Hello Readers,
I just received this question from Bankrate.com and thought I’d share both the question and the answer, since this is a very relevant inquiry:
Question: With the practice of payment for deletion, a consumer agrees to pay a debt collector and the debt collector agrees to delete the collection account from the consumer’s credit report. Is it correct that a debt collector that complies with such a request would be in violation of the Fair Credit Reporting Act?
Answer: technically, yes. Under the Fair Credit Reporting Act, creditors are legally bound to accurately report a consumer’s known credit and debt activity, and this includes accurate reporting of negative, or derogatory, information. Debt collectors have the same obligation. 15 U.S.C. Section 1681s-2 (a) (1): “A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.”
Of course, any creditor or debt collector can determine that a derogatory mark is, in its own judgment, false, inaccurate or that cannot be verified. 15 U.S.C. Section 1681s-2 (b) (1) (E). In such a case, a creditor or debt collector can delete the derogatory credit reporting, but, to comply with the law, the creditor or debt collector would have to have a good faith basis for concluding that a derogatory is false, inaccurate or cannot be verified.
My firm has seen several cases where debt collectors specifically have promised deletion of a derogatory mark in exchange for payment of the debt. What the debt collector is not disclosing is that the debt collector may, in reality, be promising to cease reporting on its own reporting of the debt, but the debt collector has no ability to change the reporting from the original creditor. So, for instance, let’s say someone has a “Dinosaur” credit card which runs late and Dinosaur reports to the credit bureaus a 30-60-90 days late derogatory. Dinosaur then assigns or sells the debt to XYZ Debt Collectors. XYZ may tell the consumer that it will cease credit reporting the debt in exchange for payment, and in fact, in a misleading way, XYZ is telling the truth—it will cease its own negative reporting. However, XYZ does not disclose that it has no ability to affect any reporting being done by Dinosaur. Thus, the derogatory mark remains on the consumer’s credit. By law, it remains on the consumer’s credit report for seven years and six months following the date of first delinquency.
I have also encountered cases where the debt collectors simply lie to collect payment. Remember, the individual debt collectors are usually working on commission, and are given to lying, cheating and stealing to get the consumer to pay the debt. The individual collector rarely is the person at the debt collection agency who is responsible for changing credit reporting, which instead is a task usually given to someone in at least a supervisorial role. The individual debt collectors try just about anything to get the consumer to pay. It is the game. They can and will lie about credit reporting, and the only way a consumer will ever prove that they lied would be if the collector made the promise in writing. However, this will never happen—the promises to clean up credit will always be verbal only, because the individual collectors usually do not have the power to change credit reporting on the accounts.
Also, what debt collectors frequently do is simply to change the reporting from, say, “30-days late” to “settled for less than full amount.” The credit bureaus have created a special derogatory mark for consumers who negotiate down a debt—“settled for less than full amount”—for reporting on consumers who do not pay the full debt and/or who settle it for less than the full amount. This is considered a derogatory mark. So far as is known, it has the same effect as a derogatory mark for “30-days late,” so it makes little difference that a debt collector changes one derogatory for another. However, some debt collectors may believe that they are “cleaning up a consumer’s credit” by making this change. The proof is in the pudding, however—the consumer’s credit score will not change, or will change very little, when one derogatory mark is exchange for another.
So, if someone promises to “clean up your credit” in exchange for paying the debt in full, this promise is probably bogus.
Tags: Abusive Debt Collection, Debt collectors and credit reports, Wrongful debt collection