How should data furnishers report accounts that have been transferred, sold, or acquired to ensure accuracy, avoid duplicate tradelines, and comply with FCRA and Metro 2® guidelines?
Account transfers, sales, and acquisitions are common in the credit industry, but if not reported correctly, they can lead to duplicate tradelines, consumer confusion, and compliance risks. The Fair Credit Reporting Act (FCRA) and Metro 2® guidelines provide clear standards for handling these scenarios.
Definitions and Context
- Transferred Account: An account moved internally (e.g., to a new department or servicer) without a change in ownership.
- Sold Account: An account sold to another company, such as a debt buyer or new lender.
- Acquired Account: An account purchased or otherwise acquired by a new entity.
Each scenario requires specific reporting actions to ensure the consumer’s credit history remains accurate and continuous.
Step-by-Step Reporting Standards
1. Internal Transfers (Same Ownership)
- Preferred Method: Use the L1 Segment to change the Identification Number and/or Consumer Account Number. This allows the credit bureaus to retain all prior account history under a single tradeline.
- Account Status: Continue reporting the account as usual, updating only the necessary identifiers.
- Notification: Inform credit bureaus before making large-scale changes to account numbers or identifiers.
2. Accounts Sold or Acquired (Change in Ownership)
Seller’s Responsibilities
- Final Reporting: After the sale, the seller should discontinue reporting the account as active.
- Special Comment Code: Use “AH” (Purchased by another company) in the Special Comment field.
- Account Status: Set Scheduled Monthly Payment Amount, Current Balance, and Amount Past Due to zero.
- Date Closed: Report the date the account was sold.
- K2 Segment: Use the K2 Segment with Purchased From/Sold To Indicator “2” and the name of the company to which the account was sold.
- FCRA Compliance/Date of First Delinquency: If the account was delinquent at the time of sale, report the original DOFD.
Purchaser’s Responsibilities
- New Tradeline: Report the account as a new tradeline with a new Consumer Account Number and Identification Number.
- Date Opened: Preferably use the date the account was originally opened with the seller; if not available, use the purchase date.
- K2 Segment: Use Purchased From/Sold To Indicator “1” and the name of the company from which the account was purchased.
- Payment History: For accounts where history is not transferred, use “B” in the Payment History Profile for months prior to acquisition.
- FCRA Compliance/Date of First Delinquency: Report the original DOFD from the seller. If unavailable, do not report the account.
3. Avoiding Duplicate Tradelines
- Coordination: Sellers and purchasers should coordinate with credit bureaus to ensure only one active tradeline per account.
- L1 Segment: Use for account number changes to preserve history.
- Do Not Report Paid Accounts as Sold: To minimize disputes, do not report accounts as sold if they were already paid in full.
Compliance Requirements
- FCRA: Requires accurate, non-duplicative reporting and mandates that the DOFD be preserved through account transfers and sales.
- Metro 2®: Provides detailed instructions for using the L1 and K2 Segments, Special Comment Codes, and Payment History Profile adjustments (see CRRG FAQs 21, 46–48, and Exhibit 15).
Impact on Consumers
- Credit Continuity: Proper reporting ensures consumers’ payment history is preserved and not fragmented across multiple tradelines.
- Dispute Reduction: Accurate transfer and sale reporting reduces the risk of consumer disputes and confusion.
Conclusion
Reporting transferred, sold, or acquired accounts requires careful attention to FCRA and Metro 2® standards. By using the correct segments, codes, and coordination practices, data furnishers can ensure accurate, compliant, and consumer-friendly credit reporting.