Consumer Bankruptcy Law and Practice: 14.2.9 Section 105 Powers of the Bankruptcy Courts
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Inaccuracies in consumer reports stem from essentially two sources.234 First, the data provided to the CRA by the furnisher or other information provider may itself be inaccurate or incomplete.
Usually, information from furnishers about a consumer’s account status is computerized, and the furnisher’s computer files are periodically dumped into the nationwide CRAs’ computers. Any error in the furnisher’s computer file automatically appears in the consumer’s credit report. Although the nationwide CRAs screen data from furnishers using processes that can catch certain inconsistencies, they are dependent upon the underlying validity of the supplied data.
A consumer’s report might be incomplete because it does not contain positive accounts that would otherwise render a more favorable and complete picture of a consumer’s credit history. The nationwide CRAs normally get most of their information from their subscribers, and do not receive information from entities who do not subscribe to their services. A consumer’s credit report from a given CRA, therefore, will likely contain only information on the accounts of creditors who subscribe to that CRA (plus public record information).
A different problem of incompleteness occurs when lenders intentionally withhold positive payment histories or reporting data from the CRAs for accounts they otherwise report. Mortgage lenders and credit card issuers sometimes do so for strategic reasons.
One of the most serious consumer reporting problems is the failure of the reporting system to provide consumers a “fresh start” after a bankruptcy discharge. Creditors frequently fail to report an updated status for discharged accounts or continue to report their pre-discharge status and balance. CRAs did not update accounts and judgments they otherwise knew had been discharged.263
This failure to update debts discharged in bankruptcy could have a significant effect on consumers. The effect of a bankruptcy on a consumer’s credit score is of course initially devastating. However, it is a static event and, all other things equal, a consumer’s credit score will continue to improve each day that passes post-discharge. Failure to properly report the discharge of debts hampers that improvement. Another consequence of the failure to report that a debt has been discharged, as noted by one bankruptcy court, is that:
Postbankruptcy inaccuracies are caused by both furnishers and CRAs. Under the Metro 2 reporting format, a bankruptcy discharge is an account “condition” which should be reported for each consumer who filed. Thus, creditors should, and some automatically do, update their accounts to reflect that a debt has been included in a bankruptcy filing.269
The reporting of a discharged debt as outstanding or owing may be an attempt by creditors to continue collection of an otherwise unenforceable debt.279 One bankruptcy court, in concluding that such continued reporting may violate the bankruptcy stay, cautioned:
Perhaps the greatest powers to affect the rights of secured creditors are found in the provisions of chapter 13. Bankruptcy Code section 1322 provides that the debtor’s plan may modify the rights of holders of most secured claims, other than some claims secured only by a security interest in real property that is the debtor’s principal residence. In addition, section 1322(b)(3) and (b)(5) provide that as to any claim, including a claim secured only by the debtor’s principal residence, the plan may provide for the curing of a default over a reasonable period of time.
The treatment of accounts subject to a chapter 13 bankruptcy is more complicated. In a chapter 13 bankruptcy, the debtor proposes a plan, which the bankruptcy court confirms. In some cases, at the end of the plan, a debt is discharged. In other cases, a debt is not discharged, but instead the amount and terms are modified and the consumer pays the debt according to the modified terms.286
The problem of discharged debts not being properly reported is further complicated by the fact that these debts are sometimes sold by creditors to debt buyers.308 Some creditors refuse to update a sold account to properly reflect that the debt was discharged and is no longer owing, even after the consumer disputes the status of the account.309 These creditors take the position that they have no duty to update the account,310 despite the FCRA’s impo
Problems sometimes occur when a consumer has formally reaffirmed a debt in the bankruptcy.1052 A furnisher is required to note this reaffirmation1053 using the Metro 2 “Consumer Information Indicator” field.1054 This step is often ignored.1055 Inaccurate and incomplete reporting occurs when the CRA itself fails to obtain and integrate the reaffirmation records from the bankruptcy court file.
Furnisher reporting of an account that has been included in bankruptcy is governed by the coding standards within the Metro 2 reporting format.314 A bankruptcy related event is reported as a consumer-specific status rather than a general account status. This is accomplished by use of the Metro 2 field “Consumer Information Indicator,”315 referred to as the “CII.” The furnisher is instructed to report a CII for each consumer obligated on a credit account.
To understand how a mixed file can occur, it is necessary to discover and obtain the procedures for matching and combining data into files at each nationwide CRA. This information is closely guarded by CRA litigants, but has been produced in a sufficient number of cases that pleas of irreparable injury upon further production will not likely be justified. The basic system for matching data is the similar for each CRA.324 Credit information is reported from multiple sources—furnishers, vendors, subscriber inquiries, and even consumers.
For the nationwide CRAs, mixed files occur largely because the CRAs’ computers do not use sufficiently rigorous score or scale thresholds to match consumer data precisely, even when such unique identifiers as Social Security numbers (SSNs) are present. The nationwide CRAs rely on a match of only seven of nine digits of the SSN,334 or in some cases even fewer digits. This is probably the single most egregious contributor to mixed files, and the most “fix-able” practice.
The nationwide CRAs justify their over-inclusive reporting by claiming an interest in completeness, arguing that stricter matching criteria will exclude valuable accounts from the files of “thin-file” consumers. However, the better explanation is that the CRAs’ over-emphasis of derogatory information is at the insistence of their creditor customers. As the FTC has acknowledged:
Another category of reported data that undergoes a matching process is public records. Each public record contains some identifying criteria such as name, address, and sometimes date of birth or Social Security number (SSN). The CRA matching process is applied to these items in much the same way as for furnished credit accounts. This matching process may even occur first at the public records vendor.365
Another source used by the CRAs to build and match data is the subscriber’s inquiry. When a subscriber inputs identifying information to request a report, this information is then used by the CRA to do two things. Applying the same matching process and criteria as used to assign accounts to particular files, the inputted inquiry criteria is used to determine if there is an existing file with a sufficiently close matching score to permit the CRA to furnish a report. In addition, the inquiry criteria are used to determine into which file the inquiry history will be placed.
A final source that may influence mixed files is the consumer herself. While the CRAs’ response to disputes over tradelines is often less than satisfactory,392 the CRAs are more flexible when a consumer disputes a current or previous address reported in the file.
The problems that lead to mismerged files aggravate the effects of identity theft.394 Most identity theft problems are actually caused by the CRAs’ loose matching procedures. In fact, identity theft is a misnomer. The criminal actually steals from the creditor using only a partial set of a consumer’s identifiers.
Consumers face significant proof issues when trying to prove that a file does not belong to them. Trying to prove a negative such as “this is not my account” is a common problem when files are mixed or mismerged. Consumers may have to submit affidavits or provide documentation such as birth certificates or driver’s license numbers in order to prove that an account does not belong to them. The downside of disclosing such information is the potential for identity theft or other misuse of the information.
In addition to mixed files, the nationwide CRAs’ matching criteria sometimes result in “fragmented” or “frag” files, that is, multiple and incomplete consumer reports for the same individual.405 These fragmented files are created when there is neither an exact match, nor a match of sufficient closeness to exceed the matching score threshold, and is the opposite problem of the mixed file.
The FCRA mandates that CRAs require the consumer to supply “proper identification” as a condition of the consumer receiving a consumer report.417 In addition to this legal mandate, CRAs have good reason to request proper identification from the consumer, because the CRA may be held liable for furnishing a report to a person who does not have a permissible purpose for obtaining it.418