STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
of Credit Practices
Bureau of Consumer Protection
Clarke W. Brinckerhoff
Mr. Clifford A. Johnson
1917 Surrey Trail
Bellbrook, Ohio 45305
Re: FCRA §§ 605(c) and
623(a)(5) - "Commencement of the delinquency"
Dear Mr. Johnson:
This responds to your request for our views
concerning the calculation of the period for which a consumer
reporting agency ("CRA") is permitted to report accounts
that have been charged off, placed for collection, or subject
to similar action, under the amended Fair Credit Reporting Act
("FCRA"). You report that the following series of events
occurred with respect to one of your credit accounts:
"My last payment was received by the
creditor 12/96. My payments were due monthly and I missed the
1/97 payment and all subsequent payments culminating in a charge
off. This creditor does not report to the credit bureau until
the account is 90 days delinquent. . . . The creditor contends
that the delinquency did not occur until 3/97 because that is
when they first reported it."
Section 623(a)(5) 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(a)(4) provides that the credit bureau may report the
chargeoff for seven years. Section 605(c)(1) provides that seven
year period begins 180 days from that date. In the scenario your
reported, it is our view that the delinquency that led to the
charge-off "commenced" in January 1997, the month the
first payment was missed. Thus, that is the month and year that
the creditor must report to the CRA, and that the CRA must use
to calculate the time period dictated by Section 605.
We are not in accord with the contention
that the date "when (the creditor) first reported" the
chargeoff to the CRA constituted the start of the delinquency.
Sections 605(c)(1) and 623(a)(5) were recently added to the FCRA
to correct the ineffectiveness of the previous FCRA, under which
the date that started the seven-year period was uncertain or under
the control of the creditor.(1)
The legislative history of these provisions makes it clear that
they were designed to correct the often lengthy extension of the
period that resulted from delayed creditor action:
Current law generally prohibits
consumer reporting agencies from including in a consumer report
accounts placed for collection or charged to profit and loss
which antedate the report by more than seven years. The
Committee is concerned that this seven year limitation is ineffective.
In some cases, the ... action occurs months or even years after
the commencement of the preceding delinquency. ... Consequently,
the consumer report may contain such information even if the
delinquency commences more than seven years before the date
on which the report is provided to a user.
The Committee bill specifies that
the seven-year period with respect to information concerning
a delinquent account charged to profit and loss . . . may begin
no more than 180 days after the commencement of the delinquency
immediately preceding the ... action.
S. Rept. 104-185, 104th Cong., 1st Sess.
39-40 (emphasis added).
Thus, Congress intended to establish a
date certain -- the start of the delinquency -- to begin the obsolescence
period (now seven years, plus 180 days).(2)
The alternate view stated to you (that the date of reporting controls)
is at variance with both the plain language of these amendments,
and the intent of Congress in enacting them.
In sum, we believe that the phrase "commencement
of the delinquency that led to the action" in Sections 605(c)(1)
and 623(a)(5) of the FCRA should be construed according to its
normal meaning. If a consumer falls behind on an account and never
catches up, the delinquency has its "commencement" when
the first payment is missed. From that point on, the account is
past due and thus delinquent.
The opinions set forth in this informal
staff letter are not binding on the Commission.
Clarke W. Brinckerhoff
1. 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.
2. The additional
180 day period accords a measure of flexibility to credit bureaus
whose furnishers may provide them with the wrong date. However,
the expansion of the time period that Section 605 allows chargeoffs
and similar actions to be reported accents the desirability of
treating the "commencement" of the delinquency as the
first missed payment -- not some later date that would
further extend the period.