The Government Aims for Increased Accuracy on Credit Reports
Studies have found that nearly 80% of credit reports contain some kind of error and around 25% of those errors could lead to a decline of a loan application. ¹ Given the importance of the credit report and its impact on consumers, there is a strong need to correct data that is wrong. Unfortunately the process of correcting errors can be time consuming and in some cases, banks and lenders refuse to remove information, even when it’s wrong.
Changes in Bank reporting Practices
As a result of errant reporting practices some banks are being investigated by the Justice Department and lawsuits have been filed on behalf of consumers, in an effort to create change. One such lawsuit in White Plaines New York has resulted in agreements by Bank of America and JP Morgan Chase to change the way they report consumer debts. Citibank and Synchrony (formerly GE Capital) are close to coming up with similar reporting changes.
Until now, banks were often in the practice of reporting debts that had been sold to collection agencies and even continuing to report debt that was legally discharged through bankruptcy. By law, once debt has been dismissed through the Chapter 7 bankruptcy process, lenders are supposed to remove the derogatory debt along with any notation of “charge off” from the credit report.
The banks have been charged with keeping the debt on consumer records so they can sell the past due accounts to collection companies, even though the consumers no longer legally owes the debt. Bank of America and Chase have not admitted to wrongdoing, but have agreed to have consumer reports updated by August 2015. This reporting change is expected to provide relief for around a million consumers. If Citibank and Synchrony Bank follow with similar agreements, tens of thousands of consumers will benefit from the more accurate reporting of bad debt accounts.
Read the Related Story at the New York Times Website
Impact on Consumers
Consumers who have suffered with errors on their credit report that banks have refused to fix, will now find relief.
What will change: Those who have debts with Bank of America and Chase, and had those debts discharged in Chapter 7 bankruptcy, will have the debts removed from their credit file. Bank of America has also agreed to remove debt that has been sold to financial firms which will eliminate the debt being reported twice. Once by the bank and once by the agency that is attempting to collect the debt. If other banks follow suit, in changing their reporting practices, this could offer widespread relieve to millions of consumers.
What will not change: The bankruptcy will still appear on the credit report for 10 years. Consumers can sometimes begin re-establishing credit several years after the final discharge by the bankruptcy court.
These changes in reporting practices is significant because it pressures lenders to provide accurate data. When debt is legally discharged this must be reflected on credit reports so others using the credit file will have an accurate understanding of the consumers financial situation. More than loans are riding on the accuracy of credit reports.