Two of the country’s largest banks are finally getting around to removing the debt consumers eliminated during bankruptcy proceedings from their credit reports, a move that puts Bank of America and JPMorgan Chase in line with federal law.
The New York Times reports that the banks have agreed to update borrowers’ credit reports over the next three months, providing needed relief for about a million consumers.
Under federal law, when someone erases a debt in bankruptcy, their bank is required to update their credit reports to indicate the debt is no longer owed. But according to several lawsuits, many of the country’s largest banks have been disregarding those rules, leading to inaccurate and unfair red marks on credit reports.
Instead, the financial companies allegedly ignored the discharges in order to make money by selling off the debt to collectors, who then refused to correct issues unless borrowers paid the debts that were already cleared, the Times reports.
While JPMorgan Chase and Bank of America agreed to correct credit reports, neither company is admitting any wrongdoing as part of the deal.
JPMorgan plans to ensure that all debts discharged in Chapter 7 bankruptcy are correctly recorded on credit reports by August.
For its part, Bank of America plans to change the way it reports all extinguished debts that are sold to financial firms. Additionally, the company say all credit card debts sold since May 2007 will be removed from consumers’ credit reports.
Bank of American and JPMorgan Chase aren’t the only banks doing battle in court over the issues. Citigroup and Synchrony Financial also face lawsuits alleging they deliberately ignored bankruptcy discharges.
Synchrony agreed last year to provide relief similar to that of JPMorgan and Bank of America.
According to the Times, the banks tried repeatedly to have the lawsuits thrown out, but all of those attempts have so far been refused.
In the case against Citigroup, the judge criticized the company for not changing the way it reports debts to credit reporting agencies, saying the he believes the only reason the bank hasn’t rectified its process is because “it makes money off of it.”
In a statement to the Times, Citigroup said it takes the issue seriously, and has made a proposal to plaintiffs that falls in line with what other banks have done.