Washington, DC- Diverse groups from across California continue to announce their opposition to Assembly Bill 2424, anti-consumer legislation that would make it harder for Californians to climb out of the consumer debt crisis. The African American Empowerment Coalition, the California League of United Latin American Citizens, SEIU California, the National Asian American Coalition, the National Diversity Coalition, and the Consumer Attorneys of California joined the American Association of Consumer Credit Professionals (AACCP) in opposing this legislation that would limit the ability of consumers to use credit repair organizations and negatively affect their ability to repair their credit.
Below are excerpts from letters submitted by these groups to the California legislature in opposition to the legislation.
Reverend Andre Chapple, senior pastor at Faith Church Los Angeles and Chief Executive of the African American Empowerment Coalition:
“Over half of African American families are living pay-check to pay-check, and tend to have higher student loan debt than their white counterparts. African Americans and Hispanic Americans are being unfairly shut out of the credit system. Services provided by credit repair organizations, non-profits, and faith-based organizations are the one tool that consumers have in their arsenal, to level the uneven playing field and fight back against debt collectors. This bill will not help consumers and will only ensure that the one tool consumers have to battle against debt collectors is taken away from them.”
Jose Luis Barrera Novoa, State Director of the California League of United Latin American Citizens:
“On behalf of the League of United Latin American Citizens (LULAC), the largest and oldest Hispanic membership organization in the country, we write in opposition to AB 2424 (Rubio) which would limit the ability of consumers to use credit repair organizations and negatively affect their ability to repair their credit. 41% of Hispanics report having no credit or a poor or fair credit score…These negative credit ratings affect Hispanic consumers ability not only to build wealth, but also to access loans for cars or homes, getting credit cards, or approved for rental housing…
“Consumers often find it difficult to navigate the complicated credit correction system on their own, and need to rely on assistance from professionals…Credit repair organizations have resolved hundreds of thousands of erroneous credit score items on Californian consumers’ credit reports, thereby helping them secure lower interest rates and build their credit. This bill is not a consumer-friendly bill, and in fact will make it impossible for consumers to benefit from the assistance credit repair organizations provide.”
Kimberly Rosenberger, Senior Government Relations Advocate for SEIU California:
“On behalf of SEIU California, representing over 700,000 members statewide, we respectfully write in opposition to AB 2424 (Rubio) which would limit the ability of our members to use credit repair organizations and thereby negatively affect the ability of our members to repair their credit. Like many consumers, our members often find it difficult to navigate the complicated credit correction system on their own and derive benefit from the assistance of professionals. Over 50% of consumers who recognize there are errors on their credit scores give up because the system is simply too difficult to navigate. Because of this, credit repair organizations are a tool that consumers often use to level the playing field and fight back against debt collectors. This bill will make it much more difficult for our members and other consumers to benefit from the assistance credit repair organizations provide. Without these services, our members will have nowhere to turn for help in addressing inaccurate or unfair negative credit marks on their credit reports.”
Faith Bautista, President & Chief Executive Officer of the National Asian American Coalition and the National Diversity Coalition:
“As a United States Department of Housing and Urban Development (HUD) approved counseling agency that provides credit restoration to underbanked, unbanked, and disadvantaged communities, NAAC is deeply concerned that AB2424 would actually prevent us from representing our constituents who have inaccurate or erroneous information on their credit reports. As a result of these inaccurate and erroneous marks on our constituent’s credit reports, it will prevent them from qualifying for a home mortgage, the ability to finance a vehicle or simply having access to affordable credit and capital because they will not have advocates like ours to represent their interests before credit agencies and debt collectors…
“As the CEO of NDC and NAAC and someone who is financially literate, I have had to utilize credit repair or challenge charges that either were not mine or unsubstantiated claims on my credit report. The only way I was able to address these marks on my report was to use professional services. AB 2424 would require and force consumers to take on and battle large, sophisticated organizations on their own rather than utilize the professional services of a credit repair service. This strikes me fundamentally unfair. When a person needs legal help, they hire a lawyer. When a person needs help with their taxes, they often times hire a tax accountant. This matter is no different.
“As a leader in representing the rights of consumers and people of color and minorities throughout the United States and California, I am concerned that this bill will not only NOT protect the rights of consumers, it will eliminate the ability of organizations like NDC and NAAC from representing our constituents who often need professional help and guidance to challenge unfair, inaccurate and unsubstantiated marks on their credit reports, thus depriving them of access to affordable credit and capital. Lastly, we would point out that if this were truly a bill to protect the interests of consumers, why does it not have any consumer advocates in support?”
Consumer Attorneys of California:
“Consumers are often harassed by automated calls from creditors and our members step in to ensure debt collectors are not violating California consumer protection laws. The overall goal of this work is to improve the consumer’s credit and help them out of the cycle of debt – a similar goal of credit repair companies…The changes made by AB 2424 are not only a hammer to the credit repair companies but also a hammer on the consumers who seek representation in order to finally rid themselves of the debt cycle.”
Currently, an anti-consumer loophole in the federal Fair Credit Reporting Act allows debt collectors, furnishers, and credit reporting agencies to ignore, without consideration or explanation, any correspondence sent on behalf of a consumer by a third party. It doesn’t matter if that third party is a credit repair company or a nonprofit community organization.
Fortunately, this loophole has not cut consumers off from the help they need because consumers can authorize representatives to send correspondence on their behalf in their name. In recent years, large debt collectors have brought two federal lawsuits arguing that this is prohibited by the law—and they have lost both times.
Debt collectors are not happy that consumers continue to be able to work with advocates. They recognize that many consumers would give up if they had to navigate the process for challenging and removing errors on their own. In fact, this is exactly what the Federal Trade Commission (FTC) found when it analyzed the credit reporting industry—around half of consumers abandon the process before completing it because they found it confusing and time consuming.
The new proposed legislation in Sacramento, AB2424, would make this problem worse. The legislation would require credit repair organizations to “mark” the correspondence they send on behalf of consumers. On its face, AB2424 requires debt collectors, furnishers, and credit reporting agencies to respond to correspondence from credit reporting organizations. But there is nothing in this bill that would change the loophole in the FCRA.
Because federal law preempts California regulation of credit reporting when there is a conflict, any debt collector, furnisher, or credit reporting agency that doesn’t want to spend the time or money investigating legitimate disputes submitted by credit repair companies, nonprofits, and other third parties can just say no.
Proponents of this bill are essentially asking consumers who need help to make a leap of faith, asking them to believe that debt collectors, debt collectors, will do the right thing when they have repeatedly shown that they aren’t interested.
Debt Collectors and Furnishers Repeatedly Suffer Setbacks in Court and in State Legislatures:
- In November 2021, AACCP members Lexington Law and Progexion defeated a lawsuit brought by Ad Astra Recovery Services, the debt collection arm of a conglomerate that offers short-term, high-interest loans. Ad Astra’s case centered on letters that Lexington prepared and submitted on its clients’ behalf to credit reporting agencies and furnishers (like Ad Astra) regarding potential errors and other reporting issues on the consumer’s credit report. Ad Astra argued that Lexington had committed “fraud” because these letters were signed with the consumer’s electronic signature and were not specifically marked as coming from Lexington.
- In 2020, a federal court in Texas rejected the very same arguments raised by Ad Astra in a case brought by two debt collectors, CBE Group and RGS Financial. That decision was upheld on appeal by the Fifth Circuit Court of Appeals in April 2021.
- Through robust education of state legislators, the AACCP has successfully defeated bills backed by the debt collection industry that would leverage the FRCA loophole to cut consumers off from access to expert help. Specifically, these bills would require credit repair organizations and other third parties to “mark” correspondence that they prepare on behalf of consumers—presumably to allow furnishers to ignore them without consideration.
In their litigation documents, the debt collectors were not shy about their grievance: by providing convenient and affordable credit repair services, AACCP Members have enabled many more Americans to challenge errors and other issues on their credit reports, increasing what Ad Astra calls the “burden” on furnishers.
Closing the Loophole in 2022:
The AACCP is currently partnering with nonprofit groups—including Rev. Andre Chapple’s African American Empowerment Coalition—to lobby Congress to close the FCRA loophole. This coalition believes that Americans have the right to a credit report that is accurate, fair, and backed by evidence. But that right is diminished if consumers are blocked from seeking help—and that is exactly what is happening.
While some Americans can manage to navigate the process for disputing and removing credit report errors on their own, others do not have the time or may not fully understand the procedures and laws available to them. For these millions of Americans, expert help from credit repair professionals and other consumer advocates is a lifeline. Sadly, the FCRA loophole prevents consumer advocates from formally representing consumers in the dispute process. Worse yet, many furnishers have adopted a policy of wholesale rejecting legitimate complaints whenever they suspect the correspondence was written by, or with assistance from, a third party.
In meetings on Capitol Hill, the AACCP has drawn attention to how extraordinary the FCRA loophole really is. Many are surprised that a consumer could be penalized for seeking help—perhaps because it just doesn’t make sense. Just as Americans turn to trusted experts to navigate tax season, resolve a legal matter, or buy a home, Americans should have the right to consult with and be represented by consumer advocates with deep knowledge of the consumer credit system and the rights of the consumer for advice and guidance when dealing with CRAs, credit furnishers, and debt collectors. The IRS does not reject income tax returns prepared by a CPA, judges do not dismiss cases if they think a lawyer wrote the papers, and prospective homeowners are not blocked from buying a home if they retain a realtor.