You Decide

June 25, 2006
by Harriet Johnson Brackey
Sun-Sentinel

"Latoya Gibson thought debt collectors were never again going to bother her, after she went through bankruptcy several years ago.

But the 30-year-old Fort Lauderdale public housing counselor had the kind of debt that never dies. It just keeps popping back up on your credit report.

Zombie debt, some call it. It happens when your credit-card company sells off its bad debts. The buyer pays pennies for every dollar you owe and tries to turn that investment into a few nickels. They track you down and demand payment.

Often, bad debt buyers or their collection agencies will do one more thing that is especially harmful to your credit rating. It often happens in secret. And it's illegal.

They re-age the debt, as they did with Gibson. That is, they report the old debt to the credit bureau as a new obligation.

South Florida consumer advocates, attorneys and debt counselors say re-aging happens all the time. And it happens to people who are late with their accounts, not just those who are delinquent or in bankruptcy.

But the credit reporting system is supposed to offer consumers, even those who left their bills unpaid, better protection than that.

Negative marks such as bad debts must be dropped from your credit report after seven years. If the debt is re-aged, the seven-year clock starts again.

"I was so upset I was shaking," Gibson said. She became aware of the re-aging only when the debt collector filed a lawsuit against her. The old debt was back on her credit report, even though it had been discharged through bankruptcy. Gibson went to a lawyer who quickly told the debt collector to erase it and to leave Gibson alone.

Re-aging hurts any consumer trying to buy a house or a car or get a new credit card. As long as a negative mark is on your credit report, it will lower your credit score. This can add hundreds of dollars a month to your mortgage interest bill or force you to pay a higher interest rate than you should for a credit card.

A zombie debt can even prevent you from buying a house until the creditor is satisfied.

Marilyn Gallington, a title company marketing representative in Fort Lauderdale who has experienced re-aging on her own credit record, says the practice has blindsided her low-income customers who are first-time homebuyers.

"It's usually a week or so before closing. These people have been going through the qualifying process for three or four months. Then my company will run a final check," she said. "That's when a debt will turn up and the client will say that he paid it off five or six years ago. But they put it back on to the credit report with a new date."

That buyer's closing won't happen in a week. First, the debt has to be cleared.

Re-aging was prohibited in 2003 through amendments to the Fair Credit Reporting Act. The practice "is illegal," says Clarke Brinckerhoff, an attorney at the Federal Trade Commission in Washington, D.C.

"That's the law. It doesn't make any difference when the credit or debt collection agency reports the account," he said.

But that doesn't keep it from happening.

"Re-aging is widespread in the debt collection industry. Some companies do it as part of their business model," said Robert W. Murphy, a consumer lawyer in Fort Lauderdale. "They may or may not ever even communicate with the consumer."

He says a lot of families are getting hurt, because debt buyers aren't getting caught. They only back off if the consumer threatens to sue. "These bottom-feeders often really have no clue about a debt, when it's from. They're not really worried about the specifics," said Jon Sheldon, an attorney at the National Consumer Law Center in Boston.

To be sure, some are worried about the accuracy of the information on a debt that they buy. When a debt moves from the creditor to a third party, there's a big possibility for errors or problems, said Robert Sherman, vice president at Vengroff, Williams & Associates, a Sarasota third-party collector that is one of the nation's largest. His firm rarely reports to credit bureaus, because of that margin of error.

But as Americans pile on credit-card debt, credit-card companies are pushing bad debt out the door at a rapid pace. Cell-phone bills and medical bills are being sold in bulk, too.

That includes bills the consumer just didn't pay as well as ones that he may have disputed, such as whether it's covered by health insurance.

"It's a huge, huge issue," said Geri Detweiler, a Sarasota consumer debt expert and author. "I hear the complaints. But even if you know your rights, it's very difficult dealing with debt collectors."

Q: What is the debt buying industry?

A: The Nilson Report, an industry newsletter that tracks the credit industry, says credit-card companies increasingly are not even trying to collect old debts. Instead they sell them -- as soon as when the debt is only 90 days past due and before it's been charged off as a loss, which usually happens after six months.

By selling the bad debt, credit-card companies recoup more than they would after paying a collector. And they get their payoff quickly.

The volume of all bad debts sold grew more than sixfold in the last decade to more than $77 billion last year. That includes utility, medical and cell-phone bills as well as credit cards.

Q: What is re-aging?

A: When a debt becomes delinquent, that date is usually reported to a credit bureau. That date cannot change, under federal law. Consumers are saying, however, that debt buyers and collectors are taking the old debt and reporting it to the credit bureau with a new date.

Q: Why does it matter?

A: Federal law says a bad debt can only stay on your credit report for seven years. Bad debts on your report lower your credit score. Lenders will charge you more interest on loans and credit cards if you have a low score.

Q: Isn't anyone telling the government about this?

A: The Federal Trade Commission doesn't keep statistics on re-aging by itself, but the FTC was swamped last year with a 70 percent increase in complaints about third-party debt collectors. They harassed debtors, failed to check to see if the debt was valid, kept calling when told not to do so, told neighbors and employers about the bad debt and other violations of the Fair Credit Reporting Act. A total of 58,687 complaints were filed.

Q: How long can a debt be collected?

A: Under Florida law, up to five years from the date of delinquency for anything covered by a written contract, such as a credit card.

Q: How do you know re-aging has happened to you?

A: Check your credit report. If an old debt doesn't seem to have the right date on it, that may be it.

Q: What should you do if you notice it?

Write a letter disputing the debt to the credit bureau that provided you with the report. Also write to the creditor and ask for verification of the debt. Both must investigate your dispute and the credit bureau has to notify you of the results. If the creditor -- whoever gave you credit or now owns your debt -- has reported incorrect information to the credit bureau, then the creditor can correct it. You will find the creditor's contact information on your credit report.

To learn how to dispute errors in your credit report, go to www.ftc.gov and enter "How to Dispute Credit Report Errors" into the search box. "

http://www.sun-sentinel.com/business/local/sfl-sbharriet25jun25,0,6419398.story

http://www.stevequayle.com/News.alert/06_Money/060630.zombie.debt.html