The Next Great Credit Career, the Credit Expert Witness

By Edward Jamison, Esq.

Few people are in more demand but less in supply than the consumer credit expert witness. These individuals possess a truly unique understanding of credit reporting, credit scoring, credit damage, identity theft, and the various credit laws, which govern how lenders and credit bureaus access and use our personal data. This issue of this month’s CreditCRM monthly newsletter will be dedicated to a “who, what, where, when, to what extent, and why” conversation with a seasoned credit expert witness, John Ulzheimer, who founded www.creditexpertwitness.com and in September will begin training a small number of credit industry professionals on how to leverage their knowledge into becoming an expert witness.

The first question that must be answered is who can serve as an expert witness and what qualifications must they possess? “This is a very common question from someone who would like to perform expert witness work but has never done so and assumes that the lack of witness experience somehow disqualifies them”, Ulzheimer says. “This is simply not true. All experts have his or her first case. I had mine roughly five years ago when I served as an expert witness for the Credit Bureau of Baton Rouge in a case where a consumer was suing them.”

The Federal Rules of Evidence (FRE 702) requires that an expert witness be “qualified…by knowledge, skill, experience, training, or education.” The determination of whether a witness is qualified to serve is part of the Court’s “gate keeping” function. Whether or not an expert is qualified is judged with respect to the subject matter of the witness’s testimony. Having said that, Rule 702 is not so rigid as to demand an intimate level of familiarity with every component as a prerequisite to offering expert testimony.

According to Ulzheimer, “what this means is if you have a firm understanding of credit either through your work, your education, or knowledge gained through research then you’ll likely make for an effective credit expert witness. In fact, I’ve served as an expert in cases where the adversarial experts have never worked one day in any part of the credit industry. I’ve also gone up against an expert, several times, whose career in the credit industry ended almost two decades ago.” The point is that if you have a demonstrable understanding of the credit industry it’s going to be hard to argue that you are not qualified to serve as an expert witness. “You don’t have to have a PhD in credit to be a credit expert witness.”

The next question is exactly what does an expert witness do? Again, according to Ulzheimer, “your primary role is to offer your opinion on several issues. Among other topics, for example, were the actions of your client reasonable? Another could be whether or not a low credit score was truly caused by negligence or was it self-inflicted? Yet another example would be to offer an opinion as to whether or not damages sought by a plaintiff are inflated or in line. You also spend a great deal of time acting as a consultant for your client, whether it’s the plaintiff or the defense. I also spend a great amount of time assisting my clients with discovery requests.”

Does the expert have to live in the same state where the lawsuit has been filed? “Absolutely not”, says Ulzheimer who lives in Atlanta. “I’m on my 26th case and only one of them was filed in a Georgia court. I’ve got clients in two dozen states and do 95% of my work from my home office. The only time I need to travel is when I’m being deposed or testifying in court. One of the more common myths about serving as an expert is that you have to live in the same state where the case is filed, which is simply not true.”

When is your work as an expert performed? “From the expert’s perspective each case has a chronology of events that generally occurs sequentially. The complaint is filed by the plaintiff, a response is filed by the defendant, the plaintiff might file an amended complaint, documents are produced by both sides, one side discloses who their expert is, the other side hires and discloses their expert, an expert report is filed giving an opinion, the opposing side will have their expert submit their expert report challenging the other’s sides report, you go through a deposition, and then the case either goes to court or is settled”, according to Ulzheimer. “Obviously there’s more to it than that but as the expert you are involved in only certain aspects of the case, not all of them.”

How involved do you get with your client? “Every client is different and every lawsuit is different. I’ve had some cases where I did only a few hours of consulting work and then my work was done. On the other hand I’ve had some cases where I’ve been their expert for years and have done well over one hundred hours of work” says Ulzheimer. “The attorney will direct your work. He or she has a well thought out strategy and knows where they will plug in your expertise.”

Why is an expert witness needed in a credit related lawsuit? “I used to ask myself that very question until I read my first expert report, which was filed by a man who was a very popular expert witness who always represented consumers over lenders” says Ulzheimer. His report was full of so much false information about credit scores and what influences credit scores. I knew right then and there that I was brought in to offer balance to his assertions. I’ve also been a part of lawsuits where nobody involved understood how information was generally corrected on a credit report and the process involved with doing so. My opinion is that one side hires an expert to ensure that the other side doesn’t embellish or unintentionally fabricate facts about the industry or the tools used in the credit industry.”

Do you always represent one side or the other (a consumer versus or industry player)? Ulzheimer quickly fires back, “absolutely not and anyone who does can’t genuinely call themselves fair and balanced.” When pressed for more about his answer he gives his reasons. “Look, lenders and credit bureaus mess up, everyone knows this. Does that mean they are always wrong when they’re sued? No, it doesn’t. I am a firm believer in only taking on cases where I feel like I’m representing an argument that is fair and accurate, regardless of whom my client is. I sleep very well at night knowing that I haven’t sold out to one side or the other. Trust me, I’ve seen my share of garbage lawsuits where a consumer was dead wrong but was trying to shake down a lender, collection agency or a credit bureau. I also hate to lose, which drives me to do the best job I possibly can for my client regardless of whether it’s a consumer or a company from the credit industry.”

Why are you training people to become expert? Aren’t you hiring your future competition? “I don’t look at it that way. If I was worried about other experts then I wouldn’t have started doing expert work.” Ulzheimer continues, “I can’t keep up with the work and I turn away a lot of potential clients because of conflicts or I don’t want to argue their side because I don’t agree with them. But that doesn’t mean that they don’t deserve a great expert to passionately represent them. There were 5422 consumer credit lawsuits filed between 1/1/06 and 11/29/07. I predicted a sharp increase at the beginning of 2009 and I nailed it. So far in 2009 there have been over 4000 filed already, and over 500 in June alone. There’s simply too much work to be done and not enough good credit experts to do it. I think the credit industry would benefit from there being more qualified experts to serve it.”

Can you talk about the expert training in September? “Sure, we’re inviting a small number of credit industry professionals to go through three days of credit expert witness training. Knowing what I know now about the demand and the financial benefits of being an expert witness I wish there would have been something like this when I was getting started. I could have ramped up my case volume much more quickly. I also could have saved a ton of money by skipping the poor expert placement services.”

What is the normal hourly rate for an expert and how much time do you spend on each case? “Are you trying to politely ask me how much you can make as an expert witness” Ulzheimer asks. “I’ve had some cases where I’ve made as little as a few thousand dollars because they only needed a few hours of work. I’ve also got cases where I’ve made over $100,000 because of how long the case lasted and the amount of work I was asked to perform. Look, if you go into this because you want to become the next John Ulzheimer then you’re looking at this all wrong. You should have the attitude that you’re going to kick my tail, become the next great credit expert witness and fight off clients with a stick.”

Does the fact that you’re on television help you get work? “I can honestly tell you that I haven’t gotten one client because of my television or media work”, according to Ulzheimer. “Remember, I started doing this years before I did my first interview or visit my first television studio. Lawyers don’t hire you because you’ve been on T.V. They hire you to be an expert witness because they think you’ll help them win their case. Lawyers also don’t watch T.V to find their expert witness. They use other methods, which we’ll discuss at the training in September.”

If you’re interested in learning more about how to become a credit expert witness then please contact Garett Overstreet at Garett@creditcrm.com.

CARD Act Signed Into Law, What Happens and When?

By Edward Jamison, Esq.

On Friday May 22 President Obama signed the landmark Credit Card Accountability Responsibility and Disclosure Act, or better known as the CARD Act. The CARD Act is meant to protect consumer from the abusive acts of credit card issuers. It becomes enforceable law at the end of February 2010, a full five months earlier than similar protections adopted by the Federal Reserve, which would have gone into effect in July 2010.

A highlight of the new law and its provisions is as follows:

Gift Card Longevity – Today gift cards have descending value, meaning that as the gift card remains unused the balance can be reduced a few percentage points each year. This self-reducing balance is important to the card issuer, especially if they are publicly traded because of current accounting rules that prevent a company from claiming the revenue until the card is actually redeemed.

What this means is that if you buy a $500 gift card from an Apple Store and never use it, Apple cannot claim that $500 as revenue despite having the $500 in the bank. This is why many companies reduce the value of unredeemed gift cards over time. Under the new CARD Act a gift card cannot be reduced in value for a full five years.

There are studies that have shown that the longer the “safe harbor” period for gift cards the less likely they are to be redeemed. So, it seems as if the lawmakers may have gone the wrong way with this provision. Think about it from a consumer perspective. If you have a gift card that expires in 7 days aren’t you more likely to use it quickly rather than a card that retains its full value for five years?

Under 21 Marketing Restrictions – Today you just have to be over the age of 18 in order to obligate yourself to a credit card agreement. That will change under the CARD Act. In fact, you will now have to be 21 years old starting next March if you want to apply for a credit card. An exception will be made for those who can prove that they have the capacity to make credit card payments and for those who can convince a parent to co-sign for them.

This is a “good news/bad news” provision in that it prevents consumers from establishing credit at 18. This costs you a full three years of credit history and credit experience, both of which are essential to someone who wants to build up his or her credit scores. Now someone who can’t find a parent willing to co-sign will have to wait until they turn 21 before they can get their credit career started. An obvious question to ask would be “exactly what happens between the ages of 18 and 21 that all of a sudden indicates that a consumer has learned the value of proper credit management?”

The good news is that many students who would have ended their college career with a nice degree and a ton of credit card debt will now end their career with just the degree. According to a study performed by Sallie Mae in 2008 found that 84% of college undergraduates had a credit card. And, the same study found that the average senior carried more than $4,100 after graduation. Both of these numbers will surely decrease with the new law.
Prevents Double Cycle Billing – Most credit card issuers have scrapped this practice voluntarily but the new law makes it official. Double cycle billing is the practice of using your average daily balance for the current and most recent past billing cycle and use that figure to determine finance charges. It’s complicated but safe to say that if you carry a balance from one month to the next then this method costs you more interest.

Longer Guaranteed Grace Period – Today many issuers are reducing grace periods, which is the number of days after your bill is mailed before it is due. This is the “free loan” period. If you pay your balance in full before the grace period ends then you’ve just enjoyed a free short-term loan.

Many issuers were reducing this grace period to 14 days, which caused many consumers to miss payments because their due date would fall between paychecks. The longer grace period guarantees that you will be paid at least once before their bill comes due, assuming you’re employed.

Prevents Universal Default – Universal Default is the practice whereby a credit card issuer adversely changes the terms of your credit card account because of your actions with another lender. Today credit card issuers practice universal default and then publicly decry the practice, depending on which way the wind is blowing.

Allows Consumers To Control Over-Limit Spending – This provision allows consumers to avoid over-limit fees. In fact, a consumer would have to contact a credit card issuer and proactively opt in to allow over limit transaction approval. Otherwise the issuer will decline the transaction while you’re standing at the register or waiting for the waiter to return with the bill. Fees represent a multi-billion dollar revenue stream for credit card issuers. This provision will cost them big time.

Allows Consumer to Earn Back Lower Rates – Consumers who have gone 60-days past due can still see their credit card interest rates increased. This act, according to the American Banker’s Association, is meant to punish a consumer for doing something that they didn’t want them to do, which is the pay late. This allows credit card companies to still punish the delinquent consumer but it also allows the consumer to earn back their lower rate if they can make their payments on time for six months. Today all you can do is ask for your rate to be returned to its lower baseline.

This provision also guarantees that your rate will not increase for the first year after you’ve opened a credit card account. And, if also guarantees that promotional rates have to last at least six months. This provision is neutral and doesn’t benefit either side.

So there you have it, the CARD Act. Still the best way to not have to concern yourself with legislative protections is to not have credit card debt. Doing so makes many of these provisions interesting but not applicable.

Credit Card Issuers Behaving Badly

by Edward Jamison, Esq.

Over the past 12-18 months most of the large credit card issuers have been changing the terms of some of their customer’s accounts. The reason they’ve been doing so is because of a general lack of comfort for credit risk as well as the slumping economy. Changing the terms is usually allowed under almost any circumstance, depending on the cardholder agreement.

Some of the more common actions being taken by credit card issuers, and the reasons why, are as follows;

Credit Limit Reductions – This is being done on a very large scale. In fact, Fair Isaac published the results of a study that measured the breadth of credit limit reductions during a 7-month period in 2008. Their findings show that 16% of cardholders saw their credit limits reduced in 2008, which translates to roughly 32 million consumers. Out of the 32 million, 22 million had a median FICO score of 770. This means that their credit limits were reduced for a reason other than poor credit or elevated credit risk. For these people it was because of inactivity, under-usage, or general lack of profitability. The remaining 11 million did have some sort of credit problem such as late payments, collections or adverse public records hitting their credit files so the reduction in credit limits wasn’t a surprise. What is important to remember is this study took place over a 7-month period from April through October 2008. Credit card issuers have been lowering credit limits since October 2008 and were doing so well before April 2008. What this means is the FICO numbers, while very accurate, are likely to underplay the true amount of consumers who have seen their credit limits reduced.

Increased Interest Rates – There are no numbers to quantify the breadth of rate increases but we know it’s significant. The excuse being given by some banking industry leaders is that a rate increase is meant to be both punitive and motivational. It’s punitive in order to punish cardholders who have done something wrong, like miss a payment due date. And it’s motivational because the logic is if your debt is more expensive then you’ll be more likely to pay it off faster. And while both are certainly true in some circumstances it’s hard to honestly argue that increasing an interest rate always leads to a consumer accelerating their payments. In fact, an alternative and much more damaging result is more likely which is to push an already struggling consumer over the edge into default. This doesn’t do the consumer or the creditor any good because of the damage it does to the consumer’s credit files and credit scores and it could motivate the consumer to seek the services of a debt settlement company or even a bankruptcy attorney. In either of the latter cases the lender gets much less, if any, of the money they are owed.

Increased Minimum Payment Requirements – The amount of money you are required to pay your credit card issuer each month is referred to as the “minimum payment required.” This amount is a percentage of the overall balance. Normally it’s 2% of the outstanding balance. But, in recent months some credit card issuers have increased that minimum requirement to 5% from 2%. This means if you were normally making a $350 minimum payment now you are required to make a $875 minimum payment. Don’t misinterpret this as them gouging you, like when they increase your interest rate. In this case they simply want back more of their money instead of less of their money. But, this also can lead to consumers defaulting on loans because they simply don’t have the capacity to make the larger monthly payment.

Reduction in Grace Period – The grace period is an often misunderstood component of a credit card account. The grace period is the amount of time between when the statement billing period has closed and the date when your payment is due. A simpler way to define the grace period is the period of time before interest begins to accrue on the balance. Some people incorrectly define the grace period as being the amount of time AFTER the due date a payment can be made before the credit card issuer starts to report your account to the credit bureaus as being past due. That’s incorrect. Grace period has nothing to do with credit reporting. The reason a grace period would be reduced is all about cash flow for the bank. If you never revolving a balance from one month to the next then you’re not going to earn the bank any interest income. As such, it would be reasonable for the bank to want their money back faster since it’s not earning for them. This allows them to lend it out to other people who are going to generate more income.

As of today every single one of these practices is perfectly legal, as long as the action doesn’t breach your contract with the creditor. However, many of them will be much more difficult to apply to your account as of July 2010, when a new set of credit card rules goes into effect. As of today the best way to avoid the negative ramifications of these actions is to only charge what you can afford to pay off at the end of the month. And, it would be in your best interest to pay off credit card debt as quickly as you can. This way things like interest rates, grace periods or minimum payments don’t matter to you.

Time to Sue

Is Litigation for You if You Can’t Get the Errors Corrected on Your Credit Report?

January 22, 2009
by Edward Jamison, Esq.

Imagine this scenario... You discover errors on your credit reports by one or more of your lenders. You challenge them and ask the credit bureaus to correct or remove them. Thirty days later the credit bureaus send you a reply confirming that what they have on file is accurate and it will not be removed or changed. They also direct you to contact your lender if you have any further questions regarding that allegedly incorrect credit reporting. You take the same course of action with the lenders reporting the incorrect information and, again, you are unsuccessful in getting the items corrected.

The scenario just described happens thousands of times every week. And while the Fair Credit Reporting Act is designed to protect consumers from credit bureau and lender negligence, the number of valid challenges to credit report data is not decreasing. Unfortunately, the number of challenges that result in credit reporting data being amended in favor of the consumer pale in comparison to the number that remain the same.

At this point the consumer has two very simple options; they can either live with the erroneous information until the state or Federal credit reporting statute of limitations expires, normally seven years, or they can escalate their efforts to have their credit reports corrected by filing a lawsuit.

Many experts are predicting that 2009 will yield an increase in consumer credit lawsuits due, in part, to consumers feeling the sting of increasingly difficult access to credit because of the credit crunch and a willingness to incur the costs of litigation to restore their good credit standing. "To some people it's an investment, do the math. If it costs you $20,000 in legal costs to force a lender or credit bureau to remove an inaccurate collection and the removal allows you to qualify for a mortgage interest rate that saves you $100,000, you tell me, was that a wise investment?

In fact, it's possible that you'll recover all of your legal costs as part of a settlement if your case is strong. It seems logical that the credit bureaus would not prefer a jury determine punitive damages in a case where they have sold credit reports to a lender that contained inaccurate information, but there is also a risk that the judge will grant only a portion or none of your Attorneys fees and then you're out that part of the money. The trade off for the credit reporting industry is legal fees and a controlled settlement amount, versus the unknown of taking the case to trial where the odds are not certain that at least one of the members of the jury has not had a similar experience with a credit bureau or lender.

The credit bureaus are sued hundreds of times each year with the majority of those lawsuits being filed in Georgia, California and Illinois. "It's not a coincidence that the filings are disproportionate to those states given that's where the three national credit reporting agencies are based", says John Ulzheimer, President of Consumer Education at Credit.com and the Owner of www.CreditExpertWitness.com, a consumer credit expert witness referral service. The credit bureaus also maintain insurance against such lawsuits so the costs can be limited to premiums and deductibles in many cases. Having said that, it's certainly not a comfortable feeling knowing that you're about to go to war with a company large enough to easily absorb the cost of litigation. "It's a rounding error to them and you better be prepared", states Ulzheimer.

So how do you know if you're prepared to sue your lender or one of the credit bureaus? Here's a checklist. If you can't answer yes to each of these then litigation may not be for you.

1. Have you documented all of your calls with the lender and credit bureau? This means every conversation you've had with them since you started your attempts to have the errors corrected. This can be as simple as a handwritten summary of the conversation with dates and names.

2. Have you attempted to have the item corrected using the standard protocols? You can't simply file a lawsuit against the credit bureau without giving them the opportunity to correct their error. Be sure that you've exhausted your rights to challenge credit report items as defined in the Fair Credit Reporting Act.

3. Have you suffered any damages due to the incorrect item? If not, then think twice about filing a lawsuit. Damages can be credit declinations, credit approvals with disadvantaged rates, higher insurance premiums, or the loss of a job due to credit report pre-employment screening. Can you document these things?

4. Can you tie the damages to the incorrect item? Are there other seriously negative items on your credit reports that are completely accurate that can be blamed for your damages?

5. Do you have copies of your credit reports and FICO scores and can you put together a chronology of credit reports and scores? If you can't, then you can subpoena the credit bureaus for archived credit reports and scores, although they will object profusely.

6. Are you absolutely certain that what's being reported is incorrect? Before you file a lawsuit you need to do a reality check. If the items are accurate but simply not to your liking, save your money.

7. Does your case have a chance? An expert witness can assess this for you before you spend a dime on a lawyer and can give you an honest assessment of your chances for success and ways to better prepare for litigation.

5 Big Credit Mistakes

July 24, 2008
by Edward Jamison, Esq.

It’s surprising how many consumers make the same credit scoring mistakes over and over again. In an effort to educate consumers on credit and credit scoring, we’ve compiled 5 common credit scoring mistakes into a list that defines each mistake and explains why they are bad and how to avoid them:

Credit Mistake #1: Closing Credit Cards Accounts
This is probably THE biggest credit mistake that consumers make. What you may find surprising is that closing credit card accounts can hurt your credit score almost as badly as missing a payment. Not only is this the number one on the top five credit scoring mistakes, it’s also number one on the list of credit myths. Ironically, most consumers make this mistake based on poor advice from a mortgage lender as a strategy for improving their credit scores. A word of advice people, when you’re dealing with something as sensitive as your credit and credit scores, make sure you do your homework before trusting some of these so called ‘industry experts’ before following through with their advice. There are two important reasons why you should not close credit card accounts:

1. Eventually, the accounts will fall off of your credit reports. The information in your credit reports are subject to certain rules in regards to how long it can remain in the report. In most cases, credit information will remain in your credit reports for seven years from the account’s DLA or date of last activity. When an account is open, the DLA will continue to update each month and the open account will never reach that seven-year mark. If you close the account, the DLA will stop updating and the clock will start ticking. Eventually the account will be completely removed from your credit reports.

Why would this be a bad thing? It’s simple – you never want to get rid of old, positive information in your credit reports. This information actually helps your credit scores. Credit scores want to see this positive account information. They want to see your long, perfect history of making your payments on time because this information significantly helps your credit scores. This information significantly helps your credit scores so why would you ever want that history to disappear? You wouldn’t! Here’s an analogy for you: let’s say you made straight A’s in high school. What if the record of that perfect scholastic accomplishment were permanently deleted seven years after you graduated? Would you ever want that history deleted? Of course you wouldn’t. The same is true for the credit reporting environment.

So, what should you do with old credit cards that you don’t use any longer?
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