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Overdue books can cost more than just a fine

THE BALTIMORE SUN

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.

Baltimore officials are considering hiring a collection agency for unpaid tickets. More than one in five violations go uncollected, and the city is owed $35.7 million in tickets and fines going back to 2003.

"This is money owed to the city that has to be collected," said Stanley Milesky, chief of the Bureau of Treasury Management, who favors reporting unpaid tickets to credit bureaus. "It would be an important part of making this effective," he said.

For libraries, it's a matter of getting materials back, said Michael Gorman, president of the American Library Association. With budgets shrinking, many have less money to buy new books to replace old ones that aren't returned, he said.

Libraries in Maryland that use collection agencies include the Enoch Pratt Free Library in Baltimore and libraries in Frederick, Howard, Carroll, Charles, Montgomery, Wicomico, Prince George's and St. Mary's counties.

The Pratt, which has used Unique Management for two years, gives tardy borrowers two notices and 60 days to respond. It then turns fines of $25 or more over for collection, spokeswoman Mona Rock said.

Unique's Bowling said his agency uses a "gentle nudge approach" because libraries don't want to damage their relationship with patrons. Usually, a notice from a collection agency is enough to get borrowers to return overdue materials and pay fines, he said. The typical balance is $50 or $60.

For those needing more nudging, Unique follows up with more letters and phone calls. After 120 days without success, the agency makes a last phone call to warn patrons that their unpaid fine will be reported to a credit bureau, Bowling said.

"If it's on their credit report and unpaid, it will stop credit," Bowling said. Once paid, the item will have little or no impact on credit, although it remains on the report for seven years, he said.

Other credit experts say the impact of unpaid library fines or parking tickets depends on the lender and what else is on an a credit report.

Unpaid fines reported by a debt collector knock points off a credit score, however.

"From a credit score point of view, it doesn't matter so much the size of the debt, but that it's recent and happened in the last 11 months," said Evan Hendricks, author of Credit Scores & Credit Reports. A library fine recently posted on a report could trim 30 to 90 points off a credit score, he said.

Fair Isaac Corp., which created the widely used FICO credit score, updated one of its scoring models a year and a half ago to disregard such items involving $100 or less, but not all lenders use the revised model, said Karlene Bowen, director of client relationships.

Gabriel Pascual said he suspects that an unpaid parking violation on his credit report caused his score to fall from 675 to about 630. The San Diego resident said he never received a ticket on his windshield for illegally parking last year and that he later moved. (San Diego, which doesn't use an outside agency, reports debts it can't collect to credit bureaus.)

Pascual, 31, said he regularly monitors his credit report, which was how he discovered the parking violation. By then, the ticket was 180 days in arrears and penalties and interest had pushed the $40 fine to more than $100, he said. Pascual paid the ticket, and his credit scored improved.

Avoiding problems

With libraries and local governments increasingly using collection agencies, don't ignore notices of fines.

If an error has been made, contact the library or agency immediately to clear up the matter.

Monitor your credit report at least once a year.

If you see a collection item you owe, don't wait until you're about to apply for credit to buy a house or car before paying off the claim, said Howard S. Dvorkin, founder of Consolidated Credit Counseling Services Inc. and and author of Credit Hell - How to Dig Out of Debt.

Contact the collection agency and negotiate to have the negative item removed from your credit report once you pay the fine, Dvorkin said.

Eileen Ambrose

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