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Earlier this year an Ohio law firm, The Garden City Group, filed a class action law suit against Experian, Trans Union and Equifax. The suit claims that debtors who filed a chapter 7 bankruptcy between March 15, 2002 and May 11, 2009 had accounts included in their bankruptcy that were not showing as discharged on their credit reports. Here is the interesting part.

The suit says that the credit agencies were found violating the Fair Credit Reporting Act (FCRA), but as yet, they have not determined if there were any damages. Please, I have looked at literally thousands of credit reports over a 20 year span in the mortgage industry. If a bankruptcy account does not show discharged, it will typically state "included in bankruptcy", but then, the balance originally owed is still shown as outstanding along with all the late payments that accrued up to the petition date, and in some cases, even after the discharge date.

This has the effect of bringing down the debtors credit score. So here is the question: why is the law suit against the credit agencies and not the individual creditors who originally made the loan? The answer is simple. The FCRA holds the credit agencies accountable for the things they report.

Granted, any class action law suit will seek out the deepest pockets, but in this case it is clear that Experian, Trans Union and Equifax can provide a benefit to their customers by reporting incorrectly. Who are the customers and what is the benefit? Simple, the customer of the credit agencies are the banks. The benefit to the bank is the ability to charge higher rates to people posting lower credit scores. Banks can then charge higher fees and more interest and add money to the bottom line.

Let's face it, an 800 credit score borrower is NOT a profit center for the banking industry. Let's hope that somewhere in this process the true cost to the consumer is identified. For details on the suit visit www.bankruptcydischargesettlement.com

George Andersen is a member of the Financial Empowerment Network Team and Prime Financial Credit Services
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