For a $1,399 fee, TradeLine adds the borrower’s name to a stranger’s recently paid-off loan just before the account is closed. The account, with its perfect payment history, is then added to the borrower’s credit record in 30 to 45 days.
The original borrower is unaware that a new name is being attached to the account, he said.
TradeLine, Stearns says, has contracts with several banks -- he declines to identify them -- that have agreed to add TradeLine customers' names to the records of loans recently paid off by the banks' customers. These loans are known in the industry as dormant.
The banks are paid $500 to $700 per transaction, Stearns said. It is unclear if the person who took out the now-dormant loan receives any compensation.
The addition of a TradeLine customer's name to a dormant loan doesn't affect the original borrower, Stearns said, because the TradeLine customer is given his own loan account number while the original borrower keeps his.
That is common practice when assuming a live loan, banking experts say. Such loans are frequently taken over from original borrowers, such as when someone buys a car from a person who still owes money to a financing institution.
Banking experts said that taking over a loan that had been paid off -- a situation in which a person would get credit for the account's paid-in-full status even though he had nothing to do with settling the debt -- was unusual.
"I've never heard of this before," said Frank Newman III, president and chief operating officer of Wachovia Corp.'s Western banking group. "I can't imagine a lender going along. This is taking gamesmanship to a whole new level."
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