Protecting Your Credit

July 28, 2017
Posted in General News
Protecting Your Credit

In this era of identity theft, most consumers are aware of the importance of regularly reviewing their credit reports to ensure that no fraudulent accounts have been opened in their name.  However, there are many other factors that consumers might not necessarily be aware of,  that could affect their credit rating.  One of those factors involves a legitimate scenario in which an individual’s credit could be negatively impacted by an account on which they have no legal liability.

As unlikely as this sounds, this scenario can arise if you are an authorized user (or “AU”) on another individual’s credit card account.  In credit card terms, an AU is one who has been authorized by the primary cardholder to make charges to the account, but who bears no responsibility for paying the bills.  As an example, a typical AU scenario arises in the context of a college-bound son or daughter being made an AU on the parent’s account.  The child will have a credit card in their own name but issued under the parent’s account, with the parent remaining fully liable for the charges.  The status of the account, whether in good standing, delinquent, etc., will of course be reported to the parent’s (the primary cardholder’s) credit report, but might also be reported to the child’s (the AU’s) credit report.  This can be a win-win for the AU if the account remains in good standing, and might even help the AU establish a credit history.  By the same token, however, if the primary cardholder defaults on the account, the delinquency could also be reported on the AU’s credit report, even though the AU has no responsibility for paying the bills.  Since the credit report should reflect that the user is an AU only, ideally anyone using the report (e.g. a potential creditor) would recognize that any delinquencies are not attributable to the AU; unfortunately, however, some potential creditors might not look past the glaring red flag of negativity.

It might logically be asked under what authority a creditor can report a delinquency to an AU’s credit report, where the AU has no legal responsibility on the account.  The answer has its genesis with the Equal Credit Opportunity Act (“ECOA”) 15 U.S.C. §1691, which was enacted in 1974 to prevent discrimination in credit lending on the basis of race, sex, religion, marital status, etc.  One of the purposes of the ECOA was to ensure equal credit opportunities to women where, in what is now a long bygone era, many women did not work outside the home and had difficulty establishing their own credit history. Under one of the regulations enacted to implement the ECOA, where the AU was the spouse of the primary cardholder, the creditor was required to report the account to both spouses’ credit reports. This requirement was then interpreted to allow the creditor to report the account to all AUs’ credit reports, even in a non-spousal relationship.

The good news is that if you are an AU and no longer wish to be associated with the account, you can ask the credit card company to remove you as an AU.  Since an AU has no liability on the account, the creditor should agree to do so, although in some instances the creditor might require that the request come from the primary cardholder (a situation which could be tricky if you no longer have an amicable relationship with the primary cardholder, e.g. a divorce).  Moreover, although negative marks on a credit report will usually remain for at least seven years, the reporting to the AU’s report should disappear soon after the AU is removed from the account, since the AU was never liable on the account (of course, any benefit that might have arisen from an account in good standing will also disappear).  Of course, all of this is to be distinguished from a “joint account holder” status.  Unlike an AU, a joint account holder has agreed to be responsible for paying the account and cannot simply “disassociate” themselves upon request from the account.  And of course, it is important to remember that if you as a joint or primary cardholder agree to allow an AU on your account, you will be responsible for all the AU’s charges.  Therefore, it is essential to fully understand the nature of any responsibility you have taken on in regard to the account.

If you have any questions about these issues or any concerns about your particular situation, please contact one of the attorneys at Hamburg, Rubin, Mullin, Maxwell & Lupin, P.C.

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