BankThink

Credit Access Bill Would Shore Up Financial Literacy

May 28, 2015, 10:00 a.m. EDT 3 Min Read

Law and regulation

CFPB Uncovers Problems in Credit Reporting, Next Steps Unclear

The CFPB found that more than 26 million consumers are effectively "credit invisible" because they have no credit record and another 19 million are "unscored" because they have an insufficient or stale credit history. But it's unclear how the CFPB plans to tackle the issue.

By Rachel Witkowski

May 5
Bank technology

New Underbanked FICO Score Faces Old Banker Skepticism

FICO and two data partners are testing a credit score based on alternative data that could help banks take smarter risks on borrowers with limited credit histories, but bankers' cost concerns and adherence to traditional methods present big hurdles.

By Penny Crosman

April 2
Credit cards

Banks Face Costs from Credit Report Reform — They Might Be Worth It

Banks can expect to incur higher costs in several areas during the implementation of a settlement agreement to improve the accuracy of credit reports. But they might benefit in the long run by getting better information on borrowers.

By Andy Peters

March 10
Bank technology

KeyBank Hopes Financial Health Scores Get Clients' Number

The Ohio bank has partnered with MorningStar's HelloWallet to offer customers financial health scores and a suite of digital tools meant to provide financial advice at a time when branch transactions are on a decline. The experience will eventually be delivered through the bank's online and mobile banking channels.

By Mary Wisniewski

March 9

Credit reports and credit scores are valuable tools in the financial services industry. But many consumers could use more education in this area. In February 2015, the Consumer Financial Protection Bureau reported that consumer focus groups found "it difficult to disentangle credit reports and credit scores." A December 2014 survey conducted by Ipsos found that 44% of 441 respondents incorrectly thought that credit reports and credit scores were just different names for the same thing.

Clearly, there is a need for effective financial education. However, consumers proactively seeking to learn how to improve their credit reports and scores from consumer reporting agencies are frustrated by severe obstacles that result from the nearly 20-year-old Credit Repair Organizations Act.

The original intent of the law was to combat fraudulent credit repair practices that defraud consumers by disputing accurateinformation on credit reports, thereby promoting identity fraud and performing services of little value. But some court decisions stemming from class-action lawsuits brought by opportunistic plaintiffs' attorneys have led to a distortion of the law's purpose, wrongly extending its application. Preventing fraudulent credit repair remains important. But it's wrong to allow this law to impede consumers' ability to seek help from the best-equipped sources companies like consumer reporting agencies, which deal with the data on a daily basis.

Among CROA's provisions are requirements that consumers read or be read a 428-word disclosure and abide by a mandatory waiting period of three business days before they are given access to the education they seek about credit scores and credit reports. Because of CROA, consumer reporting agencies have to operate by these requirements or suffer potentially crippling liability and class action lawsuits.

The CROA's requirements are in direct conflict with consumers' expectations. We live in an age of smart devices, instant information and access. Consumers won't wait three days for help. Newly released research proves that over 98% of consumers exposed to CROA's requirements do not complete the enrollment process. When this happens, millions of motivated consumers who want to learn about their credit scores and credit reports never get the chance to access that information.

This does consumers a big disservice. A study by the Policy and Economic Research Council, a nonprofit think tank, and the Take Charge America Institute at the University of Arizona demonstrated that those who completed an education program increased their credit scores at a significantly higher rate than those who did not. In the group that did not take the education program, 13% of consumers moved up one or more credit score bands over the observation period, indicating a movement to lower-priced credit terms. However, among those that took the education program, 24% of consumers moved better risk tiers.

Congress could modernize financial regulation and empower millions of consumers by removing arbitrary barriers to financial education. This can be achieved by passing the Facilitating Access to Credit Act of 2015, introduced by Congressmen Ed Royce and Rubén Hinojosa.

The legislation exempts consumer reporting agencies from the CROA. This carries no risk of consumer harm. Fraudulent credit repair practices would still be policed by strong consumer protections. Consumer reporting agencies would still be regulated by the Fair Credit Reporting Act and subject to the enforcement powers of the Federal Trade Commission Act for unfair or deceptive practices. They would also continue to be examined and supervised annually by the CFPB, an agency that did not even exist when CROA was passed nearly 20 years ago.

Empowering Americans to take action to improve their creditworthiness is the right thing to do. There's no reason to delay acting on a bill that will empower consumers who want to be better informed and successful in managing their financial lives, raising their credit scores, funding college educations, starting small businesses and buying a first home or car. Let's keep America moving and put consumers first by enacting HR 347.

Stuart Pratt is president and chief executive of the Consumer Data Industry Association.