The Fair Credit Reporting Act (FCRA), originally enacted some 45 years ago in 1970, serves as the chief federal law that regulates the consumer reporting agencies (“credit bureaus”) and protects the rights of people when it comes to credit reporting.
However, although the FCRA has undergone significant amendments in both 1996 (Consumer Credit Reporting Reform Act) and 2003 (The Fair and Accurate Credit Transactions Act), many consumer advocates, not to mention consumers themselves, feel the law still falls short of providing consumers with adequate protections.
Representative Maxine Waters (D-CA) believes another amendment to the FCRA is needed. In her words, “overhaul the American credit reporting system so that it is fairer, more accurate, and less confusing for consumers.”
Although the credit reporting system has already begun and will continue to undergo a major overhaul as a result of a settlement between the 3 major credit reporting agencies (Equifax, Trans Union, and Experian) and the New York Attorney General’s office, Rep. Waters believes additional more aggressive changes are still needed in order to properly protect the American public from what she refers to as the “predatory and unfair practices” currently being committed by the players in the credit reporting industry.
In May 2016 Rep. Waters introduced the Comprehensive Consumer Credit Reporting Reform Act of 2016 (H.R. 5282), a bill which proposes massive revisions to the current federal credit reporting protections and regulations provided for under the FCRA. The proposed changes in Water’s H.R. 5282 span a colossal 202 pages. (The entire FCRA itself including its previous amendments only boasts slightly over half that number.) While the bill is much too lengthy to fully dissect in one short article, some of the most notable proposed changes in Water’s H.R. 5282 include the following:
- Requirement to remove paid or settled derogatory accounts from a consumer’s credit reports within 45 days of payment or settlement. These accounts would no longer be permitted to remain on credit reports for 7 years from the date of default on the original account (regardless of whether or not the account is later paid/settled) as is the current standard for credit reporting in these situations.
- Requirements to reduce the amount of time that most types of derogatory items are permitted to remain on a consumer’s credit reports from 7 years to 4 years. (Bankruptcies would be permitted to remain on credit reports for a maximum of 7 years instead of the current 10-year maximum.)
- Requirements of credit restoration for victims of predatory mortgage lending. That is to say that the credit reporting agencies would be forced to remove derogatory information pertaining to foreclosures or foreclosure-like events (i.e. short sales and deeds-in-lieu of foreclosure) if the mortgage lender was found by the courts or the Consumer Financial Protection Bureau (CFPB) to have been associated with any deceptive or predatory lending practices.
- Requirement to introduce a loan rehabilitation option for consumers with private student loans similar to the current loan rehabilitation options available for consumers with federal student loans.
- Requirement to empower the CFPB with the authority to regulate the development of new credit scoring models.
- Requirement to grant consumers access to free annual credit scores in addition to the free annual credit reports consumers can already claim from www.annualcreditreport.com.
H.R. 5282 is not the first time that Rep. Waters has proposed legislation to amend the FCRA. In 2014 the California representative introduced the Fair Credit Reporting Improvement Act of 2014.
However, the bill failed to pass, and rightfully so, due to some significant problems with many of the proposed changes contained therein. Unfortunately for Rep. Waters, her newly proposed 2016 bill is likely doomed for a similar fate unless some major revisions occur due to some serious problems with the proposed legislation including, but certainly not limited to, the following:
1. The 45-day requirement to remove paid or settled debt is absurd. Dishonest individuals would be given a free pass to, for example, rack up a massive pile of credit card debt, allow the debt to go into default, and later settle for a much lower amount with no long term credit repercussions once the lower cost settlement was completed. It would be a glaring loophole simply waiting to be abused. If enacted this requirement alone could potentially serve to completely destabilize the entire credit scoring and lending environment as we know it.
2. The requirement to remove most derogatory information after 4 years is another glaring problem found in the new bill. Prematurely removing accurate, negative information about consumers who did not pay their bills according to the terms of their loan agreements would make it extremely challenging, if not impossible, for lenders to accurately predict and minimize risk when lending to new consumers in the future. In the past Mr. Waters has cited European countries when suggesting the reduction in years.
3. The CFPB overseeing the development of credit scoring models? That would assume the CFPB is qualified to do what so few companies have been able to do, which is to build ECOA compliant and generally accepted multi-bureau scoring systems. Only two companies have pulled that off…FICO and VantageScore Solutions.