Nightmarish Consequences for $15 Overdraft

Dear Debt Adviser,

My daughter had an account at a bank that was closed in 2010. When she tried to open a new account at a local credit union, they found there was a $15 overdraft debt owed to the closed bank. The closed bank's accounts have been farmed out to other institutions, but no one can find hers. She has been on the phone for hours with the check reporting bureau. She keeps getting referred to people in other states. The check reporting bureau says they cannot write it off without some institution taking credit for it. Meanwhile, she is blocked from opening any bank accounts, obtaining loans, etc. because of an old $15 overdraft fee that no one can find. Without waiting seven to 10 years, are there any other options for her? Thanks for your help.

-- Kathy

Dear Kathy, You are getting the bureaucratic runaround. As long as they do nothing, they can't be blamed. Your daughter has inadvertently compounded the problem by dealing with bureaucrats over the phone. Calls leave no paper trail. And unless you are Sherlock Holmes, you'll never find the same person you just spoke with the next time you call back.

So she needs to start all over again. Here are my suggestions to get this resolved.

The Fair and Accurate Credit Transactions Act, or FACT Act, applies to all national credit and specialty consumer reporting bureaus, including check reporting bureaus. You are entitled to one free report each year from these bureaus. The major check reporting bureaus are ChexSystems, Shared Check Authorization Network, or SCAN, and TeleCheck. ChexSystems and TeleCheck have websites you can find with any search engine, with information on how to obtain your free report. SCAN can only be reached by phone, (800) 262-7771. I want you to order a free report from each of the bureaus.

With your reports in hand, the next step is to dispute the negative information listed from the failed bank with each bureau that is reporting it. Send the dispute in writing by certified mail, return receipt requested. Why certified mail? It foils the bureaucrats by forcing a named person to do something. Plus, it gives you the necessary documentation you may need later, to make sure the bureaus follow the rules of the FACT Act.

Once the dispute is received by a bureau, the FACT Act requires that they investigate the disputed information. Within 30 days they must provide written verification to you substantiating the information. In your daughter's case, the bureau would have to get in touch with whatever bank is currently holding the account and request verifying documents. From what your daughter has experienced, it is unlikely the bureau will be able to obtain verification. Without proper verification, the FACT Act requires that a disputed item must be removed from a consumer's report.

If the bureaucrats at the bureau fail to provide you with verification within 30 days, send another written request (again by certified mail, return receipt requested) demanding the item be removed. Include a copy of your receipt from the original dispute letter and explain that you are aware the item must be removed under the FACT Act.

Should you receive communication from the bureau that the information has been miraculously verified, the response should include contact information for the bank that provided the information. Contact (by certified mail, return receipt requested) the new bank and dispute the listing the bank is reporting to the bureau, and request verification from the bank. Again, because the bank you originally opened the account with has closed, it is unlikely the new bank will be able to produce verification. Without it, the item must be removed from your report.

Finally, if all else fails, I have found that you can usually get some help from your state's consumer protection agency. If they aren't listed independently, try the state attorney general's office. When those guys call or write, they get results -- fast!