. The profits are enormous. Why subsidize such a business?






12/03/11--13:30: Credit Bureau CoreLogic Knows Everything About You (chan 1837872)

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.






12/03/11--21:28: Debt Collectors Target Relatives of Deceased Persons (chan 1837872)

Debt collectors are harassing individuals to pay the debts of deceased family members. Many of the targeted survivors are elderly. A WSJ article gives an example of a debt collector retained by Bank of America to collect $16K on a credit card debt from a retired 68 year widow. She received up to 10 calls a day from West Asset Management, Omaha, NE about the debt. The widow was not legally responsible for the debt, but that did not stop the debt collector.

The WSJ article has two recorded calls between the harassed widow and the debt collector. The caller starts with expressions of sympathy (really sincere!) and then goes into a discussion about how she could "get this taken off your plate."

Mrs. Long, of Cape Coral, Fla., told the debt collector she had "lost everything." She had sold the their motor home to help cover medical bills and funeral costs leaving only $2K from some life insurance. She offered to pay that "just to get this off of my head."

Debts don't survive one's death unless surviving family members co-signed on the obligation.

One debt collector focuses exclusively on deceased debts. DCM Services brags it "manages collections on more than $1 billion in deceased accounts per year with an extremely low complaint rate."
To target survivors, DCM Services built a massive database of the recently deceased.

Debt collectors often tell surviving family members that they aren't personally responsible for paying the debts of the deceased. But those words barely register with grieving relatives, according to interviews with a dozen lawyers who represent about 60 families pursued for money owed by dead relatives.

Debt collectors misled some people into believing they are required by law to pay the debts of dead relatives.






12/09/11--09:40: Consumer Financial Protection Bureau Proposes Credit Card Agreement (chan 1837872)

The Consumer Financial Protection Bureau is proposing that banks adopt a simplified credit card agreement that consumers can read and understand. Currently, no one reads the dense, fine print multi-page credit card agreements banks send to customers. The Bureau is endeavoring to change that. The Bureau has separated the key terms from the legalese, leaving a clear, readable document. Check it the proposed agreement here.






12/31/11--10:52: Debt Collectors & Banks Scheme to Revive Old Debts (chan 1837872)

The WSJ reports that debt collectors are teaming up with some banks to offer a credit card to consumers who have old credit card debts. The old debts are barred by the statute of limitations. The debt collectors send misleading letters to the consumers stating that upon payment of a few hundred dollars on the old debts, the bank will issue a credit card. What the solicitations do not make clear is that the payment will revive the old debts. In other words, payment starts the statute of limitations running again.

In California, the statute of limitations is four years from the date of last activity--the last payment or debit on the account. Some states, however, have statutes as short as 3 years or as long as 10 years!






01/02/12--20:25: New California Law Bans Use of Credit Reports for Most Employment Purposes (chan 1837872)

Responding to complaints that employers were unfairly using credit reports to screen out applicants for all sorts of jobs, the California Legislature enacted a new law effective January 1, 2012, prohibiting employers or prospective employers from using consumer credit reports for employment purposes unless the persons are applying for managerial or law enforcement positions or for jobs that involve handling money or having access to more than $10,000 in cash. The bill is AB 22.