Question: What are the correct procedures for reporting an account that has been transferred to another lender, and how does this ensure compliance with the Fair Credit Reporting Act (FCRA)?
Answer:
When an account is transferred from one lender to another, it’s critical that the change is reported in a way that reflects both the closure of the original account and the initiation of the new one, without compromising the borrower’s credit history. Properly handling transferred accounts ensures compliance with the Fair Credit Reporting Act (FCRA) and avoids duplicative or misleading tradelines on a consumer’s credit report.
What Qualifies as a Transferred Account?
A transfer typically occurs when:
- A loan is sold to another lender as part of a portfolio sale.
- Servicing of the loan is outsourced to a new company.
- A financial institution undergoes merger or acquisition activity.
In all these cases, the original lender is no longer managing the account, but the consumer’s obligation continues under the new entity.
Steps for Reporting a Transferred Account
1. Original Lender: Update Account as Transferred
The selling or transferring creditor must:
- Set the Account Status to:
“Transferred/Sold to Another Lender” - Set the Balance Amount and Scheduled Monthly Payment Amount to $0
- Maintain and report the full payment history through the date of transfer
- Apply a Special Comment Code, such as:
“Account transferred or sold”
This helps avoid the appearance of an open obligation that is no longer with the original creditor.
2. New Lender: Open a New Tradeline
The receiving lender or servicer must:
- Create a new account entry with a unique Account Number
- Report the correct Date Opened (reflecting the transfer date—not the original loan date)
- Enter the current balance and monthly payment details
- Use a Special Comment Code, such as:
“Account acquired from another lender”
The new lender may also import the full payment history if systems allow it, ensuring credit continuity.
Key Considerations
- Avoid Dual Active Reporting: Ensure the original account is closed to prevent the same debt appearing as two open obligations.
- Preserve the DOFD: If the account was delinquent prior to transfer, the Date of First Delinquency (DOFD) must be retained by the new lender.
- Clearly Distinguish Account Ownership: Accurate comment codes and dates ensure the two accounts are not misinterpreted as separate debts.
FCRA Compliance Standards
The FCRA requires that:
- Furnishers provide accurate and complete information.
- Accounts are reported in a way that is not misleading or duplicative.
- All updates are submitted within the regular monthly reporting cycle.
Failure to properly report transfers can lead to consumer disputes, compliance issues, and misjudged creditworthiness.
Impact on the Consumer’s Credit Report
- Preserves Account History
Consumers benefit when the account history is transferred or maintained without disruption. - Avoids Score Drops
Closing and re-opening accounts improperly can shorten credit history and negatively affect credit scores. - Improves Lender Confidence
Clear reporting gives future lenders a complete picture of the borrower’s obligations and performance.
Conclusion
Transferred accounts must be reported with precision to ensure fair and accurate credit reporting. By updating the original account to reflect the transfer and opening a properly labeled new account with the receiving lender, data furnishers fulfill their FCRA obligations while helping consumers maintain a strong, uninterrupted credit history.