Congresswoman Maxine Waters (D-California), a ranking member of the House Financial Services Committee, unveiled a proposal today that would make sweeping changes to the way consumer credit is scored.
Waters drafted her proposal, which is entitled "Fair Credit Reporting Improvement Act of 2014," in response to many recent cases and studies which have exposed flaws in the country's current consumer reporting system. The Federal Trade Commission (FTC) reported that one in every five Americans (approximately 40 million) has at least one error on his or her credit report, and the error is significant enough in about 10 million of those cases that it could potentially increase the cost of credit available to those consumers.
"Credit reports are no longer just used exclusively by lenders in making a credit decision. More and more, credit reports are used in a variety of ways, from employment decisions, to determining a consumer’s ability to rent a home, buy a car, or purchase insurance," Waters said in a press release. "A person’s credit report is too important in determining access to a wide array of opportunities for these reports to contain inaccurate and incomplete information. This proposal addresses many of the flaws with the existing consumer reporting system, by making common-sense changes that enhance consumers’ rights, create more transparency over the consumer reporting and credit scoring process, and increase the accountability of credit reporting agencies, furnishers, and companies that develop credit scoring models and formulas."
A subcommittee of the House Financial Services Committee has scheduled a hearing entitled "An Overview of the Credit Reporting System" for 2 p.m. Eastern Standard Time today in Washington, D.C. to discuss Waters' proposal and other consumer reporting issues.
The major points of Waters' proposed reform to the consumer reporting system include:
- Shortening the time that adverse information remains on a consumer's credit report from seven to four years
- Removing adverse information from credit reports that is the result of illegal, deceptive, or fraudulent practices of predatory mortgage lenders and servicers
- Removing settled debt, such as medical expenses, which is not necessarily a reliable predictor of a consumer's ability to repay a loan or worthiness to obtain credit
- Removing private student loan defaults when the distressed borrower makes nine consecutive monthly on-time payments
- Requiring furnishers to retain all records as long as adverse information remains on a consumer's credit report.