A recent Congressional hearing sought more accountability for the credit reporting industry, and a legislative proposal is also seeking more consumer rights relating to credit scores.
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With credit scores increasingly ruling the lives of Americans, lawmakers are renewing a push to reform the credit reporting process.
Equifax’s infamous 2017 data breach lent some impetus to these efforts, and the reform movement is now gaining more traction. The House Financial Services Committee held a hearing Feb. 26 about holding credit bureaus accountable. Committee chairwoman Maxine Waters, a California Democrat, is also pursuing legislation for credit card industry reform.
An updated bill Waters has introduced seeks to amend the 1970 Fair Credit Reporting Act so that credit bureaus such as Experian, TransUnion and Equifax treat consumers more fairly in the credit reporting process.
Members of both parties support credit reporting reform
At least one consumer advocate is positive about the bill’s prospects. Ed Mierzwinski, senior director for the U.S. Public Interest Research Group, who provided testimony at the Congressional hearing, said in an email, “It is never easy to pass any consumer reforms. But there is a chance to enact credit reporting reform in this Congress.”
Besides the fallout from the Equifax data breach, Mierzwinski also sees impetus for reform considering that the “special interest power” in Congress lies with creditors, rather than credit bureaus. And ranking member Patrick McHenry, a North Carolina Republican, “showed little love” for the credit bureaus at the hearing, according to Mierzwinski.
Also, among other factors, Waters is now “chairwoman of what is a more diverse Democratic caucus on a less Wall Street-ish committee,” Mierzwinski said.
And Thomas Brown, a partner at the law firm Paul Hastings, who also testified at the hearing conceded, “There seems to be bipartisan interest in tackling issues related to the FCRA and some agreement about the problems with the existing regulatory framework.
“It remains to be seen whether the interest and agreement about the problems will translate into legislative solutions,” he added.
Outrage over the Equifax data leak has had minimal impact on actual legislation so far. Waters’ bill was one of many introduced in the previous congressional session that were designed to protect consumers’ information and tighten credit reporting standards, yet failed to pass.
However, a broader consumer bill enacted May 2018 made credit freezes free in all 50 states.
See related: Main lesson after Equifax breach: Protect yourself
Bill would hold credit bureaus more accountable
Waters’ proposed legislation would give more rights to consumers in disputing reports from consumer reporting agencies and their sources, considering that “the presence of inaccurate or incomplete information on these reports can result in substantial financial and emotional harm to consumers.”
For instance, it would enable consumers to appeal disputes that consumer reporting agencies have completed. It would make consumers more aware of their rights in challenging any errors, too.
The legislation also aims to limit the use of credit checks for employment decisions, and be more lenient in reporting some lapses by private student-loan borrowers who have been paying their loans. Other goals include:
- Making it easier for consumers affected by predatory lending and unfair reporting to regain their credit standing.
- Seeking more federal oversight of the input that credit reporting agencies use.
- Providing consumers more access to and better understanding of their credit scores.
- Doing away with misleading and unfair credit reporting practices.
- Providing consumers more protection against identity theft and other fraud.
To further these goals, the bill would make it easier for consumers to access their credit scores, and shorten the period consumers have to face the consequences of adverse credit reports, among other things. It also aims to provide relief to those impacted by medical debt.
Today, credit bureaus are more likely to hold consumers responsible for providing proof to correct errors in their credit reports, thereby placing a burden on them. Complaints relating to credit reporting rank third in volume of all the subjects the Consumer Financial Protection Bureau receives consumer complaints on. And 76 percent of the credit-reporting complaints relate to inaccurate information on these reports.
Reining in credit bureau abuses
According to the National Consumer Law Center, a consumer advocacy group, the credit reporting system continues to mistreat consumers, even decades after the adoption of the Fair Credit Reporting Act.
Chi Chi Wu, a National Consumer Law Center attorney who testified at the Feb. 26 congressional hearing, said in a statement, “A key reason is the structure of the system is that consumers are the commodity, not the customer of the credit bureaus. When Equifax, TransUnion or Experian fails to respond to consumers’ problems, we can’t vote with our feet to leave.”
Among the credit bureau abuses the NCLC reports are mix-ups of consumers’ credit files, and negative information that continues to appear on these files even after courts have cleared consumers.
Citing the Federal Trade Commission, NCLC notes that about 20 percent of Americans with credit reports have errors on these reports, with 5 percent of these errors having the potential to change someone’s life. And the lenders that provide data for credit reports only do surface investigations into credit disputes. Moreover, the credit bureaus tend to go with what their information providers report, rather than verifying the input independently.
Mierzwinski noted in his prepared remarks for the hearing that the credit bureaus are “self-appointed gatekeepers to financial and employment opportunity,” with their mistakes particularly impacting low-income people and minorities.
According to Mierzwinski, the credit bureaus don’t accept responsibility for any mistakes, and, instead, blame those who provide them information. “It is literally the Bart Simpson defense: ‘It’s not my fault,’ ” he said. “They won’t change unless you make them.”
Some are more positive on credit bureaus
Paul Hastings’ Brown is more positive in his view of the credit bureaus. In his prepared remarks for the testimony, Hastings noted, “In any month, the consumer reporting agencies receive information on over 1.3 billion consumer credit accounts from furnishers. The consumer reporting agencies – particularly the three national agencies – do an impressive job of managing these records.”
The Consumer Bankers Association, a retail banking industry trade group, noted in its prepared remarks for the testimony that limiting the time adverse input stays on a borrower’s credit record could limit lenders’ ability to make an informed credit decision.
According to the CBA, “Lending involves risk; sound underwriting practices insulate financial institutions from excessive risks that lead to increased credit losses. Reduced credit losses lead to safer and better-priced products for those consumers who can truly manage them.”
The CBA is also not happy that the reform proposal could lead to “frivolous complaints and litigation to tie up the dispute resolution process.”
Chief executive officers of the three major credit bureaus also provided testimony at the hearing. TransUnion CEO James Peck has proposed some steps to improve the credit reporting system, including:
- Making more timely updates in today’s dynamic digital economy to reflect important credit events.
- Establishing new standards for reporting on student loans, which many consumers use to build their credit history.
- Looking into improved content reporting, such as the use of alternative data that might better reflect today’s economy and consumer behavior, and provide credit access to more consumers.
- Using data that show the trend of a consumer’s payments, so that they are not reduced to a single credit score at one point in time.
- Providing better protection for social security numbers, and engagement of the credit reporting industry in providing better financial education for consumers.