Overdue books can cost more than just a fine

Even small late fees can be a credit headache

August 10, 2005|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

While apartment hunting in Detroit this spring, Laura Tropea pulled her credit report to see how a prospective landlord might view her as a tenant.

The 28-year-old civil rights lawyer expected to see some late credit card payments from her undergraduate days at the University of Michigan. But she was amazed to discover on her credit report that she owed about $168 to the Ann Arbor, Mich., public library for books checked out years ago.

"I haven't lived in Ann Arbor for five years. ... It's bizarre to me," said Tropea, who maintains that she returned the books and never received an overdue notice. She wonders whether the library fine had anything to do with a recent rejection of a credit card application.

Other consumers might be in for similar surprises. With tight budgets and limited staffs, libraries and municipalities have been turning to collection agencies to recover fines for overdue books and parking tickets, trash bills and ambulance fees, industry experts said. Once a collection agency is brought in, there's a greater chance that the unpaid bills will wind up on a credit report.

That can have far-reaching repercussions, possibly causing consumers to be denied credit, experts said.

Information on reports also is used to create a credit score, a number used to predict the likelihood of a consumer's paying bills on time. Lenders use the score to decide whether to extend credit and at what interest rate.

"We are seeing clients that are a bit surprised that the library fine, the parking ticket and the fees for the dump are showing up on the credit report," said Cate Williams of Money Management International, a credit counselor in Chicago.

A collection agency gets people's attention, even those who find it easy to ignore a gentle reminder from a librarian.

Alesha Verdict, circulation supervisor for the Charlotte Hall Library in St. Mary's County, recalled that two families couldn't qualify for a mortgage because of overdue library materials, although other negatives on their credit report might also have played a role. Both families cleared up the problem by paying their bills.

Another time, an 18-year-old found that she needed to pay about $54 in fines to get a car loan, Verdict said.

Charlotte Hall Library has received a handful of complaints since it hired a collection agency several years ago, but officials felt they had little choice, Verdict said.

"We were losing so many materials," she said. "We didn't have any way to get our materials back. This was like the only option that we had."

Though sympathetic to the plight of libraries and municipalities, some say reporting seemingly minor violations to credit bureaus is a serious step as credit reports increasingly encroach on people's financial and work lives.

"I'm just surprised they report it," said Joanne Kerstetter, president of the Consumer Credit Counseling Service of Greater Washington.

She wondered what would happen if the library or the parking department was in error or if someone moved and never received notice of a fine. Such items can affect whether someone gets credit, life insurance or security clearance for a job, Kerstetter said.

"Without a doubt, over the last five years, there is a dramatic increase by municipalities to use third-party agencies," said Lou Valerio, chief executive of Progressive Financial Services, an Arizona collection agency.

Unique Management Services in Indiana collects fines for more than 700 libraries in the United States (including some in Maryland) and Canada, up from 250 seven years ago, said Kenes Bowling, manager of customer development.

The decision to report unpaid fines to a credit bureau is up to the municipality or group that hires the debt collector.

Municipalities used to be reluctant to have fines reported out of concern of angering voters, Valerio said, but "I'm seeing more and more saying to report it."

The cost of collection is often added to the amount the debtor owes.

Among major credit bureaus, Experian and TransUnion will post information from collection agencies on reports. Equifax tries to weed out library fines and parking tickets because they are inconsistently reported across the country, said spokesman David Rubinger. Also, lenders don't consider them an indication of a consumer's creditworthiness, he said.

Even when municipalities don't want unpaid fines reported, they can end up on a consumer's record. If the collection agency receives a court judgment against a motorist, that information will be picked up by the credit bureaus, said Richard K. Carrier, president of Law Enforcement Systems in New York state, which collects tickets for local governments.

In Maryland, Annapolis and Prince George's County officials hire a collection agency for parking tickets, although officials say they don't have unpaid violations reported to credit bureaus.

"It's not about going out and breaking kneecaps," said Tim Elliott, Annapolis finance director.

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