Read, learn, write, mail, negotiate, write, mail and Raise Your Credit Score!

Harold

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Hello Harold,

Let me guess.  The tradeline’s accompanying notation reads: “factoring account”.

Investorwords.com defines Factoring:

“The selling of a company’s accounts receivable, at a discount, to a factor, who then assumes the credit risk of the account debtors and receives cash as the debtors settle their accounts”.

Debt collectors are not factoring companies no matter how much they wish they were.  The fact is that a ‘delinquent’ debt status at the time of purchase makes the purchaser a debt collector.  If a Junk Debt Buyer were a ‘factoring company’ then the JDB would not be subject to the FDCPA.  Unfortunately for them, this is not the case.  The account should be reported as a collection account.

The May and November seemingly conflicting dates may (possibly) be explained in this way [lots of guessing going on today, sorry].  Metro Field 25 contains a field that the CRA’s use for determining obsolescence.  Seven years from this date, the account is purged.  The FTC has established that 7.5 years from the date of first delinquency, the account must be deleted from the consumer’s credit report.  Furthermore, this DOFD must be reported to the CRA by the furnisher reporting a charged off debt.  If the CRA purges seven years from Metro Field 25 and the furnisher reports DOFD into Field 25, then most consumers see their derogatory tradeline deleted in 6.5 years rather than 7.  Now, I’m not Sherlock Holmes the credit-reporting sleuth, discovering some great mystery.  On the contrary, I believe CRA’s know this and you never hear anyone complaining about “my charged off credit card fell off six months early”. 

It sounds like in your case (guessing again, sorry) May 2000 was when you made your last payment on that account and perhaps November 2000 was the charge off?  If this is correct, then November 2007 is your purge date.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

(source=investorwords.com/1873/factoring.html)

By the way, it’s so much easier to answer a question from a visitor that clicks on “Stump The Experts” than it is to create a new blog article from scratch.  This year, I’ve developed a whole new appreciation for the authors of blogs out there.  I’m mumbling Broken Credit blog articles in my sleep.  Credit repair mortgage repair credit repairing – excuse me.  See what I mean?

So I dare ya.  I double dare ya!

Click on Stump The Experts….

Greetings Vic,

In the situation you have described, the original creditor is not required to delete their tradeline.  You have brought up a good point though.  The original creditor can either sell the account or contract with a company for collection and retain the account ownership.  The difference is not a small matter.  If the account is sold, then the original creditor should zero out the balance field.  This is an important field for determining your credit score.  Fair Isaac’s spokesman Craig Watts has been quoted as saying: “If the trade line balance is showing zero, you’re not going to help your FICO score by paying off a collections account” – implying that the balance field for the original creditor is the scored field. 

So in a bizarre (perhaps even creepy) sort of way, there appears to be some benefit derived from having an account sold to a junk debt buyer rather than being outsourced to a collection agency.  The article you referred to can be found here.  Another question that relates to this subject can be found here.

Ok, Vic – we have a two question limit on the Broken Credit Blog, and since this is your second question, you’ll have to tell some other people about BrokenCredit.com

Paul

Shauna,

I almost fell out of my chair when I read your question.  The audacity of junk debt buyers never ceases to amaze me.  The FCRA statutory reporting period for a Chapter 7 Bankruptcy is 10 years, but the individual debts associated with the bankruptcy disappear from your report after seven years. 

Springboard’s May 21, 2006 letter to the FDIC states: “Junk debt collecting is a settlement driven business model and the consumer is brought to the table by aggressive and often illegal credit reporting tactics.  These tactics include failure to report the original creditor, the original open date and the date of last activity.  These tactics can extend the reporting of the collection”.  The letter continues by noting that: “Recent years have seen the proliferation of junk debt buyers who prey upon consumers to collect expired debts or even debts that don’t belong to the consumer.  Their method of collecting has as its primary strategy the tactic of immediately stinging the credit report in order to force a settlement, often misrepresenting the debt as more recent than it really is and/or reporting the debt as revolving, which is inaccurate and which causes the score to decrease since the “utilization factor” calculates higher than it should.  If the consumer goes along and settles the debt this has the perverse impact of causing the credit score to plummet further (since activity has been updated to the current period).”

I’d like to recognize and thank Dianne L. Wilkman of Springboard Nonprofit Consumer Credit Management for her most excellent letter. 

Paul

Kevin

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Hello Kevin,

For the sake of this question/answer, I’ll assume the tradeline was originated by your client and there is no dispute over its legitimacy.  I’ll also assume the date of first delinquency is within statutory reporting limits.  The question then, is can a charged off tradeline report a balance?

The answer is ‘no’ if the tradeline was discharged in a bankruptcy or the creditor sold the account to a junk debt buyer.  Otherwise, yes the balance is reporting accurately.

Thanks for the questions.

Paul

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Hello Maria,

If I understand your question correctly, then there is a collection agency squatting on your borrower’s credit report and that collection agency is claiming that “they sold the small 500.00 debt to another collection agency”.  The second collection agency is not displaying on your client’s credit report.

A previous article titled “Removing Duplicate Collections” is related to the issue you have described.  Here is a letter from the President of CDIA with the header “The message below applies to Collection Agencies only”.  It behooves your client to fax this letter to the offending collection agency in return for a statement on that collection agencies letterhead requesting the removal of the derogatory entry from your client’s credit report.

If their refusal to remove the negative entry will result in negative consequences for your borrower’s mortgage loan (i.e. decline, higher interest rate, etc.), then you may want to make this known to them.  Also, the collection agency may want to be reminded that the Federal Trade Commission is in charge of enforcement.  

Hope this helps.

Paul

(drum roll)

Under these circumstances, can the tradeline for the charged off credit card report a balance owed and a past due amount? 

According to page 6 of the National Consumer Law Center’s May 22, 2006 letter to the FTC: “When a buyer of bad debt purchases an account, the original owner should zero out the ‘current balance’ field and inform the purchaser of the debt the date the account first became delinquent”. 

This prohibition against reporting a balance is further emphasized in Section 6-19 of the Metro 2 Manual FAQ #42 which addresses the following question:

How should accounts that have been sold to another lender be reported?

Current Balance and Amount Past Due = zero

The use of the term ‘lender’ in the above question, includes ‘debt purchasers’ based on the connotation at the end of that section which reads: “Additionally, if the account is delinquent, it is imperative that you provide to the debt purchaser, the date of the first delinquency that led to the account being sold.

The answer to our question then, is no – the charged off credit card must report a zero balance and a zero past due amount.  For more information on how dispute inaccurate items and more, please join our free online seminar this Saturday to Raise Your Credit Score.

Stuart K. Pratt is the President and CEO of the Consumer Data Industry Association (CDIA), the trade group representing the CRA’s.  His recent letter to collection agencies can be found on page fourteen and fifteen of this document (ftc.gov/os/comments/FACTA-furnishers/522110-00079.pdf). Of particular interest are the following statements:

“Collection Agencies must delete accounts that have been canceled and returned to the creditor”

“Debt Purchasers/Factoring Companies must delete accounts that have been forwarded or sold to another entity”

Section 10-1 of the 2005 Credit Reporting Resource Guide (Metro 2 Manual) offers the following definitions:

“A Third Party Collection Agency is a company or individual who specializes in collecting outstanding debts for other businesses or individuals”.

“A Debt Purchaser/Factoring Company is a company or individual who purchases accounts with the intent of collecting debts owed”.

Don’t be too concerned with the semantic difference between a collection agency and a debt purchaser.  If you see either type (or combination) reporting more than once and associated with the same charge off, then, a dispute letter is in order.  And in those famous words from Stuart Pratt “…the collection agency should direct the national credit reporting agency to delete the trade data from the consumer’s file since it is no longer an account for which the agency is attempting collection”.  I write this with a hint of a tear in my eye.  Thank you Mr. Pratt, thank you.