Intentionally misrepresenting a borrower's financial condition by giving a false report to credit reporting bureaus is illegal and is cause for a lawsuit. The federal government's Fair Credit Reporting Act provides a remedy for borrowers who are the victim of false claims; the state of Texas provides additional solutions under its own fair credit laws.
Texas Dispute Procedures
Should a Texas resident discover that he is the victim of false reporting, he should immediately dispute the information via the procedure established in Texas's legal code. The credit bureau(s) must investigate the claim free of charge, and he may initiate a claim over the phone or in writing. The bureaus must notify all relevant parties within 5 days that an investigation is forthcoming; the bureaus may stop an investigation if it's deemed frivolous. If the information is false, Texas law states that the bureaus must delete it from their records immediately. However, the lender may opt to re-initiate the dispute, even after the investigation is complete.
Legal Remedies for Texas Residents
Texas law permits residents to sue or enter binding arbitration against credit bureaus that have defamed a consumer because of false debt reporting. The decision of the arbitrator is final, and the losing party must pay the legal fees of the winner. If it's determined that the consumer owes the debt, then the consumer must pay the debt as well. Arbitration decisions must be made in a timely fashion, and decisions made in the consumer's favor force the bureaus to delete the debt immediately. Consumers are limited to filing one arbitration action in a 120-day period.
Civil Liability
Credit bureaus that willfully violate Texas law are subject to financial penalty equal to three times the amount of actual damages incurred by the borrower or $1,000, whichever is greater. "Negligent" violations are subject to a smaller penalty. Negligence doesn't apply if the bureau completes an investigation within 30 days following notification from the consumer that the debt is false. Should the bureau fail to correct the information within 10 days of the order, then a judgment will be entered against the bureau, and it will be subject to a penalty of $1,000 per day until the debt is deleted.
Additional Remedies, Relief, and Penalty
Texas residents are not limited to the civil penalties stated in the Act. Residents are permitted to bring additional suits or charges against bureaus that fail to act on false reporting incidents -- unless the incident has already been the subject of arbitration. The Texas Attorney General may also opt to file a suit against a person who files a false claim; multiple false claims result in multiple lawsuits for the accused. A person who makes a false debt claim against another is committing defamation and will be prosecuted criminally, as well.
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