The Use of Credit Reports as a Debt Collection Strategy Has Changed | Jabourg Wilk



Credit scores are important and frequently determine interest rates and can even affect insurance rates. For many years, judgment creditors could enforce their judgments in various ways. Prior to 2017, judgment creditors often benefited from passive enforcement. A judgment debtor may have been motivated to resolve the judgment in order to improve their credit rating, obtain better financing, or have the judgment removed from their credit report. It was an effective method of debt settlement for the judgment creditor.

However, that changed in 2017. The “big three” credit bureaus – Equifax, Experian and TransUnion – have entered into a settlement agreement called the National Consumer Assistance Plan (“NCAP”) with more than 30 state attorneys general. , including Arizona. The NCAP was launched after discussions among state attorneys general, the Consumer Financial Protection Bureau, various consumer advocacy groups and the Big Three. These discussions were precipitated by consumer complaints about inaccurate civil judgment reports. For example, if a civil judgment was rendered against Robert Smith, the commonality of Mr. Smith’s name may have led to the judgment reported against the wrong Robert Smith.

The NCAP requires credit reporting agencies to improve public registration data standards, and requires that agencies’ public registration data include: a minimum of personal identifying information of the consumer, including: ( 1) name, (2) address and (3) a number and / or date of birth. Credit bureaus should also: (1) update this information at least every 90 days, and (2) keep this information secure.

Because personally identifiable information is not readily available and is protected by many federal and state laws, many civil judgments do not include an address and Social Security number and / or date of birth. The main consequence of NCAP for judgment creditors is that civil judgments generally do not appear on consumer credit reports. Judicial creditors no longer have this passive execution as a settlement tool. Usually, they have to take a more aggressive approach if they are to gain judgment.

In February 2018, the Consumer Financial Protection Bureau released its quarterly report on consumer credit trends. The report noted that as of June 2017, 6% of consumers had a civil judgment or tax lien on their credit report. After the implementation of NCAP, only 1.4% of consumers had a tax lien on their credit report – and none had civil judgments. This is a big change and a trend that continues.

What does this mean for judgment creditors? This certainly does not rule out credit reports in general. If the judgment creditor can prove the principal amount of the debt and that the debt was contracted and / or contracted, then the debt can likely be reported on consumer credit reports. If the judgment creditor cannot prove both of these elements, however, the judgment creditor should consider other enforcement mechanisms permitted by law.

Judicial creditors must always weigh debt collectability against the potential costs of debt enforcement as well as the need to comply with federal and state consumer protection laws. Lawyers experienced in creditors’ rights should be consulted before the start of enforcement action.

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