Time To Comply With Credit Report Practices

As if the Equifax breach wasn’t enough to make stations worry about personal guarantees from small business clients, there are some new rules for reporting consumer credit that may affect both the way applications must be written and consumer scores are calculated. These rules have been in the works for at least three years, long before the breach occurred.

First though, it’s important to make a distinction between business and personal credit reports. Personal credit reports are developed using the consumer’s social security number and other personally identifiable information such as full name, date of birth, and complete address. Consumer credit scores typically range from 0 to 850.

Business credit reports rely on an EIN — Employer Identification Number. Scores for business reports tend to be between 0 and 100. Rules such as the Fair Credit Reporting Act limit access to, and specify what can and cannot not be included in, consumer credit reports.

Following “cooperative discussions” and a 2015 settlement with a group of State Attorneys General, the three major consumer credit reporting agencies (CRAs), Equifax, Experian and Transunion, agreed to create the National Consumer Assistance Plan (NCAP). The new practices implemented under NCAP are designed to make it easier for consumers to correct any errors on their reports.

In a “Credit Where Due” piece appearing in the current issue of MFM’s The Financial Manager, Alex Rosen, COO and general counsel of the American Financial Management collection agency, described what media providers need to know about the new practices.

Ensuring Accuracy

Many companies directly report a past customer’s unpaid, past-due balance to the credit bureaus. Others may authorize an agent to report on their behalf. Whether it’s consumer or business credit, reporting to the bureau(s) gives the company additional leverage to collect the past-due balance. Unpaid past due balances remain on the consumer report for seven years or until the balance is paid in full.

“During this time,” as Rosen points out, “if the past customer attempts to procure credit, the credit grantor (banks and other lending institutions) will likely see that the credit seeker has an unpaid obligation and, in most cases, will not extend credit until the credit seeker satisfies the reported balance.”

The credit bureaus’ ability to affect a debtor’s business has always been significant. Sometimes, it can also be unfair. More than half of the states in America became involved when they were asked to address allegations that liens and civil judgments were being attached to the wrong people, “unfairly hurting their ability to access credit for a home, car or even a gym membership.”

New Practices

As part of the 2015 agreement, the CRAs were given three years to adhere to the settlement’s terms. The formation of NCAP was announced last June and the CRAs have implemented the most substantial changes within the agreement over the past several months.

“Through NCAP, the CRAs established stiffer requirements that creditors must follow to report derogatory information on a consumer’s credit report,” Rosen says. “Now, CRAs will not accept and process a derogatory mark unless the ‘data furnisher’ (the person or entity that reports the delinquency) provides the name of the original creditor associated with the unpaid transaction and the consumer’s personally identifiable information.”

That data must include:

• A person’s name, including a middle name or initial and any generation code or suffix
• Complete address
• Date of birth
• Social Security Number

These new regulations have ramifications on past credit reports. That includes removing certain debts previously reported when the liens or judgments cited did not match at least three of the four personally identifiable criteria.

Additionally, debts that are not tied to a contract or agreement, such as traffic tickets or fines, are no longer accepted as legitimate reasons for a derogatory mark.

The dispute process has also been overhauled. Now, consumers that discover an error after receiving their free annual credit report can obtain a second free credit report without waiting a year.

“What’s more,” as Rosen observes, “when a consumer claims that a mark on his or her credit report is unwarranted, the CRAs have agreed to provide additional information with the dispute results, including a description of what he or she can do if not satisfied with the outcome of the dispute.”

How NCAP Affects Media Businesses

Under the new rules, the best way to ensure the company has documentation that can be used as an effective legal tool for collecting debt will be to consistently require all four pieces of information when extending credit that is guaranteed by an individual. This may involve updating credit applications to include a request for data such as date of birth and home address.

Another outcome of the new rules is that they may increase consumer credit scores in situations where previously reported liens or judgments as well as debts didn’t arise from a contract or agreement. Companies that rely on consumer credit data may want to consider modifying internal evaluation procedures to guard against judging applicants as a better credit risk than might otherwise be warranted.

Industry Compliance

BCCA, the media industry’s credit association, is working with its members to ensure they are aware of the new changes and re-evaluating credit policies accordingly. It would also be prudent to check with legal counsel to confirm credit applications and delinquency reports comply with the new rules.

You can read more about NCAP on the website that has been created by the three credit reporting agencies. For a limited time, non-members of MFM or BCCA may read an electronic copy of the September-October issue of TFM containing Alex Rosen’s article from MFM’s website, www.mediafinance.org.

BCCA Media Credit Seminar

New regulations will number among topics the industry’s credit and collections professional will be discussing when they gather for the BCCA Media Credit Seminar, which will be held on Tuesday, Nov. 7, from 8 a.m. to 6:30 p.m., at the offices of Lowenstein Sandler LLP, in Midtown Manhattan. The event stands along with the annual Media Finance Focus conference as the industry’s only national forums for sharing ideas and best practices in the media credit and collections function.

Attendees will also be discussing the media industry’s own business credit bureau — Media Whys. Credit data in the Media Whys data warehouse is not shared with the other CRAs and simply identified as “media” on the credit reports.

Credit and collections professionals play a vital role in ensuring advertising that is sold is also advertising that has been paid. New rules such as those being implemented under NCAP demonstrate, once again, that this function constantly faces new challenges in achieving that outcome.

We hope you will encourage your credit and collections professionals to get involved with BCCA and join us for next month’s Media Credit Seminar. As current members and past attendees can readily attest, what they will learn from these educational opportunities provides a return that’s ten times or more the modest investment of time and money to participate.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at[email protected] and via the association’s LinkedIn, Twitter, or Facebook sites.