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Credit Reporting Act: Repairing Credit after Debt Litigation Part 2

Fair Credit Reporting Act

This is the second part of this article. You can get part 1 by clicking here

You may have heard of the Fair Credit Reporting Act, 15 U.S.C. Sec. 1681. Congress intended this law to limit and reduce the abuses of the credit reporting agencies, which were running roughshod over consumer rights. In particular, credit agencies would report false or disputed information. This damaged people in very real ways – and then the agencies ignored requests to correct that information.

The FCRA was therefore an attempt to assert some kind of control over the process of credit reporting.

I will address this issue in greater detail elsewhere, but the law divides the reporting community into two groups: the agencies and “information suppliers.”

Debt Collectors Are Often Information Suppliers

The people who report debts to the credit reporting agencies are “information suppliers.” While they have a legal duty to report that information truthfully, only the government agencies can enforce that duty initially. In plain English – you can’t sue them just for reporting information falsely. You have to follow some steps.

Your Right against Information Suppliers

Your right against information suppliers is located in 15 U.S.C. Sec. 1681s-2(b). What this part of the law says is that:

1. In general

After receiving notice pursuant to section 1681i(a)(2) of this title of a dispute with regard to the completeness or accuracy of any information provided by a person to a consumer reporting agency, the person shall –

(A) conduct an investigation with respect to the disputed information;’

(B) review all relevant information provided by the consumer reporting agency pursuant to section 1681i(a)(2) of this title;

(C) report the results of the investigation to the consumer reporting agency; and

(D) If the investigation finds that the information is incomplete or inaccurate, report those results to all other consumer reporting agencies to which the person furnished the information and that compile and maintain files on consumers on a nationwide basis.

Your Rights under the FCRA

What this means in a practical sense is that you should consider following up a debt defense with credit repair. That is, if you win at trial or if you force the debt collector to dismiss “with prejudice,” then you can probably repair your credit, too.

If the debt collector has reported you as owing, or if the original creditor has not reported the debt as sold, then you may want to file a dispute. It is the filing of the dispute that allows you to sue the information supplier for providing false information to the credit reporting agencies.

How it Works

Suppose you go through the litigation process and get the case dismissed with prejudice. Your next move might be to request a credit report from all the credit reporting agencies. Debt collectors do not necessarily provide information to all the agencies, and perhaps they provide different information to different agencies. In any event, get your report from each of them.

When you get the reports, you must read them carefully – do they reflect that the debt was sold? Has the debt collector filed reports saying that you still owe? If the answer to either or both of these questions is “yes,” then you can write to the credit reporting agency requesting that it reinvestigate and stating very specifically that you “dispute” the report and the debt. Don’t be coy about this – you get no points for style here – you need to dispute the report and insist on a correction.

This dispute triggers the responsibility of the credit reporting agency to conduct a reasonable “reinvestigation.” As part of this reinvestigation, the agency must ask the information supplier to investigate the information it is supplying. If the information supplier provides false information at this point, you can sue it under the Fair Credit Reporting Act as well as under “common law” (state law) theories like defamation.

If they claim you owe the money even though they have dismissed the case with prejudice, they would be “estopped” from arguing they were telling the truth if you sued them for defamation or false reports under the FCRA.

Sue the Credit Reporting Agencies?

I’ve never suggested that nonlawyers try to sue the credit reporting agencies. They’re hard to find and serve. It is hard to figure out who is responsible for what at the agencies. And they almost never give up. If you decide to go after the credit reporting agencies, therefore, you should very strongly consider hiring a lawyer.

Credit Reporting Act: Repairing Credit after Debt Litigation Part 1

Life after Debt Litigation

You can use the Credit Reporting Act to clean your credit.

You probably know I am a big believer in filing a counterclaim to a debt lawsuit if possible. Having a counterclaim gives you some very important control over the lawsuit itself. And it also can help prevent other suits or harassment on the debt. If you do not have a counterclaim, the debt collector is free to drop the case at will in most jurisdictions. Your counterclaim prevents this.

There is also another reason relating to your life after litigation: Repairing your credit after the lawsuit.

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Protect Your Credit Report

You may not know it, but when a creditor or debt collector sells your debt to someone else, it should report that information on your credit report. That way, if the next company also reports you, it is clear that they are doing so on a debt that someone else previously owned. And this in turn prevents one “bad debt” from looking like several bad debts. After charge-off and sale of the debt, the original creditor should not be adding information to your file. That is the right of the next person who obtains the debt. In other words, only the person who currently owns the debt has a right to report information about that debt.

Why is this important?

It’s important because if you force the debt collector to settle a debt as a dismissal “with prejudice,” you terminate the debt collector’s right to collect. You also end its right to report the debt as a debt. That is because it, and any subsequent owner of the debt, is bound by what is known as “res judicata” (or more commonly now called “collateral estoppel”). Basically what that means is that once a court has ruled on the validity of the debt – that ruling will apply no matter who later owns the debt.

Use the Credit Reporting Act

We’ll discuss how you can use the Credit Reporting Act (also called the “Fair Credit Reporting Act) to force debt collectors to remove negative credit references from your record once you’ve beaten them in a debt lawsuit in Part 2 of this article. You can get the rest of this article by clicking here: Using the Credit Reporting Act.