Bob Sullivan at MSNBC writes:
A second storm surge may soon start slamming into Gulf coast residents hit by hurricanes Katrina and Rita. Mounting unpaid bills will lead to a surge of black marks on victims’ credit reports, say consumer advocates, sinking their credit scores. And now, they say, efforts to convince the nation’s credit bureaus to develop new systems to account for victims’ temporary bill-paying troubles have hit a major snag.
Consumers who can’t make their house payments any more – even if that house has been completely swept away by the storm – may face the ultimate penalty in America’s credit-driven society: A credit score so low they won’t qualify for the loans they need to start rebuilding.
Consumer groups, anticipating the coming surge of late payments and account defaults, have asked credit bureaus to help. The consumer groups proposed that the bureaus take a pre-Katrina credit score snapshot of all residents in the affected areas. Later, when victims apply for loans, the pre-Katrina score could be used to identify whether victims were good credit risks before the storm.
This sounds like a sensible proposal, something that will help the survivors of the hurricane rebuild their lives. After all, without good credit, it is much more costly to take out a loan, and sometimes nearly impossible to get a loan or credit.
Fair Issac, the company that creates the formula for generating credit scores supports this proposal. The credit reporting agencies, however, won’t have any of it:
But on Thursday, consumer groups revealed that the nation’s three bureaus – Experian, Trans Union, and Equifax – have declined to participate in the plan.
The reasons are:
A second score likely wouldn’t comply with parts of the Fair and Accurate Credit Transaction Act, the firm indicated in a letter sent to Consumers Union.
Equifax’s David Rubinger said the presence of a second score could create confusion both for lenders and consumers. Also, credit bureaus and lenders sometimes use alternate scoring systems, he said, so a snapshot FICO score would be of little use to those lenders.
First of all, I’m not familiar with a provision of the Fair Credit Reporting Act (FCRA) that would prohibit reporting a second score. If there is something in the law that prohibits reporting another score, then Congress should make an exception for victims of certain sudden catastrophes.
Second, I don’t understand the confusion. The second score would inform creditors of a more accurate picture of what a person’s normal payment history and financial condition are barring unusual unforseen circumstances. Why would this be so confusing?
Here’s what the credit reporting agencies agreed to do instead:
As an alternative, bureau representatives said they’ve instructed lenders, who supply the bureaus with payment history data, to be lenient with consumers. They’ve also asked lenders to include a special code on Katrina-related overdue payment and default entries – called a “disaster recovery code,” according to Rubinger. A late payment entry will appear with the designation “AW” on consumers’ credit reports. . . .
For now, the bureaus say they are trying to help consumers in other ways. Residents in hurricane-afflicted areas can get a free copy of their credit report from AnnualCreditReport.com, the Congressionally-mandated free credit report site -– even if they’ve already gotten a copy recently, said Rubinger. A positive pre-Katrina report could be an important asset during a difficult conversation with a lender, he said.
Hillebrand said consumers could also consider paying for a credit score now, before any late payments show up. But the scores cost around $10 each, and there’s no guarantee a lender will look at a score purchased by a consumer during the loan evaluation process.
These measures, however, are not very helpful. While the law allows people to obtain a yearly free credit report, it does not come with a credit score. To see that, you have to pay $10. That can be a lot of money to many Katrina victims. And how many, in the maelstrom of stress and hassle and heartbreak they are now facing, are thinking about ordering their credit reports right now? How many even know how to do it? Or have an address to send it to?
Originally posted at Concurring Opinions
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This post was authored by Professor Daniel J. Solove, who through TeachPrivacy develops computer-based privacy training, data security training, HIPAA training, and many other forms of awareness training on privacy and security topics. Professor Solove also posts at his blog at LinkedIn. His blog has more than 1 million followers.
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