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Legal, Regulatory, and Privacy Issues

House credit reform bill is ‘major achievement,’ consumer advocates say

The new legislation would reduce the amount of time a delinquency or bankruptcy can remain on your credit report

Summary

Legislation passed by the House in January would shorten the reporting period for delinquencies and provide fairer treatment for victims of predatory student loans and others. But it still must gain approval by the Senate.

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Following up on efforts taken in previous years, Congress continues to tackle the thorny topic of credit reporting accountability with a bill to reform the credit reporting process getting through the House.

The Comprehensive Credit Act of 2020, approved by the House on Jan. 29, combines elements of various other bills and seeks to amend the Fair Credit Reporting Act of 1970.

The bill could face long odds in the Republican-controlled Senate. In any event, getting the bill through the House is a “major achievement” according to Ed Mierzwinski, senior director for federal consumer programs, U.S. PIRG.

“Perhaps they could cooperate on a less comprehensive bill that could be conferenced with the House package, resulting in passage of a credit reporting reform of unknown scope,” Mierzwinski said. “Limited time in this election year makes those odds low, but we continue to push forward.”

See related: Could credit bureau reforms pass in the new Congress?

Bill introduces more protections in credit reporting process

The Consumer Financial Protection Bureau reports that 43% of the approximately 342,500 consumer complaints it received in the period Oct. 1, 2018 through Sept. 30, 2019 pertained to credit or consumer reporting.

In fact, this was the leading category of complaints to the CFPB during this period, the consumer protection agency said in its semiannual report to Congress last fall. Thus, it appears that the legislation has a lot of scope to redress consumer grievances.

The provisions of the bill include:

  • Providing consumers a new right to appeal the results of disputes, with a requirement for the bureau to reinvestigate and come to a resolution on the matter within a 30-day time frame
  • The credit bureaus would have to use trained staff and deploy adequate resources to conduct these reinvestigations
  • Making “furnishers,” or those who provide information to the credit bureaus, more accountable
  • Reducing the period for reporting on delinquencies to four years, from the current seven years, and on most bankruptcies to seven years, from the current 10 years
  • Requiring credit bureaus to provide more information on the credit scores they provide consumers, including making known whether they are actual credit scores a lender would use, or just informational educational credit scores
  • Asking credit bureaus to not report a default or delinquency on a private educational loan if the borrower has made nine on-time payments on the loan in a consecutive 10-month time frame after the initial default or delinquency took place
  • Restrictions on the reporting of medical debt, including delaying the reports for at least a year, and not allowing reporting on debt related to a procedure that is medically necessary, including preventive and diagnostic procedures.
  • Providing relief for those impacted by predatory mortgage loans and fraudulent private education loans
  • Restricting the uses of credit reports for employment purposes
  • Restricting auto-renewals on promotional credit reporting and credit scoring products and services, as well as misleading marketing related to credit reporting and scoring offerings
  • Providing more opportunity for credit shopping without a credit impact
  • Protections for government employees impacted by a shutdown
  • Providing government supervision to ensure the accuracy of credit scoring models
  • Requiring a study on outcomes when alternative data are used in lending decisions related to consumers with limited credit histories
  • Making credit reports more accessible to nonnative English speakers and “visually and hearing impaired” people

See related: Educational credit scores are not the same as FICO scores

Credit reporting industry opposes the bill

In remarks supporting the bill in Congress, Maxine Waters (D-Ca.), chairwoman of the House Financial Services Committee, said, “Unfortunately, our system of consumer credit reporting is badly broken, and consumers have little recourse. It is typical for credit reports to be filled with unacceptable errors that are difficult for consumers to correct.”

However, the credit reporting industry is not in favor of this bill. In a letter submitted to Congress in January, before the House approved the bill, the Consumer Data Industry Association, a trade association that represents credit reporting agencies, stated that it opposes the bill.

The CDIA noted in the letter, “Not only does this legislation make extensive and complicated changes to the consumer reporting industry and the rights and obligations established under the Fair Credit Reporting Act (FCRA), it will raise costs throughout the entire credit ecosystem including for banks, credit unions, auto and mortgage lenders, property owners, employees, employers and others.”

See related: How to dispute and fix credit report errors

Consumer advocates enthused by reform effort

But the bill has found favor with consumer advocates, who have lauded this effort to reform the credit reporting process.

Chi Chi Wu, a National Consumer Law Center attorney, said in a media release, “For too many years, indeed decades, the Big Three credit bureaus – Equifax, Experian and TransUnion – have used and abused consumers by profiting from our information while allowing errors to run rampant. Finally, the credit bureaus are being held accountable for the harm they inflict on millions of American consumers who have no choice but to have their information sold and mangled by these for-profit corporations.”

And according to Christine Hines, legislative director at the National Association of Consumer Advocates, “The passage of the Comprehensive CREDIT Act of 2020 was a tremendous accomplishment to make it easier for consumers to contend with credit reporting mistakes, and to relieve them from negative reports in extraordinary circumstances, such as when student loan borrowers are victimized by fraudulent for-profit schools.”

Hines also urges the Senate to take up and pass this bill. She said, “Not many consumer protection bills have been brought up for a vote in the Senate lately. I’m not sure of the chances of this bill being considered. Nevertheless, the bill’s passage in the House was welcome, and sets the groundwork for the bill to become law sometime in the future.”

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