GPSolo Magazine - April/May 2005

Why Lawyers Can’t Help Challenge Credit Scores
Facta and The Forfeiture of Consumers’ Rights

Sole, general practice, and small firm attorneys provide the bulk of consumer legal services to individuals in the United States. Increasingly, consumers require assistance in seeking to improve defective credit scores by correcting errors and omissions on their credit report. Many fundamental elements of their lives, including housing and employment, literally depend on these scores. The Fair and Accurate Credit Transactions Act of 2003, P.L. No. 108-159 (2003) (FACTA), created new con- sumer rights to require furnishers of credit to investigate and, if appropriate, to correct inaccurately reported credit information, thereby eliminating unfair harm to consumer credit scores.

Unfortunately, although further enhancing consumers’ statutory protection, FACTA made it virtually impossible for licensed attorneys in all jurisdictions to help consumers exercise these newly created rights. The statute does not explicitly so state. Rather, it produces this result through convoluted language in an obscure portion of the act that was never publicly debated during the legislative process. In brief, the relevant language causes consumers to forfeit their new FACTA rights if they use the assistance of a “credit repair organization” (CRO) as defined by the Credit Repair Organizations Act, 15 U.S.C. §§ 1679-1679j (CROA). The CROA definition of a CRO is broad enough to encompass licensed attorneys assisting consumers in exercising the new FACTA rights. This is believed to be the first time in U.S. history that Congress both created new federal rights and simultaneously nullified them if an individual chooses to use a licensed practitioner of law to assist in exercising those rights.

This situation raises serious practical and ethical issues for consumer attorneys who may be asked to help consumers exercise these new FACTA rights. FACTA became effective on December 1, 2004. As of the final editing of this article in late February 2005, it is not clear how this aspect of FACTA will be enforced.

To examine this extraordinary situation, it is important first to understand the criticality of credit scores and the credit-reporting system in today’s economy. This includes the complexity of the system, its extensive and pervasive error rates, and the resulting harm to all consumers, particularly the weaker members of society.

Credit Scores and the Credit Reporting System

In 2003 the American consumer credit industry encompassed consumer credit of $8.8 trillion, or about 80 percent of the $11 trillion 2003 Gross Domestic Product. In today’s credit-based economy, credit scores determine fundamental outcomes in individuals’ lives. Credit scores range from 350 to 800. Consumers with a higher score are seen as a lower credit risk and obtain access to, or more favorable pricing for, credit—including mortgages, rent, utilities, and credit cards. Lower credit scores can cause the denial of credit, employment, insurance, housing, and medical coverage. Indeed, credit scores now serve as a proxy for an individual’s character.

Credit scores, and related credit reports, are calculated from the credit files maintained on individuals by credit reporting agencies (CRAs) and are used by lenders to make credit decisions. In this highly automated system, lenders now make in minutes credit decisions that formerly took days and weeks.

The credit reporting system is also extraordinarily complex. Each month, more than 23,000 furnishers of credit, such as lending institutions and retailers, report more than 6 billion separate items of credit performance data on about 90 percent of the approximately 200 million adults in the United States. Furnishers report this data to more than 1,000 CRAs, including the three nationwide CRAs: Experian, Equifax, and TransUnion. The three national CRAs collectively maintain records on approximately 4.5 billion accounts in approximately 600 million credit files. Collectively, all CRAs issue more than 2 million credit reports per day and more than 1 billion per year.

Despite the decisive impact that credit scores have in meeting critical needs in a contemporary consumer’s life, the credit files that underlie them contain a staggering number of errors. In a 2003 study, for example, the Federal Reserve Board found that 70 percent of the 600 million credit files maintained by the three nationwide CRAs contained missing or inconsistent credit limit information and that 78 percent were missing at least one account in good standing. Accordingly, one in two of all files suffer both problems. These and numerous other errors incorrectly lower credit scores and unfairly increase denials of, or pricing for, consumer credit. A 2002 National Credit Retailers Association study found that 20 percent of consumers are at risk of being misclassified for sub-prime mortgage loans, potentially causing more than $1.2 trillion in unjustified overpayments, an amount equal to 9 percent of 2003 GDP.

In addition to the exceptionally high number of errors, there are many consumers who, even if aware of such information, simply do not have the ability to correct erroneous credit performance data without assistance. About 130 million adults in the United States lack the reading and quantitative proficiency needed to understand the contents of a credit report based upon approximately 350 variables. Approximately 90 million adults lack the ability to write a brief letter explaining a single error on a credit card bill. Additionally, 37 million adults in the United States speak a language other than English as their first language. For the 30 million families with both adults working at least one job, and the almost 10 million working single-female heads of household, arguably the consumers most severely harmed by unfair credit scores, there simply is not sufficient time to deal with credit reporting errors.

FACTA and Forfeiture

For more than 35 years, since it passed the Fair Credit Reporting Act, 15 U.S.C. §§1681-1681u (FCRA), Congress has known of the serious and extensive errors and associated problems in the credit reporting industry and the need to provide consumers with protection, including important tools for correcting errors. FACTA is the latest of numerous attempts to provide these protections and tools. It extends consumers’ rights to correct inaccurate information in a credit report from established FCRA rights against CRAs to new and additional FACTA rights against furnishers themselves.

FACTA provides, for the first time, a statutory right to notify a furnisher of a dispute regarding the accuracy of the credit information furnished to a CRA (Notice). Upon receiving a Notice, a furnisher must investigate the dispute, review information provided by the CRA, and report the results of the investigation to the CRA. If the investigation shows that the information is inaccurate, incomplete, or unverifiable, the furnisher must modify, delete, or permanently block the reporting of such information. Furnishers must complete these investigations, reviews, and reports within 30 days, the same time frame that applies to CRA dispute investigations. (These consumer rights and furnisher obligations are collectively referred to as “FACTA rights.”)

Of critical concern here, FACTA also states that furnishers’ statutory duties “ shall not apply if the Notice is submitted by, is prepared on behalf of the consumer by, or is submitted on a form supplied to the consumer by, a credit repair organization as defined in section 403(3) or an entity what would be a credit repair organization, but for section 403(3)(B)(i)” (emphasis added). Section 403(3) is a part of CROA and defines a CRO in pertinent part as:

(A) . . . Any person who uses any instrumentality of interstate commerce or the mails to sell, provide, perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of

(i) improving any consumer’s credit record, credit history, or credit rating; or

(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i) and

(B) does not include—

(i) any non-profit organization which is exempt from taxation under section 501(c)(3) of Title 26; . . . [emphasis added throughout].

A literal reading of the FACTA language incorporating the CRO definition and the definition itself clearly implies that any licensed attorney retained, for consideration, by a consumer to help challenge inaccurate credit information is a CRO. It also includes 501(c)(3) non-profit legal services organizations, and probably labor union and perhaps some church-based legal services programs, if they assist consumers in exercising their FACTA rights. The core legal activities that licensed attorneys perform for clients include the drafting and transmitting of documents with legal import. A Notice is a legal document because it is essential to, indeed it triggers, the exercise of a consumer’s FACTA rights. When a client retains a licensed attorney to assist in the drafting and/or submission of a Notice, the client is specifically seeking licensed counsel’s assistance in correcting credit-reporting errors and thereby seeking to improve his “credit record, credit history and credit rating.” Indeed, this is the express purpose of the FACTA Notice.

Clearly, the credit report error-disputing activities for which a licensed attorney is retained to perform, and the purpose for which the client retains the attorney, are the very activities and purpose used to define CROs as a class. At least one FCRA case has held that, under CROA’s broad definition of a CRO, an attorney assisting a consumer to correct credit report errors is a CRO. See Iosello v. Lexington Law Firm, 2003 WL 21920239 at *6 (N.D. Ill. Aug. 7, 2003). Under this construction of the definition of a CRO, a consumer who retains a licensed attorney to assist in pursuing FACTA rights forfeits the very FACTA rights he or she seeks to exercise.

The FACTA forfeiture is a dramatic departure from 35 years of FCRA implementation. Under FCRA, consumers can require only CRAs, but not furnishers, to investigate reported errors and make necessary corrections. FCRA contains no forfeiture of FCRA rights based on the consumer’s using an attorney to exercise those rights. There is no indication that Congress intended or realized that this FACTA limitation on the use of a CRO would cause consumers to forfeit their new FACTA rights merely because they seek to exercise those rights with the assistance of a licensed attorney. Indeed, credit and retailing special-interest groups caused insertion of the forfeiture language during last-minute conference committee drafting of the legislation, only after the time for public debate on FACTA had expired. During the 11-month period that the 108th Congress considered amendments to FCRA that would ultimately become FACTA, it considered 59 separate but related bills and proposed amendments. The provision precluding use of CROs did not appear until FACTA emerged from the conference committee on November 21, 2003, the day before the House passed it and two days before the Senate passed it.

Licensed Attorneys Distinguished from CROs

FACTA’ s exclusion of CROs from assisting or representing consumers in exercising their FACTA rights is understandable in view of the fraud and misconduct that has characterized the fly-by-night operators in the credit repair industry since its inception. Such operators have caused considerable harm, and Congress’s desire to see such CROs controlled through legislation is fully justified. However, the CROA definition of CRO is overly broad in that it encompasses licensed attorneys who are already extensively regulated by their state bar associations or supreme courts.

More than 900,000 attorneys are licensed to practice law in the various jurisdictions of the United States. Licensure grants an attorney the legal authority to provide the legal services typically requested by consumers who seek to correct errors in their credit files, reports, and scores—advice that requires legal knowledge and skill and the careful preparation of instruments by which legal rights are perfected and protected. In all jurisdictions, licensed attorneys are subject to the rules of professional responsibility and have fiduciary duties to clients. Violation of such rules and associated common-law duties subjects attorneys to discipline and sanction, including disbarment, and to civil law penalties. No other provider of assistance to consumers regarding credit report error correction possesses this combination of legal knowledge, professional responsibility, and exposure to negative sanctions.

Fifth Amendment Substantive Due Process Rights

“Substantive due process” is a body of constitutional law developed by the Supreme Court to protect “fundamental” rights that are not explicitly identified in the Constitution. It “protects certain ‘fundamental liberty interests’ from deprivation by the government, regardless of the procedures provided, unless the infringement is narrowly tailored to serve a compelling state interest.” Chavez v. Martinez , 538 U.S. 760, 775 (2003).

Inherent in the U.S. legal system is the right to obtain the assistance of client-funded legal counsel when dealing with issues in both civil and criminal settings. This right is derived both from the fundamental principle that all individuals have the right to legal counsel and from recognition that the assistance of such counsel may be essential for a person to enjoy his or her substantive legal rights. Indeed, as of the writing of this article, the author is aware of no published case that denies the right to client-funded legal counsel in either a civil transactional or litigation context. See Martin v. Lauer, 686 F.2d 24, 32 (D.C. Cir. 1982).

By contrast, there are a number of published cases that both directly and indirectly affirm the constitutional right to counsel in a commercial setting such as that involving the exercise of consumers’ FACTA rights. American Airways Charters, Inc. v. Regan, 746 F.2d 865 (D.C. Cir. 1984), while not explicitly so stating, recognizes a substantive due process right to retain legal counsel in civil matters. In that case, addressing the desire of a Cuban company subject to the Trading with the Enemy Act to retain counsel in civil matters, the court held that no license from the government was required for the “bare formation of an attorney-client relationship [in a commercial, non-litigation context].” Id. at 872. Indeed, the court stressed that “in our complex, highly adversarial legal system, an individual or entity may in fact be denied the most fundamental elements of justice without prompt access to counsel.” Id. at 873. Further, the court noted that it was guided by consideration of “the constitutional dimension plaintiff’s access-to-counsel plea entails.” Id. at 873.

Strikingly, in addition to American Airways’s recognition of a general substantive right to counsel in the commercial sphere, there is a clear line of credit dispute cases arising under FCRA, from which FACTA descends, explicitly recognizing the right of a consumer to retain legal counsel when seeking correction of credit reporting errors. While not explicitly referencing a constitutional substantive due process right, it is clear that the courts assumed this principle to be operative: “It is inconceivable to the Court that an attorney could not represent a consumer in” disputing errors to CRAs. Pinner v. Schmidt, 617 F. Supp. 342, 346-7 (E.D. La. 1985) rev’d in part on other grounds 805 F.2d 1258 (5th Cir. 1986)[emphasis added].

Fifth Amendment Equal Protection Rights

In violation of the Fifth Amendment Equal Protection Clauses’ requirement “that all persons similarly situated should be treated alike,” Nguyen v. I.N.S. , 533 U.S. 53, 56 (2001) (citation omitted), the FACTA forfeiture creates two unequal classes of people. The first class consists of consumers who retain a licensed attorney to draft and submit, or advise them on drafting and submitting, the Notice. The second class consists of consumers who do not do so. The two classes are indistinguishable except for the consumers’ use or non-use of a licensed attorney. Literally, the statutory right disappears for those in the first of these two classes.

The rational basis test is the lowest test for equal protection constitutionality: A classification must bear some rational relation to a legitimate state interest. See Romer v. Evans, 517 U.S. 620, 632 (1996). First, given the complexity of the credit-reporting system and pervasive nature of the errors generated by furnishers, it is not rational for FACTA, with the express purpose of protecting consumers in their dealings with furnishers, to cause consumers to forfeit FACTA’s protections specifically because they seek assistance from a licensed attorney, the only resource professionally qualified to provide legal advice on the exercise of FACTA rights.

Second, given FACTA’s consumer protection ancestry in FCRA, and the courts’ long-standing recognition of consumers’ substantive right to counsel in credit disputes, the FACTA forfeiture is an anomaly that cannot survive review based upon the rational basis standard. FCRA did not proscribe consumers’ use of licensed attorneys. Indeed, since enactment in 1968, FCRA has granted consumers the continuing right to retain legal counsel to help them dispute directly with CRAs the errors reported by furnishers. Courts have confirmed this right since 1985. There is no rational basis now, decades later, for continuing to allow consumers to use the assistance of licensed attorneys in disputing directly with CRAs while simul-taneously prohibiting consumers from similarly retaining licensed attorneys to help them dispute directly with furnishers the errors reported to the CRAs.

The Ethics of FACTA Forfeiture

On its face, FACTA became effective on December 1, 2004. However, there is a question as to whether the FACTA forfeiture became effective on that date because implementing regulations had, as of that date, not yet been established. Accordingly, the FACTA forfeiture enforcement situation is unclear. Nevertheless, the current ethical situation is very clear. A licensed attorney simply cannot accept work on behalf of a client that would ipso facto cause the client to forfeit the very legal rights that the attorney is retained to help the client exercise. In an abundance of caution, until the situation is clarified, counsel advising consumers on FACTA rights should disclose the FACTA forfeiture to clients and decline to help them in any manner that might cause them to forfeit their FACTA rights.

Proposed Solutions

The convoluted FACTA language employed to create the FACTA forfeiture, and the obscure 11th-hour manner in which it was included in the statute, clearly suggest that the FACTA forfeiture was an unintended and overbroad consequence of the last-minute confusion that often accompanies passage of such major legislation. Accordingly, Congress should be willing to pass a “housekeeping” amendment designed to exclude licensed attorneys from the FACTA forfeiture language and enable consumers to exercise their constitutional right to retain client-funded counsel for legal advice on and assistance with exercising FACTA rights.

The National Organization of Consumer Credit Attorneys (NOCCA) was formed to address this and other governmental and public policy impediments to the provision of legal services to individual consumers. NOCCA intends to seek congressional correction of the FACTA forfeiture. Interested attorneys may contact NOCCA at its website,, to offer assistance or support or for more information. Additionally, they can write to their state bar associations or their congressional representatives asking for correction of this anomalous and unprecedented situation to return to consumers the right to retain licensed attorneys to help them exercise their new FACTA rights.

Gregg B. Brelsford is a sole practitioner in Folsom, California, where his practice emphasizes consumer, commercial, corporate, and intellectual property transactions and litigation and international commercial transactions. He can be reached at This article is adapted from a White Paper on the same subject, which contains detailed citation to the statistics contained herein and which sets forth other legal arguments not included here. It is available at


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