Legal and Illegal Methods Used to Re-Age an Account

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When it comes to debt accounts, there are two types of re-aging practices – one is legal, and the other is illegal. The illegal practice of re-aging accounts is a deceptive tactic sometimes used by collection agencies or original creditors.

Illegal Re-aging of Accounts

The illegal re-aging of accounts involves manipulating the date of the last activity or charge-off on a debt account. This practice is done to extend the period during which the negative item remains on a consumer’s credit report beyond the legally permitted time frame.

According to the Fair Credit Reporting Act (FCRA), negative information, such as delinquent accounts or charge-offs, can only remain on a consumer’s credit report for a specific period, typically seven years from the date of the last activity or charge-off. By illegally re-aging the account, collection agencies or creditors attempt to keep the negative item on the credit report for longer than allowed, which can unfairly impact the consumer’s credit score and creditworthiness.

It is crucial for consumers to be aware of these practices and to understand their rights under the FCRA. If a consumer suspects that a collection agency or creditor is engaging in illegal re-aging tactics, they should take appropriate action, such as filing a dispute with the credit bureaus or seeking legal assistance.

Recourse When Your Account Has Been Re-Aged

There are several steps you can take if a debt collector has illegally re-aged your account:

Filing Complaints

If a debt collector has re-aged your account illegally, you should file a complaint with the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). File a complaint with your state’s attorney general’s office as well. These agencies can investigate and take action against the debt collection agency for violating the Fair Credit Reporting Act (FCRA).

Disputing with Credit Bureaus

You should dispute the re-aged debt entry with the three major credit bureaus (Experian, Equifax, TransUnion) and demand that the incorrect entry be removed from your credit report. Under the FCRA, credit bureaus must investigate and remove any inaccurate, incomplete or unverifiable information from your credit report within 30 days.

Sending a Debt Validation Letter

Send a debt validation letter to the collection agency demanding proof and documentation of the debt, including the correct date of first delinquency. If they cannot provide proper validation showing the original delinquency date, you can argue that the re-aged debt is invalid and should be deleted.

Seeking Legal Assistance

If the collection agency refuses to correct the re-aged debt entry, you may need to seek legal assistance and potentially file a lawsuit against them for violating the FCRA. Successful FCRA lawsuits can result in the debt being wiped away completely and monetary damages awarded.

It’s crucial to act quickly if your debt has been illegally re-aged, as it can severely damage your credit score and creditworthiness. Being vigilant about monitoring your credit reports and taking prompt action against any illegal re-aging tactics is essential to protect your consumer rights.

Legal Re-aging of Accounts

On the other hand, legal re-aging of accounts is a legitimate practice that occurs when a consumer brings a delinquent account current or enters into a valid repayment plan with the creditor or collection agency. In such cases, the creditor or collection agency may update the account’s status and reset the delinquency date, effectively “re-aging” the account.

This legal re-aging process allows the consumer to demonstrate their renewed commitment to repaying the debt and can improve their credit score over time if they maintain consistent payments. However, the negative information related to the original delinquency will still remain on the credit report for the legally permitted time frame.

Legal Re-Aging Open-End Accounts

Institutions that re-age open-end accounts (i.e. credit cards and home equity lines of credit (HELOC)) should establish a reasonable written policy and adhere to it. To be considered for re-aging, extensions, deferrals, renewals, and rewrites 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 pre-delinquency 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 5 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.

Legal Re-Aging Closed-End Accounts

Institutions should adopt and adhere to explicit standards that control the use of extensions, deferrals, renewals, and rewrites of closed-end loans (i.e. mortgages and car 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 should track the subsequent principal reductions and charge-off history of loans that have been granted an extension, deferral, renewal, or rewrite.

Summary

Both legal and illegal methods are used to re-age debt accounts. Illegal re-aging involves altering the date of last activity to extend how long negative information stays on credit reports, which violates the Fair Credit Reporting Act (FCRA). If suspected, consumers should file complaints with the FTC and CFPB, dispute with credit bureaus, and send debt validation letters. Legal re-aging occurs when a consumer brings an account current or enters a repayment plan, demonstrating renewed commitment. Legal standards exist for re-aging both open-end and closed-end accounts.

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