Advisory Opinion to Gillespie (03-10-98)

March 10, 1998

Ms. Terri Gillespie
THE LeMANS GROUP
455 South Gulph Road
King of Prussia, PA 19406

Re: Section 623(a)(5) of the FCRA

Dear Ms. Gillespie:

This responds to your letter dated November 14, 1997 (and accompanying Fax) concerning the application of the Fair Credit Reporting Act ("FCRA") to reporting of account data to consumer reporting agencies ("CRAs") by businesses offering vehicle leases to consumers. You describe the leases as fixed-term transactions that provide for monthly rental payments and include an end date when the lessee purchases or returns the vehicle. In a phone conversation, you said that a payment might be considered delinquent as soon as one day or as late as thirty days after the due date, depending on the lessor. Your letter asks about the impact of recent amendments to the FCRA concerning the reporting of certain dates in the credit history of some types of delinquent accounts.

Section 623(a)(5) of the amended FCRA, the provision that specifies exact dates to be provided by furnishers of data to CRAs, states that a party that reports "information . . . regarding a delinquent account being placed for collection, charged to profit or loss, or subjected to any similar action" must provide the CRA with "the month and year of the commencement of the delinquency that immediately preceded the action." You correctly note that the purpose of this new provision is to provide CRAs with a precise date to calculate how long they may continue to report information on such accounts, in compliance with Section 605 of the FCRA. You provided five scenarios, and asked for a written staff opinion analyzing the impact of the amended FCRA on them.

1Applicability.

The new provision applies only to an account "placed for collection, charged to profit or loss, or subjected to any similar action." In two of your scenarios (reproduced in the appendix), the account is reported to a CRA as "Repossessed" and "Voluntarily Repossessed." In the other three, the worst status reported is "30 Days" -- indicating one month in arrears. In our view, a repossession of any type is a seriously negative event that constitutes a "similar action" to a placement for collection or chargeoff. We do not believe a "30 Day" status would be in that category, as it would reflect only a mildly unfavorable note in an account history. Thus, Section 623(a)(5) would apply only to the first two examples.

2. Calculation of date.

Your "Repossessed" account history (first item in the Appendix) is a 36-month lease entered on June 10, 1995, on which the consumer makes 12 timely payments, and makes no payments in the following three months (June-July-August 1996). The vehicle is then "Repossessed" (September) and reported as such with a "Date Occurred/Reported" of June 1996. (You assured me in our phone conversation that this term will be understood by CRAs to be the commencement of the delinquency immediately preceding the repossession.) In this scenario, the account became delinquent no earlier than June 11, 1996 -- i.e., if the lease treated it as delinquent on the day after the thirteenth payment was due. The June 1996 time reported to the CRA would thus constitute (or sometimes be earlier than) the month and year of the "commencement of the delinquency" as required by Section 623(a)(5),(1) and thus would comply with its provisions.

Your "Voluntarily Repossessed" account history (second item in the Appendix) is a 36-month lease entered on June 10, 1996, on which the consumer makes 3 timely payments, misses one payment (September), and makes one payment (October) but does not bring the account current. The vehicle is then "Voluntarily Repossessed" (November) and reported as such with a "Date Occurred/Reported" of October 1996. In this scenario, the account may have become delinquent as soon as September 11, 1996 -- i.e., if the lease treated it as delinquent on the day after the fourth payment was due. Similarly, with respect to any lease that provides a grace period of less than 20 days before the account is considered delinquent, "the commencement of the delinquency" for the account would also be September 1996 because the missed (and never made-up) payment was due on or before September 30, 1996. If the information furnisher in this scenario reports all accounts in the same manner, we believe it would violate Section 623(a)(5) in many cases (those that did not provide a grace period of 21 days or more) to use October 1996 as the key date.

The opinions set forth in this informal staff letter are not binding on the Commission.

Sincerely yours,

Clarke W. Brinckerhoff

APPENDIX - "REPOSSESSED" SCENARIOS
(verbatim from 11/14/97 letter)

Terminology Explanation

Start Date: Inception date of contract
Due Date: Date payment due for
Date Occurred/Reported: Date of Occurrence to Credit Bureau(s)  

Start Date: June 10, 1995; 36 month lease 
Pays 12 timely payments 
Account status to Credit Bureau is 11 - "Account in Good Standing"
No payment for one month 
Account status 71 - "30 Days" 
Due Date = June 1996 Date Occurred/Reported = July 1998   No payment for two months Account status is 78 - "60 Days" 
Due Date = June 1996 Date Occurred/Reported = August 1996

No payment for three months 
Account status is 80 - "90 Days" 
Due Date = June 1996 
Date Occurred/reported = September 1996  

Oct 1996 Vehicle is Repossessed/Charged Off Account status = 96 - "Repossessed" Due Date = June 1996 Date Occurred/Reported = June 1996  

Start Date: June 10, 1996; 36 month lease 
Pays 3 timely payments
Account status to Credit Bureau is 11 - "Account in Good Standing"

Oct 96 No payment for one month 
Account status is 71 - "30 Days" 
Due Date = Sept 96 
Date Occurred/Reported = October 96  

Nov 96 Makes one payment
Account Status is 71 - "30 Days"
Due Date = Oct 96 
Date Occurred/Reported = November 96

Dec 96 
Vehicle is voluntary repossessed/Charged off 
Account Status = 95 - "Voluntary Repossessed" 
Due Date = October 1996 
Date Occurred/Reported = October 1996

1. If the lease provided a grace period of more than 20 days before the lessee was considered delinquent, July 1996 would technically constitute the commencement of the delinquency. We would not challenge a decision by an information provider, driven by administrative convenience, to use a date certain that is always (or might be) earlier than the month and year of the commencement of the delinquency, because no consumer injury would result from such a practice.