The big three credit reporting agencies will likely spend their Fourth of July vacation thinking about two game-changing pieces of legislation that could completely overhaul the country’s credit reporting scenario.
Chi Chi Wu, an attorney with the National Consumer Law Center, turned up the heat on the agencies when she testified earlier this week at a U.S. House of Representatives Committee on Financial Services hearing. In the meeting, she discussed a host of problems facing consumers when it comes to credit reporting. At the top of Wu’s problem spots were:
Systemic errors in credit reporting, which are a result of deliberate decisions and longstanding failures of the credit bureaus that lead to unacceptable error rates, especially with racial communities;
An oppressive automated dispute system used by the credit bureaus; and
The need to cushion the punitive impact of a system that characterizes consumers who have fallen on hard times as “irresponsible deadbeats.”
Wu wasn’t shy about sharing how she would want Congress to change the credit reporting system. She said the following points would be a good place to start:
Prohibit the use of credit score information for anything that’s not related to credit decisions. “This means most employers could no longer use credit reports in their candidate screening process,” she said.
Cut the amount of time negative information remains on a credit report. “Information like missed payments and collections would fall after 4 years instead of 7. Bankruptcies would continue to stay on for 7 years,” Wu stated.
Limit the reporting of medical-related debt. Two things in this department: prohibit the reporting of medical debt for medically necessary services; and delay the reporting of unpaid medical bills for one year to give consumers time to resolve issues with hospitals and insurance carriers.
Wu said many of these issues stem from the fact that Experian, TransUnion, and Equifax are private, profit-seeking companies that are publicly traded, “which means their highest duty is to shareholder profit, not the public good or the American consumer.”
Wu was certainly preaching to the choir in her testimony, especially with Committee Chair Maxine Waters.
"Good credit is a gateway to wealth. Yet, for far too long, our credit reporting system has kept people of color and low-income persons from access to capital to start a small business; access to mortgage loans to become homeowners; and access to credit to meet financial emergencies," Waters said.
In fact, an overhaul of the credit reporting system might be close to reality thanks to the House passing two bills out of the committee -- the Comprehensive CREDIT Act and the Protecting Your Credit Score Act of 2021.
If enacted, those bills would do everything from giving consumers a right of appeal for credit reporting disputes to providing consumers with a right to seek injunctive relief so that credit bureaus would be compelled to fix a credit report.
“We need big, bold legislative solutions to transform this broken system,” Waters emphasized. “So, I encourage my colleagues to join me in re-evaluating how we determine creditworthiness and learning how we can harness new technologies to build a fairer and equitable credit system.”