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Using Credit Reporting as Debt Collection Strategy Has Changed

Categories: Collections, Article

Limitations to using credit reporting as a collections technique

Credit scores are important and frequently determine interest rates and can even impact insurance rates. For many years, judgment creditors could enforce their judgments in a variety of ways. Prior to 2017, judgment creditors often enjoyed passive enforcement. A judgment debtor might have been motivated to resolve the judgment to improve their credit score, obtain more favorable financing, or have the judgment removed from their credit report. It was one effective method of resolving debt for the judgment creditor.

However, that shifted in 2017. The “Big Three” credit reporting agencies - Equifax, Experian, and TransUnion - entered into a settlement agreement called the National Consumer Assistance Plan (“NCAP”) with over 30 state attorneys general, including Arizona. The NCAP was launched after discussions between the state attorneys general, the Consumer Financial Protection Bureau, various consumer advocacy groups, and the Big Three. These discussions were precipitated by consumer complaints of inaccurate civil judgment reporting. For example, if a civil judgment was entered against Robert Smith, the commonality of Mr. Smith’s name may have led to the judgment reported against the incorrect Robert Smith.

The NCAP requires credit reporting agencies to enhance public record data standards, and mandates the agencies’ reporting public record data include: a minimum of consumer personal identifying information including: (1) name, (2) address, and (3) a social security number and/or date of birth. Credit reporting agencies must also: (1) refresh this information at least every 90 days, and (2) securely maintain that information.

Because the personal identifying information is not easily available and is protected by many federal and state laws, many civil judgments do not include an address and a social security number and/or date of birth. The major consequence of the NCAP to judgment creditors is that civil judgments generally do not appear on consumer credit reports. Judgment creditors no longer have this passive enforcement as a settlement tool. Usually, they need to take a more aggressive approach if they want to collect on their judgment.

In February 2018, the Consumer Financial Protection Bureau published its Quarterly Consumer Credit Trends Report. The report noted that in June of 2017, 6% of consumers had a civil judgment or tax lien on their credit report. After the NCAP was implemented, only 1.4% of consumers had a tax lien on their credit report – and none had civil judgments. This is a big shift and a trend that continues.

What does this mean for judgment creditors? It certainly does not rule out credit reporting in general. If the judgment creditor can prove the principal amount of the debt, and it was entered into by agreement and / or contract, then the debt can likely be reported on consumer credit reports. If the judgment creditor cannot prove these two elements, however, the judgment creditor should consider other enforcement mechanisms as allowed by law.

Judgement creditors should always weigh the collectability of the debt against the potential costs of enforcing the debt as well as the need to comply with federal and state consumer protection laws. Experienced creditor’s rights attorneys should be consulted before enforcement actions begin.


About the Author: Corrinne “Cori” Viola is an attorney at the Phoenix law firm of Jaburg Wilk. She assists clients with commercial litigation matters, business dispute resolution and creditor’s rights.