Are The Laws Now on Your Side?
Sweeping legislation and the prospect for even more, will impact the way consumers function within the world of consumer credit. In this acronym filled world of laws, there are hidden benefits and consequences that we should be aware of. The following is an overview of the changes that took place in the past six months coupled with the changes that are likely to take place in the very near future.
The FACS Act - This is the Fair Access to Credit Scores Act. We profiled this act in our last blog post which you can revisit here. There was some concern about whether or not this provision of the financial overhaul would survive the conference process or if it would end up on the cutting room floor. Some even had quiet concerns that it would be horse traded out of the bill in exchange for other considerations. Thankfully, none of this happened and this bill made it in the final draft which is soon to be signed by President Obama.
Essentially this requires lenders, insurance companies, retailers, landlords, and/or any other company who uses a credit report and score to make a decision to proactively give you a copy of that score if you were denied or adversely approved for lessor terms than those that you applied for. You will not have to ask for the score as the bill mandates that it automatically be provided to you.
The CARD Act - This is the Credit Card Accountability Responsibility and Disclosure Act that largely went into effect in February 2010. Some provisions, specifically regarding overdraft fees, were held until July 1st and August 15th of 2010. If you have an existing checking account you will now have to contact your bank or credit union to "opt in" to maintain or enroll in overdraft protection for ATM or debit card transactions on both new and existing checking accounts.
This law is designed to protect consumers from the overdraft fees being charged when you attempt to use your ATM card or debit card in such a way that it would take the balance of your checking account below $0. This fee can range from $20 to $40 and is applied each time your account is taken below the $0 point because of an ATM or debit card transaction. If you have existing overdraft protection on your checking account then the protection continues for paper checks, ACH withdrawals and automatic bill payment from your checking account respectively.
The MDRA Act -This is the Medical Debt Relief Act. This act has been proposed however, it is not in the final financial overhaul bill. Many believe it will resurface again in the near future and eventually become law. This bill specifically addresses the credit reporting of 3rd party medical collections.
If this becomes law as written, the reporting of medical collections to the credit reporting agencies will continue until they have been paid or settled at which time they must be completely deleted from the credit report. As it is now, paying or settling a collection does not result in a deletion from the credit reporting agencies. The accounts are simply updated to show paid or settled with a $0 balance due.
The argument for the removal of the medical collection is that it was not a true credit obligation and was likely caused by the inefficiencies that are common in the insurance claims process, i.e. the insurance company doesn't pay the doctor's bill in a timely manner yet the doctor wants to get paid for his services. The counter argument is that there is no way to differentiate between a collection caused by an insurance mix up and one caused by an unpaid deductible or the non-payment of uncovered services.
The DSCPA Act - This is the Debt Settlement Consumer Protection Act. This almost made it into the financial overhaul bill but did not. As with the Medical Debt Relief Act, many believe it's just a matter of time before it is revisited.
One of the most common consumer complaints is the treatment they receive from debt settlement companies. These are the companies that promise to settle your credit card debt for much less than what you actually owe. These services have become aggressively marketed over the past two years and have somewhat misled consumers into believing that in a short amount of time they will be debt free.
The reason these services get so many complaints is that the companies that facilitate these services do a very poor job disclosing their fees and the downsides to attempting using a 3rd party settlement company. In some cases the consumer has no idea what kind of fees they are actually paying and end up paying them even if the debt never gets settled. Worst of all, is that some consumers who are attempting to settle a debt could wind up in court when the creditor decides to sue for non-payment.
The DSCPA Act would limit the up front "setup" costs to between $50 and $100 and would limit the fees to 5% of the amount the consumer saved. Additionally, the fees could not be charged until after the credit card issuer has accepted a settlement. Many believe this fee restriction will put many debt settlement companies out of business. In fact, the DSCPA Act is similar to the Credit Repair Organizations Act, which prohibits outrageous set up fees and prohibits the charging of service fees until after the services have been rendered.
Regardless of your opinion about any of the aforementioned legislation, what we do know is credit card issuers will find new and creative ways to subsidize the costs of compliance with these new rules. The restriction on the non-reporting of paid medical collections could be considered a slippery slope however, for the consumer it is not a bad thing. For many, this will help boost credit scores substantially, provided the consumer has the wherewithal to pay the debt.
Thank you for reading this months issue of the RE Credit Repair, LLC newsletter.
