It’s been widely perpetuated by the collection industry that any payment can reset the seven-year credit reporting statute.
Collection agencies will often unlawfully furnish account information beyond what is allowable by the FCRA. They have two ways of doing this, either taking the delinquency date and rolling it forward to a future date, or by reporting the date of last activity (DLA) as the delinquency date; thereby having the entry report beyond the allowable statute of limitations. This fraud is perpetrated in order to induce payment by a debtor, believing that those who don’t understand the rules will pay the bill in order to resolve the bad credit reporting and credit rating issues. This is also known as “re-aging,” and though it is against the law, collection agencies that do it believe the amount of money gained by doing so will outweigh any potential downside. It’s only when enough people file suit and contact the FTC regarding such a practice that a collection agency discovers that the penalties are not worth the risk.
Knowingly furnishing erroneous adverse information is considered a “deceptive debt collection practice.” Moreover, if a consumer disputes it and the bureaus subsequently affirm it, their affirmation constitutes four additional causes of action for money damages: violations of 15 U.S.C. § 1681(c), § 1681(e)(b), § 1681(i), and § 1681(s-2)(b). Any bureau that affirms such an entry from a furnisher becomes liable and can become a party to any civil action.
Again, the statute of limitations for delinquent accounts is seven years plus 180 days. However, the FTC claims that accounts placed for collection prior to December 1997 are not subject to the additional 180 days. (When the FCRA was amended in 1996, it changed the requirement, adding 180 days.) The FCRA strictly prohibits accounts placed for collection or charge-off to be reported longer than seven years.17
At any rate, case law rules. For anyone who believes that re-aging is permissible with payment, take a look at Edwin Gregory Urrego v. Citibank, NA, et al.: U.S. Dist. Ct.–Texas–No. H-02-1471. Another one is Andrew Cole Sr. v. Sherman Financial Group, et al.: U.S. Dist. Ct. – Texas – No. 1:03CV-00271. (Sherman Financial is a collection agency.) In both cases, the furnishers were sued for using rolling dates in the reporting of their collection accounts, by substituting the “date of last activity” or “last payment” for the date of first delinquency, in effect recalculating the seven-year data-retention period in a manner that conflicts with the statute of limitations imposed by the FCRA. The bureaus were defendants in these cases as well, since they permitted the continued reporting after the consumer disputed it.
Why do the bureaus permit this to happen? Well, collection activity is good for business, since it generates the sale of more credit reports to consumers and collectors.
People often ask, “So, if states can have their own laws, then why can’t the running time of an account be changed?” Let’s take a closer look at the FCRA:
§ 605. Requirements relating to information contained in consumer reports [15 U.S.C. § 1681 c]
- (a)(2) Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.
- (a)(4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.
- (c) Running of the Reporting Period (1) In general. The seven-year period referred to in paragraphs (4) and (6) 3 of subsection (a) shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action.
Notice that federal statute of seven years plus 180 days begins from delinquency for collection accounts and charge-offs. Delinquency isn’t date of last activity or last payment. And as you can see, there isn’t any provision for states to change this as they can with civil actions and criminal entries: § 605 (a)(2): “. . . seven years or until the governing statute of limitations has expired, whichever is the longer period.” So while states, by employing statutes of limitations of their own, can affect the reporting period for some things, no such provision exists for collection accounts or the like (e.g., “Included in Bankruptcy”).
The FCRA amendments of 2003 (FACTA) addressed this further in order to prevent the use of rolling dates and other shenanigans on the part of collectors. Furnishers must provide the dates of delinquency to the credit reporting agency in order to assist in determining the seven-year obsolescence period and proper tolling (running time). This must be performed within 90 days from the date the item is furnished.18
The only way credit reporting of delinquent accounts can be extended is through legal action, where the creditor sues you and wins—obtaining a judgment—thereby converting it to a public record and reporting it as such. From there it takes on new life, and the reporting period will depend on federal law (as described above) or a state’s laws governing judgments, liens, wage garnishment, and the like.
If they get enough complaints, the FTC will investigate and hold accountable collection agencies that practice re-aging.
For Release: May 13, 2004
NCO Group to Pay Largest FCRA Civil Penalty to Date.
One of the nation’s largest debt collection firms will pay $1.5 million to settle Federal Trade Commission charges that it violated the Fair Credit Reporting Act (FCRA) by reporting inaccurate information about consumer accounts to credit bureaus. The civil penalty against Pennsylvania based NCO Group, Inc. is the largest civil penalty ever obtained in a FCRA case.
Most debt collectors are truly vicious. I suppose they also do this in order to get around not only the FCRA but also other state laws, like ones that forbid any collection activity for accounts older than a certain number of years. Yes, a consumer may still owe the debt until it is either paid or written off in bankruptcy, but collectors are forbidden to even attempt collection on debts that are passed the Debt Collection Statute of Limitation. These are known as time-barred debts.
And if NCO Group’s shenanigans sound like an isolated incident, they’re not. Michael Weed, a former employee of the collection agency Asset Acceptance, filed a suit against that company for wrongful termination. An employee for eight years, he claims that he went to upper management to report re-aging and was subsequently terminated. In addition to his claims of re-aging, he reported the following breaches:
- "In order for a consumer to clear their name, they have to pay the debt. They made a lot of money off of this. There were 500 mistakes that I know of."
- "Asset violated disclosure laws by giving out debt information to third parties, such as relatives."
- "Asset would intentionally delay settlement of debt disputes to force debtors to pay the claim, and even if they didn’t even owe the debt, they would pay it in order to get a mortgage."
Be forewarned, this is not an isolated incident but the modus operandi of many collection agencies.
17. 15 U.S.C. § 1681c(a)(4). Student loans are exempt, as well as the exemptions listed above. Check with an attorney.
18. 15 U.S.C. § 1681s-2(a).