The Fair Credit Reporting Act (FCRA) is a federal law that regulates the collection, distribution, and use of consumer credit information. Along with the Fair Debt Collection Practices Act (FDCPA), FCRA forms the base of consumer credit rights in the United States. It was originally passed in 1970, and it’s enforced by the Federal Trade Commission. This seemingly outdated Act may receive a “face-lift” of sorts if a new proposed Bill gets passed.
Congresswoman Maxine Waters has recently introduced the Fair Credit Reporting Improvement Act of 2014 on September 10th, 2014. Maxine is a ranking member of the Financial Services Committee. If passed, this Act could result in the most aggressive overhaul of the Fair Credit Reporting Act since 2003. This new Bill that has been introduced could change the information of over 650,000,000 consumer credit reports and credit scores roughly overnight.
Here is a closer look at what this new Bill is proposing:
1) It could provide relief to millions of Americans who were victimized by predatory lending. It would remove adverse information about those loans that were found to be unfair, deceptive, abusive, fraudulent, and/or illegal. The proposed Bill would do this by ending the unreasonably long time period that such unfavorable information can remain on a consumer’s credit report. It proposes to shorten these time periods to just 3 years, instead of the previous 7 or 10 years.
2) It will give individuals the tools to truly verify the accuracy and wholeness of their credit reports themselves. This Bill will mandate that furnishers of credit reports retain all records for as long as undesirable information about these accounts remains on a person’s credit report.
3) The Bill will also eliminate punitive credit scoring practices by removing fully paid or settled debt from credit reports; including medical debt that has been found to not be a reliable predictor of a person’s creditworthiness.
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4) It would give distressed private education loan borrowers the same chance to repair their credit as federal student loan borrowers, by removing adverse information when delinquent private education loan borrowers make at least 9 consecutive on-time monthly payments on their loans.
5) The proposal also restricts the use of credit reports for employment purposes, which employers are increasingly using to screen qualified job applicants, despite the lack of adequate data to show that a person’s credit history is a possible precursor for their job performance.
6) It would also set a dollar amount that a consumer can be charged to buy their credit score from the Credit Reporting Agencies, while also requiring that the Credit Reporting Agencies provide consumers with a free annual credit score upon the consumer’s request. You can already obtain your free annual credit report from www.annualcreditreport.com but it does not list your credit score, at this time.
7) The Bill would ensure that consumers can obtain a legitimate and comprehensive investigation, or even a re-investigation of information contained on their credit reports which they feel is inaccurate or incomplete. If the ownership of the business that originally furnished the information in question is transferred to a new entity, that new entity must keep all information. This is accomplished by requiring the business that is selling or transferring the repayment rights to provide all information and records substantiating the consumer’s liability to this new business entity. The new entity must maintain such information for as long as the adverse marks still appear on the consumer’s credit report.
8) It will end the statutory barrier for Private education lenders to offer rehabilitation for delinquent borrowers because of the requirement under the current FCRA that states that lenders can only furnish accurate and complete information to consumer reporting agencies. Sallie Mae cited this FCRA requirement as the reason that it could not offer a similar credit restoration option that is currently available for delinquent Federal student loan borrowers.
9) The proposed Bill would require validation of Credit Scoring Algorithms such as the FICO Scoring Algorithm. It asks the Bureau to set standards for validating the accuracy and predictive value of all credit scoring algorithms, formulas, models, programs, etc. before their initial use by Creditors and Lenders.
10) The Bill will also establish clear federal oversight of credit scoring models that play an increasingly important role in people’s lives. Although federal prudential regulators review the performance of the use of these models by lenders as part of safety and soundness reviews, no federal regulator is currently tasked with monitoring the development and validation of these models.
11) It would direct the Federal Housing Finance Agency (FHFA) to study the merits of implementing additional or alternative credit scoring products in setting eligibility requirements for mortgage loans purchased by Fannie Mae and Freddie Mac. Both Fannie Mae and Freddie Mac are widely recognized as having a tremendous impact on the models and underwriting criteria used by primary mortgage lenders.
12) It will require that borrowers, who are complying with the terms of the new credit rehabilitation options for predatory mortgage loans and private education loans, are reported as “paying as agreed,” and not reported in a method that harms their credit score. This will guarantee that consumers who participate in the newly created credit restoration programs will get credit relief, instead of being penalized for their participation.
13) Provides recourse for consumers to pursue injunctive relief when they enter into a lawsuit for a violation of the FCRA. This provides authority to a court to order any entity that violated the Act to stop engaging in the specific practice that is found to be in violation of the law.
14) Encourages consumers to shop for the best terms and conditions when seeking to obtain a mortgage, auto loan, or private education loan. It does this by treating multiple hard inquiries by a Creditor or Lender as a single inquiry within a reasonable 120 day time period. According to experts, the fear that multiple hard inquiries will lower a consumer’s credit score deters a significant number of people from comparison shopping prior to obtaining credit.
Many of the points discussed in this proposed Bill could be looked at as being positive changes, but there is another way to look at what’s being wished-for here. While many of these changes could be a good thing for most consumers, some of them could have the opposite effect on our credit reporting system and even on our economy. Every point in this proposed Bill should be closely examined and studied to weigh any negative effects that could take place if this Bill were to be passed. No proposed Bill is perfect, and there are a few things in this Bill that should probably be challenged.
