Escaping battered credit: a proposal for repairing credit reports damaged by domestic violence.

• Author: Littwin, Angela
• Position: Introduction through II. Who Decides? Credit Reporting's Decisionmaking Deficit, p. 363-408

Debt and domestic violence are connected in ways not previously imagined. A new type of debt--which I have labeled "coerced debt'--is emerging from abusive relationships. Coerced debt occurs when the abuser in a violent relationship obtains credit in the victim's name via fraud or coercion. It ranges from secretly taking out credit cards in victims' names to coercing victims into signing loan documents to tricking victims into relinquishing their rights to the family home. As wide ranging as these tactics can be, one consequence consistently emerges: ruined credit ratings.

Coerced debt wreaks havoc on credit scores, which is particularly problematic because the use of credit reports is no longer confined to traditional lenders. Employers, landlords, and utility companies all make extensive use of credit scores when screening potential customers. Thus, a credit score that has been damaged by coerced debt can make it prohibitively difficult for victims to obtain employment, housing, or basic utilities--all of which are requirements for establishing an independent household.

In this Article, I propose amending the Fair Credit Reporting Act to allow victims of coerced debt to repair their credit reports. My proposal would enable family courts to rule on whether alleged coerced debt is, in fact, coerced. The victim could then submit the court's certification to the credit reporting agencies, which would block the coerced debt from her credit report to the extent that the block did not unduly harm her creditors. My proposal would build a bridge between the decisionmakers already determining issues related to coerced debt and the credit reports that victims need to have reformed in order to move beyond the abuse.

INTRODUCTION I. COERCIVE CONTROL AND COERCED DEBT II. WHO DECIDES? CREDIT REPORTING'S DECISIONMAKING DEFICIT A. The Credit Reporting Agencies' Failings 1. Inaccurate Credit Reporting 2. Flawed Credit Report Repair B. Blocking Data Generated by Identity Theft C. Family Courts: A New Decisionmaker 1. The Advantages of Using Family Courts 2. The Test for Coerced Debt 3. Implementation a. Alternative Implementation Through the ECOA b. State Court Enforcement III. BLOCKING COERCED DEBT A. The Predictive Power of Past Debt 1. Treatment of Past Debt Under My Proposal 2. Determining What Debt Is Past B. Outstanding Debt 1. Statutory Changes 2. Policy Considerations for Employers, Landlords, and Utilities a. Employers b. Utilities c. Landlords INTRODUCTION

Debt and domestic violence are connected in ways not previously imagined. A new type of debt--which I have labeled "coerced debt"--is emerging from abusive relationships. (1) Coerced debt occurs when the abuser in a violent relationship obtains credit in the victim's name via fraud or duress. This is a new problem, one enabled by the tremendous growth of consumer credit markets in recent decades and by the corresponding depersonalization of the credit system. (2) In a previous article, I provided the first published account of coerced debt. (3) Although my work was preliminary and further study is needed to determine coerced debt's scope and severity, my research provides enough evidence to suggest that it is a real problem with a significant impact on its victims. (4)

Coerced debt is a complex phenomenon with multiple facets and no easy solutions. My research revealed that batterers engage in an extensive array of damaging credit transactions, including secretly taking out credit cards in victims' names, coercing victims into signing loan documents, and tricking victims into relinquishing their rights to the family home, among many others. (5) As wide-ranging as these tactics can be, one consequence consistently emerges: ruined credit ratings. (6)

Thus, in this Article, I propose amending the Fair Credit Reporting Act (FCRA) (7) to enable victims of coerced debt to repair their credit reports. My proposal would allow family courts handling the divorces of abusive marriages to rule on whether alleged coerced debt is, in fact, coerced. The victim could then submit the court's certification to credit reporting agencies (CRAs), which would block the reporting of coerced debt to the extent that this would not unduly harm future creditors. The family court's decision would not affect a domestic violence victim's underlying liability for the coerced debt, (8) but it would enable her to move forward with a credit report that better reflected her risk profile.

The most important limitation of my proposal is that it applies only to victims who are divorcing their abusers. It does not help unmarried victims or those who do not have the means to obtain a divorce. These populations will require separate remedies, which I will propose after further empirical study. This Article explores one part of the problem and one possible solution. (9)

Coerced debt wreaks havoc on credit scores. (10) Victims of coerced debt often do not discover the debt until they attempt to leave an abusive relationship, when much of the debt is delinquent or in danger of becoming so. (11) Delinquency occurs in several situations: when the debt is still outstanding; when the abuser has already repaid the debt, but only after it was in default, thus leaving a negative mark on the victim's credit report; or when the debt is so large that the victim is unable to pay it in a timely manner. (12) All of these scenarios can mar a victim's credit rating at precisely the point when she most needs a clean bill of credit health. (13)

The situation would not be as problematic if credit reports were used only by traditional lenders. The more significant issue is that employers, landlords, and utility companies make extensive use of credit scores in screening potential employees, tenants, and customers. (14) Thus, a credit score that has been damaged by coerced debt can make it prohibitively difficult for victims to obtain employment, housing, or basic utilities, all of which are requirements for establishing an independent household. (15)

The lawyers and other advocates I interviewed for the coerced debt study reported that credit ratings tarnished by coerced debt resulted in longer shelter stays, victims returning to their abusers, or victims making financial calculations that resulted in them not leaving their abusers in the first place. (16) In other words, the relationship between coerced debt and bad credit may be an important link in the chain that binds many abusive relationships.

One major challenge in crafting policy solutions to fix the credit reports of coerced debt victims is that the process of repairing credit reports is generally ineffective. Even consumers with less complicated problems than coerced debt face significant hurdles when attempting to fix their credit reports. (17) This is because the CRAs that collect and distribute consumer credit data use a dispute-resolution process that is deeply flawed. The CRA system for investigating alleged errors is almost entirely automated, providing no meaningful review of consumer disputes.18 Consumer claims of errors are processed through a series of mechanized steps in which no decisionmaker ever actually evaluates the dispute on its merits. To make matters worse, the CRAs essentially keep two sets of books. (19) The credit reports provided to consumers do not completely match the reports that potential creditors see--and neither do the credit scores. The CRAs use two sets of algorithms when generating reports and scores for these two audiences. (20)

Because the CRAs have been so ineffective at resolving comparatively simple consumer disputes, I largely bypass them in my remedy for the more complex problem of coerced debt. My proposal takes an alternate approach and leverages the fact that a segment of coerced debt victims already encounters a decisionmaker with financial expertise and extensive knowledge of both parties to the credit abuse: the judges who handle their divorces. Family courts examine a family's finances in great detail, engaging in decisions that we think of as the province of bankruptcy and other financial courts. (21) Divorce courts also make decisions about the most intimate details of family life, assigning custody and in some states assigning fault for the divorce itself. (22) Thus, they are ideally positioned to examine a matter that is at once financial and deeply personal.

Although family courts regularly divide divorcing families' assets and debts, their distribution of debt between two ex-spouses is not binding on a family's creditors. Creditors are not part of the divorce proceedings, so their rights continue to be governed by their contracts with individual or multiple family members. If a family court decrees that a debt in Spouse A's name should be the responsibility of Spouse B, that gives Spouse A a claim against Spouse B for the amount of the debt, (23) but it does not change Spouse A's contract with the creditor. If a family has assets, the court can achieve a meaningful distribution of debt by awarding Spouse A enough assets to compensate for the debt, but many divorcing families do not have significant assets. (24)

Thus, family courts have limited power to change the distribution of debt between spouses upon divorce. A proposal to give family courts such authority would be an immense change that would require a significantly greater empirical understanding of coerced debt. However, a system in which a family court could certify that certain debts were coerced for purposes of adjusting a victim's credit report is more feasible.

Under such a system, a victim of domestic violence could submit a claim during her divorce that some or all of the debt in her name (or in both spouses' names) was acquired without her knowledge or consent. The judge would then rule on the coerced status of each debt, just as she would on an allegation that one spouse was entitled to certain property. A victim who successfully...