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From Banking and Finance Law Daily, May 1, 2014

CFPB provides tools for helping foster care children with credit reporting problems

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has issued action letters that can be used by child welfare caseworkers to send to credit bureaus if they find errors on the credit reports of the children in their care. State child welfare agencies—in order to become eligible for federal grants—are required by provisions of the Child and Family Services Improvement and Innovation Act of 2011 to ensure that youth in foster care who are 16 and older receive a free copy of any credit reports annually. The law also requires that the agencies ensure that these youth get assistance in interpreting and resolving any inaccuracies in the reports.

The bureau took this action since youth in foster care are more susceptible to credit problems and identity theft, due to the fact that they often lack a permanent address and their personal information is frequently shared among numerous adults and agency databases.

In a blog post, the CFPB noted that child welfare caseworkers and their agencies correct credit reporting errors before a young person turns 18 because his or her birthdate may make it easier to demonstrate that the credit report is incorrect.

One action letter could be used to alert credit reporting agencies that a credit report should not exist for a minor since minors generally cannot legally enter into contracts for credit, which means that credit reporting agencies do not knowingly create reports on them. Specifically, the letter tells a credit bureau that the credit report has been reviewed and that the youth is disputing all items because he or she does not recognize any of the accounts.

Another letter could be used by caseworkers if someone in foster care, who is now 18 or older, has activity on his or her credit report—from the time period as a minor—that is inaccurate. This letter informs a credit bureau that the credit report has been reviewed and that there should not be credit activity from before the youth turned 18. This letter could also be used if a caseworker needs to dispute a credit report error for someone in foster care who is 18 or older and the error is related to accounts that were opened when he or she was an adult.

Commenting on the letters, CFPB Director Richard Cordray said, “The Bureau is very concerned about foster care children’s vulnerability to credit reporting problems that can wreak financial havoc for them. We want to help ensure that youth leave foster care with clean credit so that they have a firm foundation for their financial future.”

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