The credit reporting industry has a profound and growing impact on Americans' economic lives—from whether you can rent an apartment to how much your car loan costs to whether you get hired for a job—yet the entire system falls dangerously short on basic goals of fairness and accuracy. That was the conclusion of Demos’ 2011 foundational study on credit reporting and we called for urgent reforms.
Last week, the Consumer Financial Protection Bureau (CFPB) delivered some crucial industry advances, improving the process for fixing errors in credit reports and encouraging credit card companies to make credit scores more accessible and transparent. Alongside other advocates, Demos called for both reforms in our 2011 paper—and they will make the credit reporting system appreciably more fair to consumers. Now if only congressional Republicans would stop trying to destroy the CFPB.
First, consider the CFPB’s big new improvements to the way credit reporting companies handle disputes, such as consumers arguing that a debt appearing on their credit report was not actually theirs. As the National Consumer Law Center extensively detailed in their report “Automated Injustice,” the credit bureaus use a fully mechanized system that includes only a perfunctory automated investigation of errors that consumers are trying to fix, with no independent review. Even if consumers send supporting documents, like account statements, to substantiate their claim of credit reporting error, the credit bureaus reduce everything to a three-digit code. In the words of CFPB Director Richard Cordray as he announced changes last week: “This is completely unacceptable.”
Consumers are often in the best position to explain why a particular account or item in a file is inaccurate. They should have a full chance to explain their disputes to furnishers [the companies with whom the consumer allegedly has a debt]. But they lose this opportunity when the credit reporting companies do not forward consumer-supplied documents.
Last fall, we announced that the three major credit reporting companies had agreed to upgrade [the automated system] to correct these problems… today we are pleased to update you with further enhancements... Now consumers can upload documents whenever they file a credit dispute online, and furnishers will have direct access to those documents.
These changes will make it easier and more convenient for consumers to support their claims. They will also make it more feasible for companies to investigate fully and address the actual details in context. The result should be more disputes being resolved correctly, leading to credit reports that more accurately reflect the current facts about consumers’ credit histories.
Moreover, in September 2013, we put furnishers on notice that they are responsible for following the law by investigating consumer disputes, correcting inaccurate information, and sharing the corrected information with the credit reporting companies. We expressly informed furnishers that they are to have reasonable systems and technology in place to receive and process notices of disputes and information about disputes – including any relevant documentation that is forwarded to them by the credit reporting companies.
The result should be a big step for credit reporting accuracy—no small matter when, as the Federal Trade Commission recently found, 21 percent of consumers have a material error on a credit report from one of three major credit reporting companies.
Meanwhile, the CFPB’s other step, working to sway the nation’s largest credit card companies to make commonly-used credit scores freely available to their customers, will enable consumers to be better informed about a widely used metric crafted entirely using personal information about them—but which, until recently, consumers always had to pay to access.
But increased fairness in consumer financial marketplace is unfortunately a controversial mission. Just as the CFPB was announcing credit reporting reforms, the Republican majority in the U.S. House of Representatives was voting to undermine the CFPB. The legislation, a package of bills designed to eviscerate the consumer protection agency, comes at the CFPB from all directions, from its jurisdictional authority to its funding and independence.
By weakening the consumer watchdog, the bill would make it easier for Wall Street and other financial industry players to cheat and deceive consumers, effectively strengthening the worst elements of the financial industry. Happily, the Senate will not pass the legislation and the President will not sign it. But it’s troubling that effective consumer financial protection, from returning millions to defrauded Americans to enabling people to fix errors in their credit reports, has become a partisan issue. The recent credit reporting improvements only serve to illustrate how much we need a strong and independent CFPB.