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|R. Stuart Phillips, Esq. www.lawyerphillips.comDivision of Financial Practices~Clarke W. Brinckerhoff Attorney – 202-326-3224 UNITED STATES OF AMERICA FEDERAL TRADE COMMISSION WASHINGTON, D.C. 20580February 15, 2000Ms. Alaina K. Amason 14155 Shire Oak San Antonio, TX 78247Dear Ms. Amason: This responds to your letter concerning the time limitations imposed by the Fair Credit Reporting Act (“FCRA”) on the reporting of chargeoff accounts by a consumer reporting agency (“CRA,” usually a credit bureau). We list your inquiries on this topic below in italics, with our replies immediately following each item. 1. What reporting limits does the FCRA provide with respect to chargeoffs, and how long have they been in effect? Section 605(a)(4), which has been in effect since the FCRA became effective in April 1971, has always prohibited CRAs from reporting chargeoffs that are more than seven years old.(1) Section 623(a)(5), which became law in September 1997, requires a creditor that reports a chargeoff to a CRA to notify the agency (within 90 days of reporting the account) of “the month and year of the commencement of the delinquency that immediately preceded” the chargeoff. Section 605(c)(1) provides that the seven year period begins 180 days from that date. Both provisions were part of the major revision to the FCRA that were enacted in 1996.(2) 2. Is the reporting period extended if (A) the original creditor sells or transfers the account to another creditor, (B) the consumer responds to post-chargeoff collection efforts by making a payment on the debt, or (C) the consumer disputes the account with a CRA? Does it matter whether the 7-year period has expired when any of these events occurs? No. In enacting the new provisions discussed above, Congress intended to establish a date certain — 180 days after the start of the delinquency that led to the chargeoff — to begin the obsolescence period. It did so to correct the often lengthy extension of the period that resulted from later events under the original FCRA. Enclosed are two staff opinion letters (Kosmerl, 06/04/99; Johnson, 08/31/98) that discuss the impact of these provisions, and the legislative history relating to their enactment, in more detail. Because the commencement of the seven year period is now described with some precision by the statute, it is our opinion that none of the subsequent events you listed — sale of the charged off account by the creditor, or a payment on or dispute about the account by the consumer — changes the allowable period for a CRA to report a chargeoff. 3. Since Sections 623(a)(5) and 605(c)(1) provide new rules for calculating the 7-year period that became effective in 1997, do chargeoff accounts now have different obsolescence periods depending on when the chargeoff occurred?Yes. Section 605(c)(2) states that the section “shall apply only to items of information added to the (CRA) file of a consumer on or after” 455 days after enactment, or December 29, 1997. Therefore, a chargeoff reported to a CRA on or after that date is subject to the new commencement-of-the-delinquency method of calculating the obsolescence period set forth in Sections 623(a)(5) and 605(c)(1). On the other hand, a chargeoff reported to a CRA before December 29, 1997, is not covered by the new provisions, as discussed in one of the enclosed letters (Kosmerl, 06/04/99). If a credit account was reported as a chargeoff before that date, the Commission’s view has been that it can be reported for seven years from the date the creditor actually charged it off.(3) The opinions set forth in this informal staff letter are not binding on the Commission. Sincerely yours, Clarke W. Brinckerhoff 1. Section 605(b) provides that there is no time limit applicable to a report made in connection with credit involving a principal amount (or insurance with a face amount) of $150,000 or more, or employment for a salary of $75,000 or more. Prior to September 1997, those amounts were $50,000 and $20,000, respectively. 2. The Consumer Credit Reporting Reform Act of 1996 (Title II, Subchapter D, of Public Law 104-280, signed into law on September 30, 1996), made many other changes to the FCRA. 3. Commentary on the Fair Credit Reporting Act, 16 CFR Part 600 Appendix, comment 605(a)(4)-2. 55 Fed. Reg. 18804, 18818 (May 4, 1990|
§ 605. Requirements relating to information contained in consumer reports [15 U.S.C. § 1681c] (a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information:
(b) Exempted cases. The provisions of subsection (a) of this section are not applicable in the case of any consumer credit report to be used in connection with
- (1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.
- (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.
- (3) Paid tax liens which, from date of payment, antedate the report by more than seven years.
- (4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.(1)
- (5) Any other adverse item of information, other than records of convictions of crimes which antedates the report by more than seven years.1
(c) Running of reporting period.
- (1) a credit transaction involving, or which may reasonably be expected to involve, a principal amount of $150,000 or more;
- (2) the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $150,000 or more; or
- (3) the employment of any individual at an annual salary which equals, or which may reasonably be expected to equal $75,000, or more.
- (1) In general. The 7-year period referred to in paragraphs (4) and (6) 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.
- (2) Effective date. Paragraph (1) shall apply only to items of information added to the file of a consumer on or after the date that is 455 days after the date of enactment of the Consumer Credit Reporting Reform Act of 1996.