October 3, 1997

Feds clean up Fair Credit Reporting Act

By TOM KELLY
The Real Estate Advisor

A new federal Fair Credit Reporting Act went into effect Wednesday clarifying consumers' rights on who -- and how -- a personal bill-paying history could be used. "Some of the points addressed in the new federal law had already been included in Washington state law," said Paula Selis, attorney in the Consumer Protection Division in the Washington State Attorney General's Office. "But there are some other items that have been spelled out clearer than before."

One key point already in place in Washington state and now in force nationally gives a credit bureau 30 business days to reinvestigate any contested blemish on your credit report and then contact you with the findings. If the credit bureau cannot verify the delinquency in question, the delinquency must be removed. This law also requires that the credit-reporting agency contact the creditor within five days to verify the debt.

Chuck Burnett, president of Evergreen Credit Reporting, said his company had been following many of the new provisions in the law for several years. He said he is appreciative of the language Congress used in the new law because it will help consumers become more aware of their rights.

"One of the main things is the employment issue," Burnett said. "An employer must receive written permission to obtain a potential employee's credit report."

Another important part of the new law is centered around outdated information. In most cases, a reporting agency may not report negative information that is more than seven years old; 10 years for bankruptcies.

"It's always been a little foggy when the clock actually starting ticking," Burnett said. "Is it seven years from the time the delinquency was reported or seven years from the time the account was handed over to collection? Some companies wait five years before turning accounts over to collection."

The issue is no longer vague. Negative information can be reported seven years from the time the account became delinquent -- saving some consumers years of anxiety and frustration.

The new law is the second pro-consumer credit package in as many years. The Telemarketing Consumer Fraud and Abuse Prevention Act, enacted in 1996, prohibits companies from charging up-front fees on credit-cleaning attempts. The intent of this federal law is to prevent companies from providing superficial, temporary relief for consumers who were seeking permanent corrections.

When a consumer challenges or requests a reinvestigation of a blemish on his credit report -- perhaps a missed mortgage payment or delinquent credit-card payment -- that specific blemish is often dropped during the period of reinvestigation. However, after the reinvestigation, the blemish will reappear unless the creditor verifies the change and updates the account.

Merely challenging the account does not provide a permanent fix. Some "credit repair" specialists take advantage of the reinvestigation time loophole. They have demanded cash up front, make an inquiry and fade into the night without providing anything close to a solution. Now, fees may not be charged until "the promised service is achieved six months after reinvestigation."

When a mortgage lender contacts a credit agency for a basic report, it usually contains information from three major bureaus. There's a difference between a credit agency and a credit bureau. Bureaus collect data from banks, court records, department stores, etc. Agencies research what is in the bureau and report the findings. There are three major national bureaus: Equifax, (800-685-1111) Experian (formerly TRW, 888-397-3742) and Trans Union (800-888-4213) and several local agencies.

If an incorrect item appears on a credit report, it's up to the consumer to see that it is corrected. Merely telling the agency is not enough. You should submit the explanation or proof in writing. People often don't understand that a credit reporting agency (CRA) cannot remove something from a credit report without the authorization of the company filing the delinquency. Delinquencies include tax liens, judgments and repossessions.

A creditor's willingness to delete a past mistake or credit delinquency often depends on who answers your letter or call, according to spokesman for a company specializing in improving individual credit reports.

Many credit reps have heard a variety of excuses and explanations (because people try to say their bad credit isn't their fault) and are uncooperative. An innocent person can be looked on as a guilty party.

Here is a summary of the new provisions in the Federal Credit Report Act as provided by Evergreen Credit Reporting, Inc.

• Consumers can now bring a cause of action against anyone who obtains a copy of their report illegally. A CRA may not give out information about you to your employer, or prospective employer, without your written consent. A CRA may not report medical information about you to creditors, insurers, or employers without your permission.

• Consumers may choose to exclude their name from CRA lists for unsolicited credit and insurance offers. You know those fliers you receive in the mail for credit cards, mortgages and cut-rate life insurance plans? Such offers must include a toll-free phone number for you to call if you want your name and address deleted from future lists. If you telephone, you must be kept off other lists for a period of two years. However, if you request, and then complete and return the CRA form provided, you must be taken off the lists indefinitely.

• Accounts voluntarily closed by the consumer -- and those accounts in dispute with a consumer -- must be noted in the credit report. If you don't concur with the charge or explanation, your protest must be noted. Often, the perception of a closed account is due to credit abuse by the consumer. Many consumers close accounts simply because they no longer use that store's card or service.

Credit reports are powerful vehicles. Jobs, homes, reputations and future credit often depend on them. If you have any questions regarding your credit report -- or the company you hired to clean up your credit -- contact the consumer-protection division of the state attorney general's office 1-800-551-4636.

Previous columns:

• JLS being 'proactive' with Costco deal, 09-26-1997
• Home businesses are changing our homes, 09-19-1997
• Area housing market: how hot is it?, 09-12-1997
• First-time buyers need creativity, 09-05-1997
• Don't expect mortgage rates to move much, 08-15-1997
• How wired will real estate get?, 08-08-1997
• Taking a look at The Street of Dreams, 08-01-1997
• What to do about that vacation home, 07-25-1997