Creditors and credit furnishers often find properly reporting a payment status to Credit Reporting Agencies (CRAs) during, and after, bankruptcy a challenge. The recent Report of the American Bankruptcy Institute on Consumer Bankruptcy recognizes those challenges, and looks to convene a forum to provide better guidance and clarity as to proper credit reporting once a borrower goes into bankruptcy.
What constitutes proper credit reporting with an account that is in, or after, bankruptcy is not always clear. The ABI Report highlighted an assortment of comments related to credit reporting in bankruptcy, including discharged debts being listed as “charged off” rather than reporting a zero balance; incorrect reporting after final cure in bankruptcy; the lack of a standard method for reporting debts after a Chapter 13 case is dismissed; lenders reporting a charge-off for a non-filer, co-obligor in a Chapter 13 after completion of the Chapter 13 plan rather than at the time of filing; and reporting of a third party who is not an obligor on the loan but has statutory or equitable rights in the collateral securing the loan. Although organizations such as the Consumer Data Industry Association (CDIA) provide resources like its resource guide for reporting in bankruptcy, which includes a helpful Q&A section, there remain nuanced situations that are far from clear for creditors in various reporting circumstances. Other resources providing industry guidance include CDIA’s “FAQ” publications and certain FTC opinions regarding credit reporting in and after bankruptcy.
Additionally, as creditors have certainly come to know, claims of improper investigation are being brought under the Fair Credit Reporting Act (FCRA), which allows for recovery of actual or statutory damages plus attorneys’ fees. Creditors are put in the position of either defending their credit reporting actions through litigation with the exposure of significant attorneys’ fees or settling early even if they may believe they have reported correctly.
The ABI convened and issued its report to recommend improvements to the consumer bankruptcy system. The thorough report covered a range of bankruptcy subject matters and “emphasized a pragmatic, problem-solving approach.” Bradley has detailed the ABI Commission’s Final Report in other two posts published on May 6 and May 17. Credit reporting was not the focus of the ABI Commission, but the uncertainty and controversy led the commission to at least craft a proposal for future substantive determinations, highlighting that one of the goals of bankruptcy is a fresh start for debtors, which includes the tools to rebuild their credit in their post-bankruptcy financial life.
The commission proposed that the ABI host a forum on credit reporting with bankruptcy experts, major industry players, advocacy groups, and policymakers to address problems and promote standardization in credit reporting on bankruptcy cases including best practices. The report did not describe any dates or deadlines, but it seems that credit reporting in bankruptcy is “on the radar” for industry experts and advocates from both sides to tackle.
The commission stated candidly that it did not have the resources to address the large scope of bankruptcy and post-bankruptcy credit reporting, but it wanted to raise the significance of the issue for future evaluation. The commission had discussed possible amendments to the FCRA, but believed it should first gather facts so it could implement changes without legislative or regulatory intervention.
Guidance on the Horizon?
Clarifying direction and guidance on how bankruptcy and post-bankruptcy accounts should be reported to CRAs will be welcomed by the industry. These recommendations will not be legally binding, but will carry considerable weight in the industry and may lead to amendments or regulatory changes. Although it will take time and does not provide any immediate direction, the hope is that clarity will result where there has been controversy and confusion.