What Are the Proper Reporting Procedures for Accounts Transferred to Another Lender?

When a lender transfers an account to another financial institution, it is crucial to report the transaction accurately to avoid errors on a consumer’s credit report. Proper handling of transferred accounts ensures compliance with the Fair Credit Reporting Act (FCRA) and helps maintain a consumer’s accurate credit history.

Understanding Account Transfers

An account transfer occurs when:

• A loan or credit account is sold to another lender.
• A financial institution merges or restructures, causing accounts to be moved.
• A lender outsources servicing of a loan to a third party.

During an account transfer, the terms and payment history of the original account must be preserved, even though the servicing lender changes.

Steps for Reporting Transferred Accounts

1. Update the Original Creditor’s Account Status
   • The original creditor must update the account to reflect that it has been transferred.
   • The account should be reported as “Transferred – Account Sold” or “Closed – Account Transferred” with a zero balance (unless the consumer still owes money to the original lender).
2. Ensure the New Lender Reports a Separate Tradeline
   • The new lender must open a new tradeline under their name.
   • The “Date Opened” should reflect the date the new lender took over the account, not the original loan opening date.
   • The original loan amount, balance, and payment terms should remain accurate.
3. Preserve the Consumer’s Payment History
   • A transfer should not erase past payment history.
   • The new tradeline must continue reflecting on-time payments, delinquencies, or defaults from the original lender.
   • Failure to maintain this history could mislead lenders reviewing the consumer’s credit report.
4. Use Special Comment Codes for Transparency
   • Both the original and new lenders should apply Special Comment Codes to indicate the reason for the transfer:
     • “Account Transferred to Another Lender” (original creditor).
     • “Account Purchased from Another Lender” (new lender).
   • These codes clarify that the transfer was an administrative process, not a consumer action.
5. Avoid Reporting Duplicate Tradelines
   • The original creditor should not continue reporting the account as active after the transfer.
   • Only the new lender should report an active balance and payment obligations.
6. Notify Consumer Reporting Agencies (CRAs)
   • Both the original and new lenders must submit updates to all relevant CRAs to ensure consistency across all credit bureaus.

Compliance with the FCRA

The FCRA requires that credit reporting be:

• Accurate – Report transferred accounts clearly and correctly, ensuring that payment history is maintained.
• Complete – The new lender must report all previous account details, and the original lender must correctly indicate the transfer.
• Timely – Account transfers must be reported immediately to prevent confusion or duplicate tradelines.

Impact on the Consumer’s Credit Report

1. Credit Score Considerations
   • Proper reporting prevents credit score drops due to lost history or incorrect reporting.
   • Consumers benefit from continued payment history, helping their credit age and score stability.
2. Transparency for Lenders
   • A correctly reported transfer ensures future lenders see a complete credit profile.
   • Incomplete or incorrect reporting could result in misinterpretation of the consumer’s financial responsibility.

Conclusion

Accurate reporting of transferred accounts is essential for FCRA compliance and credit report transparency. By closing the original account properly, ensuring the new lender maintains historical data, avoiding duplicate tradelines, and using Special Comment Codes, lenders protect both consumer rights and the integrity of the credit system.