I recently had a client with a serious derogatory account reported by Capital One, preventing him from getting a mortgage. He had been talking on the phone with Cap One reps, but couldn't figure out what was going on.

Many years ago he had a Cap One chargeoff. Last year he opened a secured account with them. Now his credit showed the new GOOD account, as well as another account:

Opened 10/2000 and 120+ days past due with a balance of nearly a thousand dollars.

We finally concluded that this had to be the OLD chargeoff, redated. I sent a certified letter to the Cap One legal department. Excerpt:

"If you feel that you are reporting correctly, please fax to 206-202-4653 (client's) signed account application and the account history (itemizing all charges and payments)"

Several weeks later I got snail mail from the Capital One Executive Offices, dated July 9, 2001. Excerpt:

"Enclosed is a copy of the application, signed by (client,) which reaffirmed the previous debt. Please be assured that Capital One does not engage in false or deceptive practices.

To resolve the issue, we are requesting that the above referenced account be deleted from (client's) credit files. Please allow up to 90 days for this information to be updated. We apologize for any confusion that this may have caused, please be assured this was not our intent.

The original debt of ($...) will continue to be reported to his credit file. We will continue to collect on this balance, in accordance with the laws of (client's) state.

Unfortunately, we are unable to honor (client's) request for compensation. (Client) is responsible for any fees paid to a third party.

... "

I looked at my client's application, it certainly was his handwriting. Explanation:

I March 2000 he got the secured Cap One account. In September, they sent him the offer for the unsecured account with a limit of the balance of the old charge-off plus about $200. He signed the application, and where he was supposed to put some sticker, he crossed that part out and wrote: "I need info." I can clearly see that on the application.

Unfortunately, I cannot read the fine print above the signature.

Capital One did NOT provide the account history as requested.

But they sent two letters (July 3 and 5) to my client, advising that the account had been closed and reflected a zero balance. Apparently he never had used this account and really only wanted more info about the offer they mailed him.

My client's NEW Equifax dated 7/9 no longer shows that account.

While Cap One said they would continue to report and collect the old balance, the 7 years to fall off the credit reports were long up and the SOL expired after 4 years. So I suppose that's why the account isn't there.

I really think Capital One is using deceptive practices to get affirmations.

I do NOT see the word affirmation or any $ figure anywhere on the application.

Capital One did not provide any other documents, although I had specifically requested the account history.

At this point we're glad the account is gone, and with LOTS of luck, it will not reappear.

I don't know if the secured account my client opened in March prompted the September reaffirmation offer. Anyone?

FYI - the reference to third party fees refers to my request for reimbursement of MY fee. Am still waiting for someone to sue for the refund of my fees in cases of INCORRECT credit reporting.

Read NOT ONLY what you sign, but all enclosures with offers for new credit lines!

I have heard of other companies also offering new credit lines in exchange for affirmation of old charged off debts. If you got tricked into reaffirmation, don't just pay, stand up for your rights!

Christine -

This seems to be an attempt by Capital One to drum up new business - they are not only doing this "reaffirmation" on their own accounts but seem to be in partnership with several collection agencies.

I had an old Cross Country Bank account that was charged off and was well past the SOL. I received an offer from Capital One via Gulf State Credit to open a new card with this debt - $891.00 debt including fees - $400.00 credit line with the remaining $491.00 placed in a "special purchases" section which would not incur overlimit charges.

I did take the account as I am trying to clear my credit record, and as is well known CCB is very difficult to deal with.

There was no mention this was considered "reaffirmation" in my offer as well. I guess "buyer beware" applies in my instance.

Thanks for that additional info, Hal.

Does anyone have any LEGAL views/experiences with this "reaffirmation" practice?

All contracts involve a few basic elements. They are: (From http://www.legalwiz.com/articles/options.htm)

1. An offer and acceptance. 2. A meeting of Minds. 3. Between competent parties. 4. For a lawful purpose. 5. Consideration passed. 6. Signed by all parties. 7. Dated.

To invalidate an agreement you need to attack one of the above requirements or to state an affirmative defense like fraud or duress.

Now suppose that Capital One sends you a reaffirmation agreement, which you sign. Obviously you have given Capital One something of value -- but what have they given you? As far as I can tell, nothing. There is a lack of consideration involved and perhaps fraud if they concealed or misrepresented the offer.

Thanks, Shylock, and welcome! Was just considering sending you a personal invitation

I suppose Capital One could claim that the new credit line is consideration, but then again, it's CREDIT. Is credit consideration?

My client faxed me his 1998 credit report today and it shows $504 charged off by Cap One 8/93. ALWAYS keep all old reports, you never know when they'll come in handy.

After the "reaffirmation" in 2000, they reported $856 charged off. Interesting how that works.

My client is satisfied that the account is gone from his reports, but I sure hope somebody will sue, in real court with a jury.

Well, credit certainly could be consideration, but let's take a closer look at Hal's case (above).

If I understand the collector's offer correctly they are offering to let him pay $891 to them and in exchange they're going to give him a $400 credit line that is already maxed out and, therefore, unusable. I would not consider that to be consideration by any stretch of the imagination.

A much better method of recapturing these funds would be to pull scores on the debtor. The consumer's permission would not be required to pull their credit or their score. This is definitely not illegal. So everyone who meets your cut-off score gets a letter in the mail saying, essentially this:


Dear Mr. Deadbeat Nonpayer:

As you know you stopped paying us awhile ago and according to our records you now owe us $891. We're aware that people sometimes fall on hard times and we want you to know that we don't hold it against you in the slightest. In fact we want to show you that all is forgiven and we'd love to have you back as part of our family.

Enclosed is a cheque for $609 that we'd like you to cash. Once you cash that cheque we'll consider the matter settled and we'll wipe all the nasty, ugly and factually correct (according to our computer) derogatory information that we smeared all over your credit report a short 3 years ago.

Then you will pay us back the $1,500 at 9% interest over the next three years. That's an astoundingly low $47.70 a month. Where else will someone loan a person with your credit problems money at 9% a month? Nowhere, that's where so cash the cheque today and start working on becoming a happy, credit-worthy member of society. Remember that your credit is so important to affording a house and that even 25 basis points higher on your interest rate could cost you thousands over the course of the loan.

We love you. So cash the cheque. We forgive you. Cash it. If you have any questions call us at (888) IMA-SHYLOCK and we'll have highly trained professionals convince you to cash that cheque. It's for your own good. Cash it. Thank you.

************************************************** *
Ok so he cashes it -- what's the end result? Well, you put $609 out of pocket and in exchange he's going to pay you $47.70 over the next 3 years. That's a nominal annual yield of (drumroll) 86.3 percent. Hey, they don't call me the Shylock for nothing.

Best of all it's perfectly legal, includes consideration ($609 worth) and may actually improve the guy's credit and make it possible for him to buy a home someday.

Christine and all:

I just wanted to provide a little follow up on this subject.

While not for everyone, I have since accepted a second offer from Capital One, reaffirming another old debt, and accepting a Visa Card. I have personal and particular issues of honor regarding my debts and still believe in paying, regardless of the ultimate affect on my credit score - I am patient and know that in time even the negatives will receive less consideration and will drop off with time.

My ultimate goal is to purchase a home, and as everyone knows even the charge offs still showing would have to be paid so I consider these reaffirmations a positive step in my case.

To update - I have made well above minimums on both cards (total debt on each was $841 and $819. While the "credit limit" on each is $400.00 with the remaining balance being placed in a "special status" which does not incur overlimit fees - much to my pleasant suprise each payment has been allocated with a portion to the actual credit limit and a portion to the amount in the "special status". The interest rate is at 9.9% and as long as I don't miss payments is "fixed" through 2004 - which I consider a big positive. Additionally Capital one has sent me notice that as long as payments have remained current through the first 6 months of each account - they will reduce the debt by 10% of the original balance.

$841.00 - $84.00 = $757.00
$819.00 - $81.00 = $738.00

This basically amounts to 0% interest for 6 months.

I know many feel this is a "scam" from Capital One to reaffirm new debts - I entered into these agreements well versed on my rights under FDCPA and FCRA - and knew I was "reaffirming" debts that would fall off - again my sense of honor was important.

I have also disputed the accounts the collection agencies reported as "settled" on my reports and have been successful in having them removed from 2 of 3 reports.

I am at least finally building two positive tradelines, I sleep better, and have credit available - although I do not use it at all.

Hal, have you seen how the accounts are reported?

Is the credit limit there?

What balances are reported?

Are the OPEN dates the dates of the charged off accounts?

The old charge-offs are gone?

Also, COLLECTIONS usually (but not always) have to be paid for a mortgage, for charge-offs it depends on how they're reported. I've closed many loans with old charge-offs that didn't have to be paid - is that a change in underwriting guidelines?

Because this is SOOOO important, and apparently "everyone" is misinformed, I thought I'd post the FHA guidelines:

"C. Collections and Judgments. We do not arbitrarily require that collection accounts be paid off as a condition for loan approval, but we do require that court-ordered judgments be paid-off before the mortgage loan is eligible for insurance endorsement. (An exception may be made if the borrower has been making regular and timely payments on the judgment and the creditor is willing to subordinate that judgment to the insured mortgage.) Both collections and judgments indicate the borrower's regard for credit obligations and must be considered in the analysis of creditworthiness."

There is no mention of paying charge-offs.

FHA Credit Guidelines

hmmm... I've been using c1 for 2.5 years. First I applied for secured from c1, then a year later they offered me to switch for unsecured accont with 1,300 credit limit. I took their offer. Until then, I have no problem with it. I used it 50% or below of credit line. I never had single late payments none of all.

My point is.. I just find out that c1 doesn't report credit limit. What will I do ? stay with them since I dont have problem with except they will not report credit limit or closed account? I do have few other cards, but they are not even above 600 credit limit. I have zero charge off, etc.. except, i have too many inquires. scored only 620 points. Any advice?

-SF

1) Do NOT close the Cap One account.

2) I'd have to review your reports with the FICO scores to tell you what's going on, it's NOT the inquiries bringing your score down so low.

3) Calculate your B/L ratio: http://creditforum.org/showthread.php?s=&threadid=1775 - that'll show you how the failure to report the limit impacts on you.

4) Review your score factors for all three FICO scores.

5) Subscribe to CreditFactors if you don't have the time to search through the many thousands of postings here.

Also, please read the announcement