I have covered credit reporting on other posts here on debt bytes, but mostly as it applies to people who need some form of debt relief due to a financial hardship. While that is an important topic and a concern for more and more people as a result of our tough economy, what about the furnishing of bad data on people who are managing their debts well? What affect does bad information supplied to the credit reporting agencies have on them?
Your credit score and loan product modeling is calculated not just by your timely payment history, but is also based on your credit utilization, debt to income ratio and a few other key points.
Due to how information in your credit report is factored, mistakes made by those furnishing information about you to the reporting agencies can have a major impact on how much credit will cost you and whether you are approved for a credit product at all.
This morning, I read a good example of the type of damage that can be inflicted by a simple loan classification error:
Issue: Most scoring systems take data at face value with little or no interpretation. If you track the erroneous “Installment Loan” designation downstream, the credit scoring systems would see the following:
An installment loan for an extremely large sum (i.e. $200,000).
Duration of payments for these loans was reported as 30, however, the number reported for an installment loan is seen by Metro 2® as 30 months, whereas, the number reported for a mortgage is seen by Metro 2® as 30 years.
Result: Most credit scores would be calculated based on the facts reported — “Installment” loan of $200,000 with what looks like payment term of 30 months. In effect, a 30 month payback period would require each payment be approximately $6600, whereas a 30 year payback period would yield a monthly payment in the vicinity of $1000. The perceived debt of $6600 per month could potentially negatively impact multiple factors of consumer lending such as approval scores, debt ratios, bankruptcy scores, pre-screen scores, etc.
And those types of errors are just the tip of the credit reporting iceberg. From a potential litigation standpoint, data furnishers that do not invest the time and resources required to evaluate the accuracy and integrity of their credit reporting on an ongoing basis are making a potential titanic mistake.
This type of loan classification error would seem easy for the furnisher to fix. Indeed, common sense dictates that it should be fixed. It will cost money to do it though.
My experience with reporting agencies and furnishers is that they do not always think with “sense”, but think more in terms of dollars and “cents”.
The key to “common-cents” and violations of the Fair Credit Reporting Act (FCRA) is that it is more profitable to do the wrong thing than the right.
Some credit report information furnishers get it absolutely bass-ackwards.
They seem to be saying “We know we have a problem and that it screws people over, but we will continue to do so until it is more cost effective to fix the problem than to continue to get sued”.
The linked article above speaks to a specific case in the 9th circuit that allows a class action to proceed against one company that may end up costing them between 29 and 290 million. My guess is that their legal defense bill alone would have covered the costs of auditing and correcting their reporting systems on a regular basis which would prevent actions like this from occurring.
It is a small wonder to me that more legal action is not brought against furnishers of bad information about you to credit bureaus.
Similar to the economy of furnishers and reporting agencies making changes only when it makes “cents” to do so, suing them for their transgressions and missteps has long been about the costs for bringing the action and what can be gained from doing so.
Perhaps this attitude will change with the potential for more class action lawsuits that can lead to tens of millions in costs.
Perhaps there is a class out there forming to bring the particularly egregious practice of reporting a balance still due after a settlement on a past due debt is reached, accepted and funded, and where both parties agree that the debt is settled, there is no balance due, but the amount of debt forgiven remains on the trade line and shows that portion of the balance as outstanding when it no longer is! I wrote about this practice recently. Read more about it here: Why Does Capital One Screw People Who Settle Their Debt.
It is as important now as ever before for people to take responsibility for policing the accuracy of their credit profile. No one else is going to do it for you.
If you find inaccurate, erroneous or out of date information – You Can Fix It!
You have the ability to dispute bad information with the reporting agencies and you can also send direct disputes to the furnisher of the information. If they do not correct the discrepancies after sending your dispute certified mail return receipt it may be the best use of your time to next consult with a skilled consumer law attorney.
There are not that many attorneys experienced with FCRA violations around the country, but a case they may bring can be filed in federal court, which may make speaking with one you find with an office outside of your state worth the effort.
To locate an experienced FCRA consumer attorney you can go to www.naca.net and search using your zip code to find one nearest you.
Two attorneys I know that specialize in this area are:
Debt Relief Companies Form New Consumer Advocacy Organization
Raleigh, N.C. (Feb. 9, 2011) – In an ongoing effort to raise standards in the debt relief industry and improve consumer protections, a diverse group of leading debt relief companies have formed a new organization devoted to consumer advocacy. The organization is spearheaded by Steve Rhode, aconsumer advocate and founder of the website GetOutofDebt.org. Membership is by invitation only to companies who promote transparency and have a demonstrated track record in properly helping consumers address financial hardships.
The American Association of Credit Counselors (AACC) will include nonprofit credit counseling agencies, debt management companies, debt settlement companies and other providers who are focused on serving consumers in financial distress. The AACC name reflects the revival of an organization that existed with a similar mission but has been defunct for more than 20 years.
This is the first debt relief association formed solely to find collaborative ways to work for the betterment of consumers rather than to lobby on behalf of the industry.
“We’re not an official association, we’re not a traditional industry group that anyone can join as long as they are willing to pay the membership dues,” said Rhode, one of the most vocal and active advocates for consumer interests. “We’re really a club, a club that only accepts the best companies who’ve demonstrated a commitment to the highest standards in serving consumers and who want to work collaboratively to protect consumers facing money troubles.”
All member companies in the AACC have agreed to a set of common standards, including:
• Charging no upfront fees for debt settlement services;
• Providing customers with good faith estimates before they enroll in any debt relief service;
• Outlining the potential risks of a debt settlement or debt management program in easy‐to understand language;
• Providing openness and transparency regarding performance results; and
• Making top management readily available to their customers.
The group has adopted the motto “Putting Consumers First.”
“We are thrilled to be a part of this group, which is really focused on creating educated consumers and campaigning for their rights and protection,” said Chris Schornak, president of Debt Solutions Network, one of the founding members. “There are a wide range of debt relief options out there, but not every option will work for every individual. It’s exciting to see a group of companies standing up and saying that education is more important than deception and that the needs of the consumer are more important than a company’s bottom line.”
The genesis of the organization came out of an event Rhode hosted in late November called “A Group Conversation about Restoring Truth to Debt Relief.” The day‐long meeting brought together heads of debt relief companies, consumer advocates and regulatory agencies to discuss ways to improve consumer protections while still making debt relief services available to those in need and explore ways to increase the credibility of legitimate debt relief providers.
“That meeting created some great conversations among various debt relief providers about ways to better the industry as a whole and to make services from credible providers more readily available to consumers,” said Rhode. “Those discussions have continued over the last few months as these companies, while competitors, have found they have common interests and a shared vision for improving the industry. They felt there would be strength in numbers and have decided to work together for change.”
Charter members of the organization are:
• Active Debt Solutions, a Florida‐based company that offers credit counseling, debt consolidations, bankruptcy referrals, and debt settlement programs;
• Cambridge Credit Counseling, a Massachusetts‐based nonprofit that offers financial education and debt management services;
• CareOne Services Inc., a Maryland‐based company that offers credit counseling, debt management and debt settlement programs and bankruptcy referral services;
• Consumer Recovery Network, an Idaho‐based company which provides DIY instruction and offers debt settlement services
• Debt Solutions Network LLC, a Michigan‐based company that offers debt settlement and debt consolidation services;
• New Era Debt Solutions, a California‐based company that offers debt settlement services; and
“We take great pride in being part of a group that puts consumers first,” said Alex Viecco, vice president of New Era Debt Solutions. “This is something that has been lacking in this industry for a very long time.”
The original AACC was created in 1955 and disbanded in the 1980s.
About the American Association of Credit Counselors
The American Association of Credit Counselors was founded with the mission of “Putting Consumers First” in debt relief services. Membership in the organization is by invitation only and all of the members have agreed to meet specific standards and principles in offering their services. The AACC has eight members. For more information, visit http://newaacc.org/.
Individuals and small business owners burdened with huge credit card debt balances of $100,000 or more are turning to debt settlement coaching, negotiating their own settlements, and saving thousands on third-party negotiation fees.
Consumers and small business owners are negotiating with their creditors and settling their own debt obligations without the need for professional third-party assistance, according to ZipDebt.com, one of the nation’s leading providers of self-help financial coaching for struggling consumers.
America’s economic recession has pushed millions of individuals toward bankruptcy with massive levels of debt. As small businesses fail and previously high-income households face the new jobless environment, credit card debt loads of $100,000 or more have become much more common. For people with such high debt balances, formal bankruptcy often means filing under Chapter 13, which can be a difficult five-year process that entails partial or full repayment of the debts. Debt settlement through creditor negotiation provides many of those debtors with a realistic alternative to bankruptcy.
According to Charles J. Phelan, founder and President of ZipDebt.com, consumers and small business owners can avoid Chapter 13 bankruptcy if they educate themselves about negotiating compromise solutions with their creditors. “Many of the people who come to us have very large debt balances, and none of the usual ‘one-size-fits-all’ debt solutions will work for them,” Phelan says. “We teach people a process called Fast-Track Debt Settlement™. It has the most successful track record compared to any other approach to debt settlement.”
Phelan recommends the “do-it-yourself with coaching” approach to debt negotiation and settlement because it gives consumers complete control over the process. Instead of paying thousands in fees to a professional firm, consumers can apply 100% of their available resources to eliminating problem debt. “There is no reason for someone who owes $100,000 to pay $15,000 in negotiation fees,” Phelan says. “We’ve taught thousands of people how to settle their own debts, and it’s a much faster process without the stiff fees.”
For additional information on debt settlement coaching for high balance debtors, a free report is available for immediate download at ZipDebt.com.
About ZipDebt.com
Charles J. Phelan has been helping consumers avoid bankruptcy since 1997. A former executive with one of the nation’s first debt settlement firms, Phelan launched ZipDebt.com in 2004 to provide an affordable alternative to professional debt services. ZipDebt.com’s audio-CD training course is supported with personal one-on-one consultation and follow-up coaching, and the program successfully helps debt-challenged consumers achieve professional results for a small fraction of the usual cost.
One of the purposes of the Debt Bytes Blog is to raise awareness and educate people on the topic of debt. This is not a new concept by any stretch. There are many sites on the web that have a great deal of information and some of these have HUGE readership and reader participation.
Not all are created equal.
Watered Down Content Sites
Some personal finance web sites have a great deal of exposure and publish a ton of material. Some content heavy sites barely scratch the surface on a particular topic because they are geared toward mass appeal. In other words, the more “milk toast” the message, the more reader applicability.
I can think of several really big sites with content updated daily, but that allow no interaction with their readers through open commenting. These sites also tend to have a lot of ads. Milk toast (bland) content with lots of web traffic to sell ads. Not a fan….
Informative & Innovative Sites
On the other side of the spectrum you have web sites with good content and large readership that allow and encourage comment participation. Some of these also have community forums that are a great place to learn even more specifics into a particular aspect of debt and credit.
One of the sites that I like and have frequented for several years is www.debtconsolidationcare.com. I in fact post in the forums on that site anonymously as time permits.
The DCC site offers many great self help tools and feedback for debt relief with a focus on debt settlement, debt management, dealing with debt collection, what you can do to repair and improve your credit, debt consolidation and more. Big fan….
I have connected with the site owner Vikas on several occasions. One of things that so impressed me about Vikas and his motivation and vision for the DCC site – his focus on providing free, or affordable resources for consumers who are already struggling financially. His goals are similar to what I endeavor to provide here on Debt Bytes and through my company, Consumer Recovery Network.
Over the years that I have participated by commenting in the forums at the DCC site, I have witnessed many people use the site as a resource for their own debt relief efforts very effectively and who then continue posting their experience and sharing with others long after their own personal financial storm had passed – Paying forward the help, feedback and support that was available to them.
The Debt Consolidation Care community is a stand out, as are other sites that I will cover in the future.
I encourage Debt Bytes readers to check out the DCC site and to openly participate when there.
“We want you to know how professional, energetic, and empathetic our Debt and Credit Counselor Coach has been. She has been amazing! Our circumstances have not been easy, but she has persevered through them.”
“I can't thank my credit coach more!! After putting 2 children through college and having some financial setbacks, I found my home equity on the line and I was drowning in debt. A friend told me about the credit coaches at Consumer Recovery Network and within weeks I was able to settle my debts with their coaching and assistance.”
