House lawmakers on Tuesday called for sweeping reforms to the credit reporting industry — with some Democrats going so far as proposing a nationally run system, saying the three major bureaus are failing Americans.
Three pieces of legislation were put forth for discussion, including the National Credit Reporting Agency Act that “would establish the Public Credit Registry (PCR) within the Consumer Financial Protection Bureau, creating a public option for consumers who choose to utilize it.”
“This is a system that fails people with perfect credit that may be victims of identity theft,” Chairwoman Maxine Waters said at the Financial Services Committee hearing. “This is a system that fails people who get caught in a debt trap because of predatory lending, and this is a system that fails people who don't have the means to dispute errors that reporting agencies make.”
The three major credit bureaus — Equifax, TransUnion, and Experian — compile and store financial data about a person's debt obligations submitted by creditors into a credit report. That report can be used to determine if that person qualifies for a loan and at what terms. Landlords, employers, utilities, cell phone companies, and insurers also can use this information.
While ranking Republican committee member Patrick McHenry agreed that major reforms to the current “oligarchy” are needed, he doesn’t support a nationally run system.
“We should be promoting competition to create better opportunities for consumers,” McHenry said, “not allowing a single government entity to run the credit reporting process for all Americans.”
The committee also heard testimony on how credit scores — which are calculated from the information found in credit reports — may disadvantage certain groups.
“Although credit scores never formally take race into account, they draw on data about personal borrowing and payment history that is shaped by generations of discriminatory public policies and corporate practices that limit access to wealth for Black and Latinx families,” Amy Traub, associate director of policy and research at Demos, testified at the hearing.
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In a 2020 survey of 5,000 people by Credit Sesame, 54% of Black Americans and 41% of Hispanic Americans reported having a credit score below 640, while 37% of white Americans and 18% of Asian Americans reported the same.
The committee hearing comes after the Supreme Court ruling last week on a case involving TransUnion and credit reporting errors.
In TransUnion vs. Sergio Ramirez, 8,185 individuals claimed that TransUnion failed to use proper measures to ensure their credit files were accurate. The court ruled in favor of 1,853 of the claimants whose inaccurate information was passed on to third parties, but denied the remaining claimants because they did demonstrate “concrete harm” and lacked standing to sue, according to court records.
Credit report errors are not uncommon, according to a recent study by Consumer Reports. One in 3 individuals who volunteered to check their credit report found at least one error, with 1 in 9 discovering inaccurate account information.
On Tuesday, Rep. Waters called for more accountability and alternatives to be offered.
“I encourage my colleagues to join me in reevaluating how we determine creditworthiness,” she said, “and learning how we can harness new technologies to build a fairer and equitable credit system.”