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.
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.
are what Phillips calls "the unholy trio" of Experian,
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.
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.
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
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
"That fixed that angle of it,"
Phillips says. "Then I realized that the problem was really how the credit
reporting agencies were reporting this."
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."
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.
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.
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."
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
Not everyone agrees that the financial histories of
ex-spouses should be considered separately.
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
"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."
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
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.
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.
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.
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."