U.S. Senator Sherrod Brown (D-Ohio), Ranking Member on the Senate Banking Committee, has called federal regulators to action against so-called "zombie debts," which are debts that remain on a consumer's credit report even though they are no longer owed. Often these zombie debts are sold to banks or other debt collectors who harass consumers attempting to collect a debt that has already been settled.
Brown recently joined David Rothstein, a credit counselor with Neighborhood Housing Services of Greater Cleveland, and Gabriel Rice, a consumer from Cleveland whose credit report contained zombie debts, at Neighborhood Housing Services to discuss how these debt and credit issues are impacting family finances. According to an announcement on Brown's website, the credit report of one in every five Americans contains an error.
The devastation of the 2008 financial crisis resulted in the elimination of $13 trillion in household wealth and caused about five million Americans to lose their homes, according to Brown. Many Americans are still having difficulty obtaining mortgage loans due to the adverse impact of the crisis on their credit scores even seven years after the crisis. In mid-July, Brown proposed a bill known as the Consumer Reporting Fairness Act, which would require banks or creditors to notify credit reporting agencies when a bankruptcy extinguishes a consumer's debt. The bill also would allow consumers to take legal action against creditors that fail to report a discharged debt that the consumer no longer owes.
"Credit history is critical to home buying and asset building."
Brown introduced the bill in response to the number of Ohioans affected by the recent JPMorgan Chase settlement. JPMorgan agreed in July to pay $136 million to settle claims that the bank sold inaccurate credit card debt to debt collectors.
"Credit history is critical to home buying and asset building," Rothstein said. "Far too many families come to us with dings on their credit that are not real or were taken care of years ago. Without this bill, families are inadvertently being denied access to homeownership."
In early August, Brown wrote a letter to Federal Reserve Chair Janet Yellen, Comptroller of the Currency Thomas Curry, Federal Deposit Insurance Corporation Chairman Martin Gruenberg, and National Credit Union Administration Chairman Debbie Matz urging the regulators to strengthen oversight of debt sale arrangements, which includes information that financial institutions send to debt buyers and consumers and how that information is verified for accuracy. Brown also asked the regulators to consider whether or not financial institutions are prohibited from selling zombie debt to debt collectors.
"Every consumer should have an accurate credit score, and no consumer should be haunted by debts they don’t owe," Brown said.