Reaging - What is it and how can it hurt me?

Reaging - What is it and how can it hurt me?

Reaging is known as the process where by a collection agency or an original creditor changes the date of last activity or chargeoff so that an item stays on your credit report longer than it should. It is strictly illegal. The length something can stay on your credit report or how the date of last activity is calculated is defined in the FCRA Sections 623(a)(5) and 605(c)(1).

Most questions on reaging concern chargeoffs - as sometimes the date of last activity on an account can precede a chargeoff by a very long while.

• Section 605(a)(4), which has been in effect since the FCRA became effective in April 1971, has always prohibited CRAs from reporting chargeoffs that are more than seven years old.(1) Section 623(a)(5), requires a creditor that reports a chargeoff to a CRA to notify the agency (within 90 days of reporting the account) of "the month and year of the commencement of the delinquency that immediately preceded" the chargeoff. Section 605(c)(1) provides that the seven year period begins 180 days from that date.

• In enacting the new provisions discussed above, Congress intended to establish a date certain -- 180 days after the start of the delinquency that led to the chargeoff -- to begin the obsolescence period. It did so to correct the often lengthy extension of the period that resulted from later events under the original FCRA. Enclosed are two staff opinion letters (Kosmerl, 06/04/99; Johnson, 08/31/98) that discuss the impact of these provisions, and the legislative history relating to their enactment, in more detail. Because the commencement of the seven year period is now described with some precision by the statute, it is our opinion that none of the subsequent events you listed -- sale of the charged off account by the creditor, or a payment on or dispute about the account by the consumer -- changes the allowable period for a CRA to report a chargeoff.

• Sections 623(a)(5) and 605(c)(1) provide rules for calculating the 7-year period. Chargeoff accounts DO have different obsolescence periods depending on when the chargeoff occurred. Section 605(c)(2) states that the section "shall apply only to items of information added to the (CRA) file of a consumer on or after" 455 days after enactment, or December 29, 1997. Therefore, a chargeoff reported to a CRA on or after that date is subject to the new commencement-of-the-delinquency method of calculating the obsolescence period set forth in Sections 623(a)(5) and 605(c)(1). On the other hand, a chargeoff reported to a CRA before December 29, 1997, is not covered by the new provisions, as discussed in one of the enclosed letters (Kosmerl, 06/04/99). If a credit account was reported as a chargeoff before that date, the Commission's view has been that it can be reported for seven years from the date the creditor actually charged it off.(3)

from the FDIC Law, Regulations, Related Acts

Re-aging of open-end accounts, and extensions, deferrals, renewals, and rewrites of closed-end loans can be used to help borrowers overcome temporary financial difficulties, {{6-30-00 p.5083}}such as loss of job, medical emergency, or change in family circumstances like loss of a family member. A permissive policy on re-agings, extensions, deferrals, renewals, or rewrites can cloud the true performance and delinquency status of the portfolio. However, prudent use is acceptable when it is based on a renewed willingness and ability to repay the loan, and when it is structured and controlled in accordance with sound internal policies.

Management should ensure that comprehensive and effective risk management and internal controls are established and maintained so that re-ages, extensions, deferrals, renewals, and rewrites can be adequately controlled and monitored by management and verified by examiners. The decision to re-age, extend, defer, renew, or rewrite a loan, like any other modification of contractual terms, should be supported in the institution's management information systems. Adequate management information systems usually identify and document any loan that is re-aged, extended, deferred, renewed, or rewritten, including the number of times such action has been taken. Documentation normally shows that the institution's personnel communicated with the borrower, the borrower agreed to pay the loan in full, and the borrower has the ability to repay the loan. To be effective, management information systems should also monitor and track the volume and performance of loans that have been re-aged, extended, deferred, renewed, or rewritten and/or placed in a workout program.

Institutions that re-age open-end accounts should establish a reasonable written policy and adhere to it. To be considered for re-aging, an account should exhibit the following:

• The borrower has demonstrated a renewed willingness and ability to repay the loan.
• The account has existed for at least nine months.
• The borrower has made at least three consecutive minimum monthly payments or the equivalent cumulative amount. Funds may not be advanced by the institution for this purpose.

Open-end accounts should not be re-aged more than once within any 12-month period and no more than twice within any five-year period. Institutions may adopt a more conservative re-aging standard; for example, some institutions allow only one re-aging in the lifetime of an open-end account. Additionally, an over-limit account may be re-aged at its outstanding balance (including the over-limit balance, interest, and fees), provided that no new credit is extended to the borrower until the balance falls below the predelinquency credit limit.

Institutions may re-age an account after it enters a workout program, including internal and third-party debt-counseling services, but only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, as agreed upon under the workout or debt-management program. Re-aging for workout purposes is limited to once in a five-year period and is in addition to the once in twelve-months/twice in five-year limitation described above. To be effective, management information systems should track the principal reductions and charge-off history of loans in workout programs by type of program.

Institutions should adopt and adhere to explicit standards that control the use of extensions, deferrals, renewals, and rewrites of closed-end loans. The standards should exhibit the following:

• The borrower should show a renewed willingness and ability to repay the loan.
• The standards should limit the number and frequency of extensions, deferrals, renewals, and rewrites.
• Additional advances to finance unpaid interest and fees should be prohibited.

Management should ensure that comprehensive and effective risk management, reporting, and internal controls are established and maintained to support the collection process and to ensure timely recognition of losses. To be effective, management information systems {{6-30-00 p.5084}}should track the subsequent principal reductions and charge-off history of loans that have been granted an extension, deferral, renewal, or rewrite.

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