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Lawyer fights Big Three credit reporting agencies for himself and 'thousands of others'

A lawyer in Washington state is suing the Big Three credit bureaus because his ex-wife's bankruptcy ended up on his credit report.

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Randolph Stuart Phillips says his credit report was tainted unfairly, preventing him and his new wife from buying their dream house on Washington's scenic Kitsap Peninsula, across the Puget Sound from Seattle. He has filed a class-action lawsuit to change the way credit bureaus report information about "authorized users" of credit cards. You're an authorized user when the card has your name on it but someone else is legally obligated to pay the bill.

Defendants are what Phillips calls "the unholy trio" of Experian, Trans Union LLC and Equifax Inc., which dominate the credit-reporting industry.

"I have heard from people who can't buy a house, can't buy a car -- because these companies can't be bothered to keep this irrelevant information off credit reports," Phillips says.

His lawsuit accuses the credit bureaus of violating the Fair Credit Reporting Act.

The civil suit underscores the complex ways in which divorce can affect an ex-spouse's finances. Phillips is trying to change a policy that affects people for good and for ill. Some, like Phillips, are harmed by an ex-spouse's money troubles; others benefit from their ex's favorable financial histories.

Sorry, Mr. Phillips, but ...
The damaging information on Phillips' report had to do with his ex-wife's credit cards. The two credit card accounts in question were in her name. They were not joint accounts. Phillips wasn't responsible for paying them. But Phillips was an authorized user, meaning that he carried cards stamped with his name that belonged to his then-wife's accounts -- accounts that she had applied for in her name and which she was solely responsible for paying.

The couple divorced amicably in 1998, settling accounts so that their financial histories would be considered separately. This was important because Phillips' wife at the time had filed bankruptcy in 1997. To protect Phillips' credit history, none of the couple's joint accounts were discharged in bankruptcy.

Phillips remarried in January 1999, and in December he and his bride, Bobbi, moved from Fort Sill, Okla. (where he had worked for the U.S. Army Judge Advocate General Corps), to Poulsbo, Wash., where he aimed to make his mark as a crusading consumer-rights attorney.

Turns out that one of his first crusades is on behalf of himself and, by his estimate, thousands of others who are turned down for loans because of their ex-spouses' financial misfortune.

The battle began after the Phillipses tried to get a mortgage to buy a hilltop house. They were turned down because his credit reports listed two of his ex-wife's credit-card accounts that were discharged in bankruptcy. They were the accounts for which he had been an authorized user, but had never been responsible for paying.

"My first response was to be extremely irritated," Phillips says. "My wife was crying in the real estate agent's office, she was so upset. She had her heart set on that particular house and it was heartbreaking."

He asked his ex-wife's creditors to separate her financial history from his. They complied, and the credit agencies dropped the derogatory information from his report.

"That fixed that angle of it," Phillips says. "Then I realized that the problem was really how the credit reporting agencies were reporting this."

They were relying on people like Phillips to complain and then "they would fix my report and the devil with the next guy. I didn't want this to happen."

Phillips continues: "We need to fix the problem for that one person, sure, but we really need to fix the system. This reporting is a systemic problem."

The credit-report cycle
Think of the credit-reporting system as a circle. In the top half of the circle, creditors -- such as charge cards and mortgage lenders -- supply information to credit bureaus. In the bottom half, credit bureaus supply information to creditors. Phillips' lawsuit targets the bottom half while leaving alone the top.

That's because a federal regulation requires lenders to tell credit bureaus about authorized users of credit cards. The rule benefits widowed and divorced homemakers and recent graduates -- in other words, people who have little or no credit history, but who have carried cards belonging to a spouse or parent.

The rule helps those with little credit history by allowing them to piggyback on the good credit of their parents and spouses. Take the case of a recently divorced homemaker who wants to buy a car and get a couple of credit cards. She is more likely to get those loans if she had been an authorized user of his credit cards and he has a good credit history. Her report would reflect his good credit.

But consider the case of a young woman who goes off to college, clutching daddy's Visa card to use in emergencies. She's an authorized user of the card but isn't responsible for paying it; if she can't reimburse her father for her purchases, he has to swallow hard and write the check.

Let's say the father is laid off and eventually declares bankruptcy, wiping out his credit card debt. When the young woman graduates, her credit report will be marred by her father's misfortune.

"The way it goes now, these credit reporting agencies would put it on her account," Phillips says indignantly. "She never got the bills -- but her father's bankruptcy ends up on her credit report."

She would have trouble getting credit cards and car loans; she even would find it difficult to rent an apartment because landlords check credit reports. The credit information would remain on her report for a decade unless she could persuade the credit card issuer to stop reporting it to credit bureaus.

In many cases, it just takes a few phone calls to remove derogatory information about someone else's credit cards. But at that point, the damage already has been done -- someone has been turned down for credit.

That's why Phillips argues that derogatory information about one person's credit history shouldn't appear on another person's credit report.

"The whole purpose of the Fair Credit Reporting Act is that each person is judged individually on how they pay their bills," he says. "And when the system is set up in a way that that goal gets lost, somebody has to step up to bat."

Do-it-yourself credit care
Not everyone agrees that the financial histories of ex-spouses should be considered separately.

Equifax spokesman Dave Mooney declines to comment on Phillips' lawsuit. Speaking generally, he says it just makes sense to mention on a man's credit report that he was the authorized user of a credit card whose debt was forgiven when his wife declared bankruptcy.

"Even after they're divorced, that's going to stay on there," he says. "A credit file is a history. He's got those accounts on there and he was a user of the account, so it's part of his credit history."

Representatives of the other two agencies declined to comment.

Carol Ann Wilson, president of the Institute for Certified Divorce Planners, says people just have to deal with reality when cleaning up their credit reports during and after a divorce. She advises making a clean break -- canceling credit card accounts and reapplying for new accounts.

Lynne Z. Gold-Bikin, a prominent divorce lawyer in suburban Philadelphia, notes that some people run up charges on their spouses' credit cards just before a divorce. In such cases, it makes sense to include the information on the credit report.

A person who feels unfairly branded by an ex-spouse's bad credit can ask creditors and credit bureaus to amend the report, she says. That's what Phillips had to do, and that's what led to his lawsuit.

Sold, but not forgotten
It might take a long time before Phillips' lawsuit is resolved. A judge will hold a hearing this spring to decide whether to certify it as a class action. Then the credit bureaus could ask for the lawsuit to be removed from the Washington state court and to be filed in federal court. Phillips is seeking plaintiffs to join the class.

By the way, what happened to the house that the Phillips' wanted?

"Sold," he says, with the finality of a banging gavel. "We're renting. That's still a source of disharmony. It was a source of disappointment to my wife, and I don't blame her."

 

 
-- Posted: April 14, 2000
   

 

 
 

 

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