Month: March 2009
On a nearly daily basis, agencies (such as current and potential lenders, insurance companies, landlords, and employers) are viewing your credit report(s) when making decisions about you. The number of entities that rely on credit as a primary source of assessing “trust” are increasing on a regular basis. How familiar are you with your credit and your rights? The Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACTA) are the current legislation designed to protect you and your credit.
FAIR CREDIT REPORTING ACT.
Designed to promote accuracy, fairness, and privacy of information in the files of every consumer's credit report.
Major FCRA Provisions:
• You are entitled to a free report at any time if:
– You are unemployed and plan to seek employment within 60 days; Are currently on welfare; Are a fraud victim; Have been denied credit, employment, or insurance based on report information.
– You are entitled to one free report per year (from each bureau).
ALWAYS USE THE FREE GOV'T-AUTHORIZED SITE! http://annualcreditreport.com, NEVER freecreditreport.com.
• Outdated negative information may not be reported:
– 2 years for inquiries
– 7 years for “most” negative information
– 10 years for judgment liens and most bankruptcies
– 10 years [or more] for “positive” information
• Access to your file is limited (i.e., application considerations):
– Employment, Insurance, Credit, Landlord, etc.…
• You must be told if information in your file has been used against you:
– Denial of employment, credit, insurance
• You have a right to know what is in your file
• You have a right to dispute inaccurate information
• Inaccurate or unverifiable information must be corrected or deleted
• Forces identification of individuals inspecting your file
• Requires consumer consent for reports provided to employers
• You may seek damages if your FCRA rights have been violated
• You may limit the ‘pre-approved’ offers received for credit and insurance. You may opt out by calling toll free (1-888-5-OPTOUT). Additional information is available at the 'opt out' blog post. Maintaining the accuracy of your credit report is YOUR responsibility. The entire FCRA is available at: http://www.ftc.gov/os/statutes/031224fcra.pdf.
FAIR AND ACCURATE CREDIT TRANSACTIONS ACT.
Signed into law by Pres. Bush in December of 2003, the Fact Act [as it’s often called] was designed to ensure that all citizens are treated fairly when applying for credit. Specifically, the bill was designed to increase consumer protections against the growing problem of identity theft. FACTA also extends the current provisions (mentioned above) of the Fair Credit Reporting Act.
Major FACTA Provisions:
• Provide consumers with a free credit report every year (see above).
• Give consumers the right to see their credit scores (for a fee).
• Restrict access to consumers' sensitive health information.
• Allow consumers to place “fraud alerts” in their credit reports to prevent identity thieves from opening accounts in their names (includes special provisions to active duty military).
• Provide consumers with one-call-for-all protection by requiring credit bureaus to share consumer calls on identity theft, including requested fraud alert blocking.
• Allow consumers to block information from being given to a credit bureau and from being reported by a bureau if such information results from identity theft.
• Require creditors to take certain precautions before extending credit to consumers who have placed “fraud alerts” in their files.
• Ensure that consumers are notified if merchants are going to report negative information to the credit bureaus about them.
• Stop merchants from printing more than the last five digits of a payment card on an electronic receipt.
Consumer credit is such a vital part of 'consumer life' – the ability to have protections in place to help consumers safeguard the credit they have worked so hard to build and maintain is critical. Know Your Rights!
To follow up on last week's post regarding the statute of limitations on old debt, it seemed appropriate to write about the law governing the collection of debt – The Fair Debt Collection Practices Act (FDCPA).
The Federal Trade Commission receives more complaints about debt collectors than any other specific industry. The FDCPA establishes what collectors (the law applies to third party debt collectors, not 'in-house' collectors) can and cannot do, prohibiting certain methods of unfair and abusive debt collection practices.
* May not contact you at ‘inconvenient’ times (before 8am and after 9pm) as well as inconvenient places (i.e., employer – so long as they know your employer disapproves) unless you allow them.
* You can cease contact with a creditor by writing a “cease letter” – this will cease contact unless they are notifying you of a specific action (i.e., taking you to court).
* If you have an attorney, let them know. They are then required to contact you through the attorney.
* The debt collector may not contact third parties (families, friends, employer, etc.) except to attempt to locate you.
* Within 5 days of first contact, the collector must send a written notice indicating what is owed, name of creditor to whom you owe the money, and how to dispute the collection.
* Prohibited collection practices include: harassment (threats of violence or harm, publishing a list of non-paying consumers (except to credit bureaus), use obscenities, and repeatedly call on phone), false or misleading statements, hiding their identity, and any other “unfair” practices.
* Consumer has the right to file lawsuit against collector if FDCPA has been violated.
* If you have been a victim of a collector that has violated your FDCPA rights, you have the right to sue in a state or federal court within one year from the date the law was violated. The judge can require the collector to pay you for any damages (i.e., lost wages, medical bills/stress, counseling, etc.) as well as require the debt collector to pay you up to an additional $1,000 (even if you can’t prove that you suffered actual damages). You also can be reimbursed for your attorney’s fees and court costs.
NOTE. Even if a debt collector violates the FDCPA while attempting to collect a debt, a 'legitimate' debt will not go away!
A subject of great concern to many people with damaged credit is the issue of time limits (i.e., statute of limitations). In other words, how long will negative information impact me … The statute of limitations begins to run when you have done something contrary to the terms of your agreement for which you can be sued (typically a failure to pay the bill). There are two primary areas to cover to properly address this: (1) Debt collection-related issues and (2) Credit reporting-related issues. The statute of limitations gives creditors a certain period of time (3-6 years in most states – see chart) to sue you over a debt. The impact on your credit is an entirely different thing. Many people believe [incorrectly] that when the statute runs out that the item will be removed from one’s credit report. THIS IS NOT THE CASE. These are two separate issues…
COLLECTION OF DEBTS.
Collections. Creditors or third-party collection agencies can legally demand or request payment on a debt (via letters and phone calls) forever, as long as the debt remains unpaid. An “expired” debt (one which has passed its statute of limitations) doesn’t go away simply because time has passed. You can ask them to cease communication (see the Fair Debt Collection Practices Act) which should end the routine demands from that source [unless/until they file a lawsuit] – this remedy, however, only impacts collectors (not the original creditor).
Lawsuits. When a person is seriously delinquent (late) on a debt, there is a possibility of the creditor filing a lawsuit. The time limit for them to do so is referred to as the statute of limitations (SOL), a period set by individual states. This time period starts when you become delinquent. The relevant statute is the one for the state in which you resided at the time of the delinquency (if the creditor is based in another state, however, they can choose which state to file in – typically the one with the longer SOL). The expiration of the SOL covering a debt WILL NOT necessarily prevent a lawsuit from being filed, but it does provide you an absolute defense for having the suit dismissed. If you are sued and you do not document that the SOL has expired (or you simply don't show up!), you will lose the lawsuit and a judgment will be placed against you!
Judgments. If a lawsuit has already been filed and won by a creditor, there is separate SOL for enforcing (collecting) the judgment. Here is a chart with the judgment enforcement time limits for each state.
• There is no SOL or other time limit for lawsuits or other enforcement action on defaulted federal student loans.
The credit reporting time limit is the max amount of time credit bureaus can report delinquent debts (as well as other components of your financial history) on your credit report. For most types of accounts, it's seven years from the date of delinquency. Bankruptcies and tax liens are exceptions to this. The time limits are dictated by the Federal Fair Credit Reporting Act and do not influence the statute of limitations for collecting a debt.
Reporting of Collection Accounts. The date of delinquency IS NOT reset when an account is sold to a collection agency. The date of delinquency still refers to the original delinquency with the original creditor, regardless of when the collection agency began working the debt. Collection agencies may try, but they cannot legitimately “reset the clock.”
THE RE-AGING MYTH…
Contrary to popular belief, making payments (including partial payments) on bad debts DOES NOT impact the time allowed for companies to list information on your credit report. The exception to this is tax liens and federal student loans. All other types of items should expire on a “known” schedule (based on the allowances outlined in the Fair Credit Reporting Act). The report time is based on the original dates, regardless of when or whether they are paid.
There historically has been a great deal of confusion over the starting point (exactly when the clock (typically 7 years) begins ticking), which often is misinterpreted as the date of the last activity on the account. This obviously would result in the possibility of “re-setting the clock” on an old, bad debt by making a payment on it. The issue was clarified in 1996 amendments to the Fair Credit Reporting Act (FCRA), which set a specific starting date linked to the original delinquency date (see FCRA Section 605(c)(1)).
NOTE. Credit cards are generally considered Open Accounts. Auto loans and other installment agreements are typically treated as Written Contracts. Remember that if there has already been a lawsuit resulting in a judgment, that judgment has a separate Statute Of Limitations, which you can find here. You will want to check with your own state (and/or consult with an attorney) to find out how they treat these issues specifically – some states will vary in their definitions. For example, a credit card is an open account in most states, but is a written contract in others …
The return of the stock market [or lack thereof] during the past 15 months has many people second-guessing their investment choices (as well as the 'suitability' of financial advice received). Unfortunately, many people are unaware that not all financial professionals are required to work in your best interests…
FIDUCIARY VS. SUITABILITY STANDARD.
A fiduciary relationship is one bound by law to place the interests of its beneficiary (client) first (before its own interests). You would think that anyone offering financial advise to clients would have a fiduciary responsibility … this is not the case, however. Brokers (sometimes called “registered representatives,” “wealth managers,” etc.) are not fiduciaries even though they may be perceived as such.
A Registered Investment Advisor, subject to the Investment Advisers Act, has a fiduciary responsibility. The “legal” standards of advising for a fiduciary vs. non-fiduciary relationship are very different. A non-fiduciary (such as a broker) is only required to follow a “suitability” standard. In English, this means that a broker can place personal interests ahead of its clients. It isn't difficult to provide 'suitable advice' to someone, even when that advice isn't the best advice. The relationship between the broker and its broker-dealer come before the interests of the broker's clients. On the other end of the spectrum, a fiduciary must follow a “trust” standard (generally considered the highest legal standard), placing the interest of clients ahead of its own, providing its “best advice” to a client.
A simple illustration can highlight this distinction. Two different investments might be equally suitable for a given client, but one might compensate the financial professional to a greater extent. An investment adviser relationship would require such a disclosure while broker rules would not.
Doug Shulman, vice chairman of the Financial Industry Regulatory Authority, is well aware of the challenge facing investors. “As investors turn to financial professionals to help them manage their assets, they often do not know the difference between insurance and securities products, or fiduciary duties versus suitability obligations. They just want someone they can trust to help them put their money to work so they can meet their financial and life goals.”
The parameters of an investment adviser’s fiduciary duty will depend on the scope of the advisory relationship, but generally include:
• Place the interests of clients first at all times.
• Have a reasonable basis for its investment advice.
• Investment decisions consistent with agreed upon client objectives.
• Treat clients fairly.
• Full disclosure regarding conflicts of interest.
• Respect the confidentiality of client information.
Obviously every investor wants to know the person they work with is working “for them.” To that end, there are things you should know …
– Are they legally obligated to work in your best interests at all time?
– Do they disclose all potential conflicts of interest?
– In what ways do they receive compensation?
– What are their credentials (and what does that mean)?
– Has any disciplinary action been taken against them (broker check)?
– How can I decide?