Lawyers for consumers have sued credit reporting agencies (a/k/a credit bureaus) arguing that it is a violation of the Fair Credit Reporting Act (FCRA) for credit bureaus to report accounts as both “paid-out” and “past-due.” But, can’t that be true? The answer depends upon one’s view of a credit report.

Credit reporting agencies, users of credit reports, and furnishers of credit information have traditionally viewed a consumer report as one that describes a consumer’s credit payment history. In this light, if a consumer has been delinquent in paying his or her obligation prior to the time that obligation is paid-in-full, the fact of the historical delinquency is not avoided by the consumer’s pay-off. When the credit reporting agency reports an account as paid-in-full, and intervening delinquencies in payment, it is reporting accurately and truthfully. That is, the fact of the pay-off does not cure the prior default delinquency.

Some consumer advocates would have us believe that the FCRA requires that the credit reporting agency only permit the reporting of such an account as paid-off; and the historical delinquencies should be omitted from the consumer report.

Unfortunately, some courts and juries have bought into the argument that a consumer report is “inaccurate” if reporting delinquency and pay-off at the same time, on the basis that such a report is confusing and materially misleading. This view is ridiculous.

Courts who have viewed this question in a more discerning manner, have held that a credit report that discloses a $0 balance in conjunction with a past-due pay status, clearly implies that the past-due designation refers to the time period when payments were due. Such a report is not contrary to the current status of the account which is reported as having a $0 balance.

There is now very good and settled law in some of the federal district courts in the USA, explaining this difference, and holding that reporting a historically accurate delinquency and a current paid-out status at the same time is not a violation of the FCRA.

Practice Pointer: If you are challenged on your credit reporting practices, check out the decisions of the various federal district courts. And, the Third Circuit is about to take up this issue as well. So, stay tuned.

Please Note: This is the one hundred ninety-ninth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.