UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Division
of Credit Practices
Bureau of Consumer Protection
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Clarke W. Brinckerhoff
Attorney
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(202) 326-3224
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March 10, 1998
Ms. Terri Gillespie
THE LeMANS GROUP
455 South Gulph Road
King of Prussia, PA 19406
- Re: Section 623(a)(5) of the FCRA
Dear Ms. Gillespie:
This responds to your letter dated November
14, 1997 (and accompanying Fax) concerning the application of
the Fair Credit Reporting Act ("FCRA") to reporting
of account data to consumer reporting agencies ("CRAs")
by businesses offering vehicle leases to consumers. You describe
the leases as fixed-term transactions that provide for monthly
rental payments and include an end date when the lessee purchases
or returns the vehicle. In a phone conversation, you said that
a payment might be considered delinquent as soon as one day or
as late as thirty days after the due date, depending on the lessor.
Your letter asks about the impact of recent amendments to the
FCRA concerning the reporting of certain dates in the credit history
of some types of delinquent accounts.
Section 623(a)(5) of the amended FCRA, the
provision that specifies exact dates to be provided by furnishers
of data to CRAs, states that a party that reports "information
. . . regarding a delinquent account being placed for collection,
charged to profit or loss, or subjected to any similar action"
must provide the CRA with "the month and year of the commencement
of the delinquency that immediately preceded the action."
You correctly note that the purpose of this new provision is to
provide CRAs with a precise date to calculate how long they may
continue to report information on such accounts, in compliance
with Section 605 of the FCRA. You provided five scenarios, and
asked for a written staff opinion analyzing the impact of the
amended FCRA on them.
1. Applicability.
The new provision applies only to an account
"placed for collection, charged to profit or loss, or subjected
to any similar action." In two of your scenarios (reproduced
in the appendix), the account is reported to a CRA as "Repossessed"
and "Voluntarily Repossessed." In the other three, the
worst status reported is "30 Days" -- indicating one
month in arrears. In our view, a repossession of any type is a
seriously negative event that constitutes a "similar action"
to a placement for collection or chargeoff. We do not believe
a "30 Day" status would be in that category, as it would
reflect only a mildly unfavorable note in an account history.
Thus, Section 623(a)(5) would apply only to the first two examples.
2. Calculation of date.
Your "Repossessed" account history
(first item in the Appendix) is a 36-month lease entered on June
10, 1995, on which the consumer makes 12 timely payments, and
makes no payments in the following three months (June-July-August
1996). The vehicle is then "Repossessed" (September)
and reported as such with a "Date Occurred/Reported"
of June 1996. (You assured me in our phone conversation that this
term will be understood by CRAs to be the commencement of the
delinquency immediately preceding the repossession.) In this scenario,
the account became delinquent no earlier than June 11, 1996 --
i.e., if the lease treated it as delinquent on the day
after the thirteenth payment was due. The June 1996 time reported
to the CRA would thus constitute (or sometimes be earlier than)
the month and year of the "commencement of the delinquency"
as required by Section 623(a)(5),(1) and thus would comply with its provisions.
Your "Voluntarily Repossessed"
account history (second item in the Appendix) is a 36-month lease
entered on June 10, 1996, on which the consumer makes 3 timely
payments, misses one payment (September), and makes one payment
(October) but does not bring the account current. The vehicle
is then "Voluntarily Repossessed" (November) and reported
as such with a "Date Occurred/Reported" of October 1996.
In this scenario, the account may have become delinquent as soon
as September 11, 1996 -- i.e., if the lease treated it
as delinquent on the day after the fourth payment was due. Similarly,
with respect to any lease that provides a grace period of less
than 20 days before the account is considered delinquent, "the
commencement of the delinquency" for the account would also
be September 1996 because the missed (and never made-up) payment
was due on or before September 30, 1996. If the information furnisher
in this scenario reports all accounts in the same manner, we believe
it would violate Section 623(a)(5) in many cases (those that did
not provide a grace period of 21 days or more) to use October
1996 as the key date.
The opinions set forth in this informal
staff letter are not binding on the Commission.
Sincerely yours,
Clarke W. Brinckerhoff
APPENDIX
- "REPOSSESSED" SCENARIOS
(verbatim from 11/14/97 letter)
- Terminology Explanation
- Start Date: Inception date of
contract
- Due Date: Date payment due for
- Date Occurred/Reported: Date
of Occurrence to Credit Bureau(s)
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- Start Date: June 10, 1995; 36
month lease
- Pays 12 timely payments
- Account status to Credit Bureau
is 11 - "Account in Good Standing"
- No payment for one month
- Account status 71 - "30
Days"
- Due Date = June 1996
- Date Occurred/Reported = July
1998
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- No payment for two months
- Account status is 78 - "60
Days"
- Due Date = June 1996
- Date Occurred/Reported = August
1996
- No payment for three months
- Account status is 80 - "90
Days"
- Due Date = June 1996
- Date Occurred/reported = September
1996
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- Oct 1996
- Vehicle is Repossessed/Charged
Off
- Account status = 96 - "Repossessed"
- Due Date = June 1996
- Date Occurred/Reported = June
1996
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- Start Date: June 10, 1996; 36
month lease
- Pays 3 timely payments
- Account status to Credit Bureau
is 11 - "Account in Good Standing"
- Oct 96
- No payment for one month
- Account status is 71 - "30
Days"
- Due Date = Sept 96
- Date Occurred/Reported = October
96
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- Nov 96
- Makes one payment
- Account Status is 71 - "30
Days"
- Due Date = Oct 96
- Date Occurred/Reported = November
96
- Dec 96
- Vehicle is voluntary repossessed/Charged
off
- Account Status = 95 - "Voluntary
Repossessed"
- Due Date = October 1996
- Date Occurred/Reported = October 1996
1. If
the lease provided a grace period of more than 20 days before
the lessee was considered delinquent, July 1996 would technically
constitute the commencement of the delinquency. We would not challenge
a decision by an information provider, driven by administrative
convenience, to use a date certain that is always (or might be)
earlier than the month and year of the commencement of the delinquency,
because no consumer injury would result from such a practice.
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