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The Wrong Tool for the Wrong Purpose

Why the Credit Scoring Provision in the Immigration Public Charge Proposal Is Illogical and Ill-Advised 

October 2018 

 

On October 10, 2018, the Department of Homeland Security (DHS) issued a proposed rule that would make it much harder for immigrants to obtain visas (including visas to study or work in the U.S.), to extend their visas, or to become lawful permanent residents (“green card holders”).  The proposal greatly expands what will be considered in determining whether an immigrant would be considered a potential “public charge” and thus should be denied the visa or green card.  The proposal marks a radically punitive departure from current policy for a number of reasons.  For more about this proposal, see the website of the Protecting Immigrant Families campaign.

One of the factors that DHS proposes to use in the expanded public charge analysis is the immigrant’s credit report and credit score.  This particular element of the proposed rule is ill-advised and illogical.


CREDIT REPORTS AND CREDIT SCORES ARE NOT DESIGNED FOR IMMIGRATION PURPOSES

Neither credit reports nor credit scores are designed to provide information on whether a consumer is likely to rely on public benefits.  As the Consumer Financial Protection Bureau has explained, credit scores are specifically designed to measure the likelihood that a borrower will become 90 days late on a credit obligation.  They are not designed for other purposes.

Credit scores are only partly based on his/her payment records.  While 35% of a score is based on on-time payments, the rest of the score is based on factors such as having low balances on credit cards compared to the credit limit; how many years a consumer has had credit; and having a good “mix” of credit, including a mortgage.  These are factors that disfavor consumers who are new to credit, such as young people and immigrants.

Credit reports and scores do not contain any information about the consumer’s earnings or other income.  A consumer could have a substantial income and yet have a low credit score or negative marks on a credit report.  Contrary to DHS’s assertion, credit reports do not include arrests or convictions, and recent changes by the credit bureaus have removed the vast majority of lawsuit records.

Using credit reports and credit scores is also a terrible idea given that more than half of the negative marks for debt collection on credit reports are for medical debts -- one in five consumers with a credit report is impacted by this.  Often these debts are not caused by inability to pay -- the median medical debt is $207.  Instead, medical bills often end up in collection because of the dysfunctional healthcare system, which lead to delays and confusion.  In turn, this dysfunction results in bills being sent to debt collectors who often automatically report the debts to credit bureaus.


CREDIT REPORTS AND SCORES ARE NOT A PROXY FOR CHARACTER

Credit reports and scores often do not reflect an individual’s character or responsibility.  A bad credit record is frequently the result of circumstances beyond a consumer’s control, such as illness or job loss, from which the consumer may subsequently recover.  Once the consumer has recovered from the event, there is no reason to assume on the basis of past delinquencies that they will be a public charge.   And as discussed below, a consumer can have a low credit score simply because of not making use of credit.


IMMIGRANTS ARE UNLIKELY TO HAVE CREDIT HISTORIES AND CREDIT SCORES, OR THEIR SCORES ARE ARTIFICIALLY LOW

DHS’s proposal will be unworkable for many immigrants because they may not even have a credit history or score for DHS to consider.  The Consumer Financial Protection Bureau estimates that 26 million consumers in this country do not have a credit history, and that credit invisibility impacts recent immigrants.

Even when immigrants within the United States do have credit histories, their credit scores are actually artificially low.  A Federal Reserve study found that immigrants’ credit scores tend to be lower than what their actual repayment behavior on loans turns out to be, simply because they have not had enough time to build an extensive credit history in the United States.


CREDIT REPORTS SUFFER FROM UNACCEPTABLE RATES OF INACCURACY, ESPECIALLY FOR A PURPOSE AS IMPORTANT AS DETERMINING IMMIGRATION STATUS

The Federal Trade Commission, which conducted the definitive study on credit reporting errors, found that found that about 21% of consumers had verified errors in their credit reports, 13% had errors that affected their credit scores, and 5% had serious errors that would cause them to be denied or pay more for credit.   These error levels are way too high for credit reports and scores to be used for a purpose as critical as immigration status.  Denying 21% or even 5% of immigrants a visa or green card because of erroneous information is unconscionable.

DHS states it would not consider any error on a credit report, but only if it has been verified by the credit bureau.  This does not adequately address the issue of excessively high errors in credit reports.  Credit bureaus are notorious for obstinately refusing to correct errors after repeated disputes by consumers, even in the face of obvious evidence that information is inaccurate.   And many immigrants will face significant barriers in knowledge, language, and resources that will prevent them from even submitting a dispute.  They may not even be aware of what a credit report is, the contents of their credit report, or how to access their reports.  Credit reports are not available in languages other than English, posing another barrier.


USE OF CREDIT SCORES WILL HAVE A DISPARATE IMPACT ON IMMIGRANTS OF COLOR

Credit reports and scores reflect stunning racial disparities.  Study after study has found that African American and Latino communities have lower credit scores as a group than whites (and Asians, when the data is available).  A list of these studies is available in NCLC’s policy brief Past Imperfect: How Credit Scores and Other Analytics "Bake In" and Perpetuate Past Discrimination, May, 2016.   If DHS uses credit reports and scores, it will be making immigration decisions based on a factor that unequivocally and unfairly disfavor communities of color.

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Consumer Tips: Avoiding Home Improvement Fraud After a Natural Disaster

October 2018 

 

If your home has been damaged or destroyed by a natural disaster, your home is probably uninhabitable or in need of repairs. You may be anxious to find a trustworthy home improvement company, but be careful who you hire.  Survivors of natural disasters are often targeted by unsavory home improvement contractors looking to take advantage of their precarious situation. These contractors demand large payments up front, and do little to no repair work.  If a loan is needed to pay for the repairs, they may arrange a high-cost loan packed with hidden fees and costs. Here are some tips to protect yourself and your home.


TIP 1: AVOID DEALING WITH CONTRACTORS WHO:

  • Use high pressure sales tactics like asking you to sign something right away or telling you the deal won’t last.
  • Offer you special deals, like discounts on materials left over from previous jobs.
  • Pressure you to sign documents immediately.
  • Tell you they can help you get a loan from a lender they know.
  • Misrepresent the terms of any financing they arrange.
  • Only accept cash payments.
  • Demand payment for the entire job up front.
  • Refuse to give an estimate for the job up front.
  • Ask you to get the required building permits.
  • Give you only a cell phone number, pager number, or post office box as an address, and not a street address.


TIP 2: HIRE A REPUTABLE CONTRACTOR

  • Get bids from at least three contractors. Make sure that the bids are itemized so you know exactly what you’re getting.
  • Ask friends, neighbors, and family about contractors they have worked with.
  • Find out how long the contractor has been in business.
  • Contact the Better Business Bureau and/or the state Attorney General’s office to find out if there any complaints about the contractor.
  • Obtain and check several references from the contractor’s former customers, preferably those who had similar work done. If possible, inspect the contractor’s work in person.
  • Make sure the contractor is licensed and registered with your state. Get a copy of the license to make sure it’s current.
  • Talk to subcontractors about the contractor’s payment history. Your state’s law may allow subcontractors or suppliers to file mechanic’s liens against your home to satisfy their unpaid bills. Ask the contractor, subcontractors, and suppliers for a lien release or lien waiver.
  • Make sure that the contractor carries personal liability, workers’ compensation, and property damage coverage and get copies of insurance certificates to make sure they’re current.
  • Make sure that the contractor is responsible for obtaining any permits required for the job and negotiate who pays for permits.


TIP 3: WHEN HIRING A CONTRACTOR…

Always get a written agreement before any work starts and before you pay anything. Make sure it contains the contractor’s name, address, telephone, and license number; the payment schedule; an estimated start and end date; the contractor’s obligation to obtain all necessary permits; how changes to the contract will be handled; warranties covering materials and workmanship as well as the contact information of the parties honoring the warranties, the length of the warranty period and any limitations. BE SURE TO PUT ORAL PROMISES IN WRITING. Never sign a contract that is incomplete or has unfilled blanks.  Cross out any section of the contract that requires you to submit any dispute you have with the contractor to binding arbitration. If the contract notes that you are forced to use an arbitrator to settle a dispute, you will lose your right to sue the contractor if any problems arise.

Remember, you may have a right to cancel the contract. You should receive a written statement of your right to cancel the contract within three business days if you signed it in your home or a location other than the seller’s permanent place of business. 

Never pay in cash! For smaller projects, you may be able to pay by check or credit card. If you have a problem with merchandise or services that you charged to a credit card and you have made a good faith effort to work out the problem with the seller, you have the right to withhold payment from the card issuer for the merchandise or services plus any finance or related charges.

Shop around for a loan. For larger projects, you may have to obtain a loan. Don’t let the contractor start work before you have a loan you’re satisfied with. Shop around for financing, and make sure that the payment terms are reasonable and affordable. Some home improvement contractors steer consumers to high-cost lenders who make loans with abusive terms.  If the contractor is arranging financing, don’t sign the contract for work until the contractor has also given you the credit or loan contract. Compare the documents. What looked like a good price may turn out to be a very bad deal. Remember, you can back out of a loan at any time before you sign the papers. If you sign mortgage loan papers and the money is being used to repair or improve the home (rather than purchase it), the law allows you to change your mind within three business days. This means you can cancel the loan and get a refund of your closing costs.

Don’t pay for the entire job at once. As a rule of thumb, you shouldn’t pay for more than 33% of the estimated cost up front, and in many states, it’s illegal for the contractor to ask for more. Additionally, be wary if a contractor tells you halfway through the job that the final price will be higher than expected. If you have a written contract that says how much the job will cost, the contractor is not allowed to change it unless you agree to a change in the scope of the work.  To learn more about your rights as a consumer, contact the consumer division of your state attorney general’s office.

Make sure the contractor completes the job.  Don’t make final payment or sign a certificate of completion until all of the work meets the standards spelled out in the contract, permit issuers have inspected and approved the work, you have received written warranties for materials and workmanship, you have received proof that all subcontractors and suppliers have been paid, the job site has been cleaned up, and you have inspected and approved the completed work.

Keep all paperwork in a safe place. This includes copies of the contract, change orders, and correspondence with your home improvement professionals. Keep a log or journal of all telephone calls, conversations, and activities. Take photographs or a video as the job progresses.


TIP 4: RESOLVING A COMPLAINT

Try to resolve any complaints with the contractor first. Follow up any phone conversations with a letter. Send the letter by certified mail return receipt requested or send with a tracking number via postal service or another carrier, so you can prove the company received your letter. Keep a copy for your files. If your complaint isn’t satisfactorily resolved, contact:

  • Your state Attorney General’s Consumer Protection Division
  • An attorney or legal services office (if income eligible)
  • Your state’s Licensing Board
  • Your local Better Business Bureau
  • A consumer reporter at your local newspaper, TV, or radio station
  • Local dispute resolution programs


ADDITIONAL RESOURCES

Find an attorney:

  • The National Association of Consumer Advocates is a network of attorneys committed to ethical representation of consumers (see Find an Attorney and search by state and practice) at: https://www.consumeradvocates.org/find-an-attorney
  • Legal-aid attorney representation may be available if you are low-income, A list of local legal-aid organizations is available at: https://www.lsc.gov/

National Consumer Law Center report: Avoiding Home Repair Fraud: Lessons From Hurricane Katrina (2008), available at: https://www.nclc.org/images/pdf/pr-reports/report-katrina_repair_fraud_2008.pdf

The National Consumer Law Center’s Surviving Debt (2019), contains everything consumers, counselors, community leaders, and others should know about what to do when a family is in financial trouble. The book is available in print and as an e-book at https://library.nclc.org/bookstore. Bulk pricing is available. Read the first chapter for free at https://library.nclc.org/sd/0102.

More advice and materials about other consumer issues related to survivors of natural disasters can be found at https://www.nclc.org/issues/disaster-relief-consumer-protections.html.

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Consumer Tips: Getting Your Homeowner’s Insurance Money After a Disaster

October 2018

 

If your home has been damaged by a natural disaster, homeowner’s insurance can give you the money you need to repair or rebuild your home. But beware! There may be others hoping to profit from your misfortune. Scam artists and unscrupulous home improvement contractors flock to areas affected by natural disasters. Here are some tips for avoiding these scammers and getting money from your insurance company.


DON’T GET SCAMMED!

Post-disaster scams are common. Here are some examples.

  • A person calls or shows up at your house to offer to help with filing claims with your insurance company or getting government benefits, for a fee. The claims adjuster sent by your insurance company and government officials, from FEMA and other agencies, do not request fees. The process for filing an insurance claim begins with a call to your insurance company.
  • Your contractor asks you to sign a “direction to pay form” that allows your insurance company to pay the contractor directly (i.e., the contractor doesn’t have to go through you) before any repair work is completed or before you’ve had a chance to inspect the work that’s been done. Don’t sign such a form until the work is complete and you are sure you are satisfied with the repair work.
  • A person claiming to be an agent of FEMA or another disaster relief organization calls and asks for your personal or financial information. FEMA and other disaster relief organizations do not contact disaster victims until and unless they’ve been contacted by the victim. If you receive an unsolicited phone call like this, do not disclose personal or financial information that could jeopardize your identity or bank account.


FILING YOUR CLAIM

After a disaster, the process of rebuilding your life may seem overwhelming, but it is important to get in touch with your insurance company and mortgage lender quickly.

  • Obtain a copy of your homeowner’s insurance policy and a copy of your flood insurance policy (if your home sustained flood damage). Your insurance agent can provide you with a copy of your policy, if needed. Review your insurance policy to get a sense of what is covered and what obligations you may have after a loss. For example, many insurance policies have deadlines for filing claims and require the homeowner to make temporary repairs to protect against further damage or vandalism. Proof of loss for flood insurance must be submitted within 60 days unless the deadline is extended.
  • Fully document any temporary repairs you make. Keep your receipts and take pictures of the damage before making repairs. (Ideally, you should take pictures or video of each room in your home before a disaster strikes, which allows for a better assessment of disaster related damages).
  • Contact your insurer immediately to give notice that you have or may have a claim. If you notify your insurer by phone, follow up with a written confirmation with proof of delivery (e.g., return receipt requested or sent with a tracking number via postal service or another carrier).
  • Ask your insurer for immediate financial assistance for additional living expenses. Such assistance is generally provided under homeowners’ policies.
  • Make a room-by-room list of damaged possessions, note damages to the structure (e.g., walls, foundation) of the home, and take pictures or video of the damage.
  • Complete any claim forms and proof of loss forms the insurer requires.
  • Give your insurer your temporary contact information, if applicable.
  • Keep a written record of the date and substance of all of your communications with your insurer.
  • If you live in a flooded area, check your policy for language about mold coverage. Check for mold damage, especially if you detect an earthy or musty smell in the home. Mold damage may be hidden (e.g., it may become visible when your contractor opens the walls) and you may need to contact your insurance company to report additional damage. Testing for mold is often expensive and unnecessary, and a visual inspection of the home may locate the source of the problem.
  • If you have a dispute with your insurer about the amount of the claim settlement, contact your state’s insurance department for assistance and try to get an independent contractor to give you an estimate of the repair cost. You don’t have to take the first insurance settlement offer, especially if you believe that the offer does not reflect all of the covered damage, including mold and other environmental damage. If your dispute continues, file a formal written complaint with your state’s insurance department and consider consulting an attorney.


CONTACTING YOUR MORTGAGE SERVICER

Your mortgage servicer is the company that sends your monthly statements on behalf of the mortgage lender that actually owns your mortgage. Your servicer also helps you resolve your mortgage-related issues. These tips can help you negotiate a smooth process with your servicer after a disaster.

  • If you have a mortgage, call and advise the mortgage servicer (the company that receives your mortgage payments) of the property damage. Follow up by sending written notice.
  • Keep a written record of the date and substance of all of your communications with your mortgage servicer.
  • Provide your mortgage servicer with good contact information for you, including a cell phone and email address, if available.
  • Relief options, such as a limited forbearance of mortgage payments, may be available. If you need assistance, including longer term assistance due to hardship, talk to your servicer about available relief options.
  • A HUD-approved housing counselor can assist you in working with the mortgage servicer to put a relief option or other foreclosure avoidance option in place.


GETTING YOUR INSURANCE MONEY

Your insurance pay-out may come in two separate checks: one for damage to the home, and the second for damage to its contents.

Money for damage to your home
If you have a mortgage, then you and your mortgage servicer) will likely be the “loss-payees” (i.e., the person to whom the check is made payable) on the check for the damage to your home. The reason this check is made payable to both the homeowner and the servicer is to give the servicer control over the money and therefore over the repair process. If you do not have a mortgage then the entire check should be made payable to you.

Some mortgage servicers may allow insurers to pay borrowers all of, or a large portion of, the insurance money directly. Factors that will affect how much, if anything, you may be entitled to receive outright are:

  • Whether your mortgage was current at the time of the disaster;
  • The amount of the insurance loss proceeds; and
  • The extent of the damage to your home.

Keep in mind that these proceeds must still be used only for home repairs. Call your mortgage servicer for more information. You may need a feasible repair plan before the servicer will release the insurance funds to you.

Money for damage to your personal property
Whether or not you have a mortgage, you should be the loss-payee on the check for your personal property. If your insurance provider mistakenly pays your mortgage servicer all of the insurance money (including the money due for your personal property losses), ask your servicer to issue you a check for the amount of insurance money that you were owed for personal property losses.


BE CAREFUL WHEN CHOOSING A CONTRACTOR!

Many unscrupulous contractors (or individuals posing as contractors) take advantage of homeowners who are desperate to get repairs or debris removal done fast. These contractors often leave such projects incomplete, do shoddy work or no work at all, and arrange financing for repairs at terms extremely disadvantageous to the homeowners. For more information about how to spot and avoid home improvement scams, read National Consumer Law Center’s Consumer Tips: Avoiding Home Improvement Fraud After a Natural Disaster available at: https://www.nclc.org/issues/avoiding-home-improvement-fraud.html.


ADDITIONAL RESOURCES

State Insurance Commissioners (links to each state’s Department of Insurance) available at: http://www.naic.org/state_web_map.htm

FEMA individual disaster aid: https://www.disasterassistance.gov

U.S. Department of Housing and Urban Development (HUD): https://www.hud.gov

HUD-approved housing counseling agency: https://apps.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

Housing counseling, HOPE NOW: http://www.hopenow.com/index.php

National Consumer Law Center report: Obtaining Mortgage Relief for Victims of Disasters available at http://www.nclc.org/images/pdf/pr-reports/report-mortgage-relief-for-victims-of-disasters.pdf.

The National Consumer Law Center’s Surviving Debt (2019), contains everything consumers, counselors, community leaders, and others should know about what to do when a family is in financial trouble. The book is available in print and as an e-book at https://library.nclc.org/bookstore. Bulk pricing is available. Read the first chapter for free at https://library.nclc.org/sd/0102.

More advice and materials about other consumer issues related to survivors of natural disasters can be found at https://www.nclc.org/issues/disaster-relief-consumer-protections.html.

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