“Not legally bound” to a debt not on a credit report?

We recently had a consumer visit our office and make the statement that he was “not legally bound” to pay a debt that was not on his credit report.  That’s a new one!  Lets take a moment and look at credit reporting as it relates to liability for debts.

Credit reporting is a federal law covered by the Fair Credit Reporting Act (FCRA) and has the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) as it’s regulators and enforcers.  Creditors are allowed to place both positive and negative trade lines on a consumer credit report, as allowed by the FCRA, and creditors can purchase this information from Credit Reporting Agencies (CRA’s – Trans Union, Equifax, Experian) in order to make lending decisions, locate information, find probability of payment (or non-payment), and other legal uses.  Consumers can dispute any item on a credit report and the data furnisher must follow the FCRA in an effort to verify the debt, or it can be removed from the consumer’s credit report.  Debts are usually reported for up to six years and 180 days from date of delinquency, or up to ten years for bankruptcy.  Medical debts cannot be placed on a consumer credit report until 180 days from date of delinquency, and many debts that formerly were on a consumer credit report are no longer placed there (fines, fees, civil judgments, etc.)  Whether a debt is owed by a consumer is not affected by the reporting or lack thereof for those debts.

Liability for debt is largely established under state law and has nothing to do with credit reporting.   Typically, there are three reasons a person owes a debt.  First, they contracted for the debt.  Buying a vehicle, department store charge cards, buying a home, renting an apartment, VISA cards,  and rent-to-own are all examples of contracts for goods or services resulting in legally owed debts.  Second, the law says you owe the bill.  Examples are fines for traffic violations, city assessments, bills of family necessity (like medical services or education for minor children).  Third, you received the goods or services and are not allowed to get them for free.  An example might be if you order a sign for your business and it is installed, and you refuse to pay because there is a slight discoloration.  If you refuse to allow the sign to be removed, you should have to pay for it’s usage.  Debts like these generally have a six year statute of limitations in Oregon (every state has different rules for limitations) and a debtor cannot be sued to try to collect the debt beyond that time (consumer rental accounts in Oregon are only one year – so be sure to seek legal counsel regarding debt collection).  Again, the liability of these debts is not impacted by the reporting, or failure to report, these debts to a CRA.

We live in a time where information is readily available with a simple Google search.  Unfortunately, much of it is not accurate, misleading, or requires context to fully understand its meaning.  We were able to persuade the consumer that he in fact owed his debt irrespective of credit reporting.  A task our staff performs successfully every day!

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