Making Sense of Credit Statutes
By James Charlet
In July of 2005, Martin was four months into an extended bout of unemployment and finally had no choice but to discontinue making payments on his Citibank MasterCard. 19 months later, he finally got a good job, but never went back to making payments on the defaulted credit card, instead focusing on keeping his car and house from being taken back by their respective creditors. Meanwhile, after 6 months, Citibank had charged off the debt as uncollectable. Then, after 24 months, Citibank sold the debt to NCO Recovery, a third party collection company. 36 months after that, having never made any headway on collecting the debt, NCO sold the debt in August of 2010 to another third party collection company, Asset Acceptance LLC. Many individuals would believe that each of those collection companies has 7 years or more to report their acquired debt on Martin's credit report and an unlimited time to sue him over the debt; however, that is simply not the case.
The Fair Credit Reporting Act (FCRA) is a consumer protection law designed to regulate the Credit Reporting Agencies (CRAs), put restrictions on what they can and cannot do, and assign rights to consumers with regard to their credit reports. It also restricts and regulates the creditors (referred to in the law as subscribers) who choose to report their data to one or more of the CRAs. Part of the restrictions placed on the creditors and CRAs is a limit on the amount of time that items of a less than positive nature can remain on a credit report. This time frame is generally referred to as the retention time. For a trade line other than a public record (i.e. judgments, bankruptcies, and liens), the retention time is defined as seven years from the original date of delinquency (ODD) with the original creditor. The ODD is really the key piece of the legislation that most people do not understand. There is an avalanche of case law that has clearly defined ODD as being attached to the debt, not the trade line and fixing it as the date at which the original creditor first did not receive a payment leading up to the most negative status of the account. To explain, in the example above, assuming Martin's due date for his payment to Citibank was July 15, 2005, the ODD for the debt was July 16, 2005. Thus, the Citibank trade line, the NCO Recovery trade line, the Asset Acceptance trade line, and any other subsequent collectors that owned the debt would all be required, under federal law, to be removed from Martin's credit report no later than July 16, 2012. Even if another collection company purchased the debt from Asset Acceptance LLC on July 15, 2012, they would still be required to delete the account on July 16. An argument can certainly be made about whether or not collection companies properly follow the law or whether the CRAs do enough to stop abuse, but the fact that this is what the law requires is incontrovertible. It is also worth noting that in this example, it is also in violation of the FCRA for more than one third party collection company to report to an individual's credit report for the same debt at the same time. So, Citibank, as the original creditor can report for the seven years with a note that it has been transferred, but NCO would have to remove their trade line when they sold the debt to Asset Acceptance to make room for the Asset Acceptance trade line to report.
As mentioned above, the most important date for retention time, and, as a result, credit scoring, is the ODD. Unfortunately, a lot of the misinformation on the web and other sources mistakenly claim that the Date of Last Activity (DLA) is the most important date when it comes to calculating a credit rating. The only reason that makes sense for the fallacy is that many people simply do not understand the difference between the different dates attached to an account. DLA can actually be many different things. It can be the date of last payment, the date of last usage on a credit card, the date the trade line was last reported to the CRAs, the date that an account reached its current status, and, confusingly, it can be ODD. The bottom line though is that a credit score or rating is the output of a mathematical equation and factors that are in it have to fit within a fixed parameter. Since there is not even a clear definition of what DLA is, let alone a way to mathematically represent it, it would be impossible to include it is a credit scoring algorithm. Therefore, when claims are made that the score changed as a result of a change to the DLA, those claims are patently false and some other culprit must be located to explain the score change. In fact, it is true that the further the current date is from the ODD, the less a negative account influences the score. Therefore, in a credit report dated months after another one, barring any other changes, an individual with negative information such as collections or charge offs should have a slightly improved score based on those accounts now being older and presumably less relevant to the current credit situation.
Another common misconception is that there is some connection between the retention time as defined by the FCRA and the Statute of Limitations for lawsuits related to the collection of the debt. This could not be further from accurate. The Statute of Limitations for bringing suit on a debt is set at the state level and is actually not only different from state to state, but also can be different for different types of debt in the same state. For example, in Texas, open accounts like a credit card, utility bill, or cell phone have a Statute of Limitation that runs for four years from the last activity on the account. On the other hand, signed contracts, like auto loans and mortgages, have a five-year Statute of Limitations. Depending on which state you are in, the statute can be anywhere from two to fifteen years. The most important aspect to understand about this is that there is no relationship between the amount of time a creditor has to sue on a debt and the amount of time they can report it to a credit reporting agency. Completely separate laws define those two periods.
This purpose here is to help consumers understand the rights they have with regard to credit reporting. It is important also to understand that creditors and CRAs do not always follow these laws. In the event that a consumer feels their rights are being violated and they have reached an impasse of red tape, it is always advisable to speak with a reputable credit restoration firm and in some cases, a law firm. They can assist the consumer to determine what other remedies they may have at their disposal to get unverifiable or inaccurate information removed from their credit reports.
About the Author:
James Charlet is a member of NACSO and the Owner of CRE Credit Services (www.crecreditservices.com) along with Simon Webster. James has worked in credit for over a decade including being a member of Experian's elite Consumer Affairs Special Services team where he gained certification as an expert for federal deposition on the Fair Credit Reporting Act. He has also written numerous published articles on credit reporting, credit scoring, and credit restoration.
