Without your consent, approval, or even awareness, large for-profit credit reporting companies know an awful lot about you. TransUnion, Experian, Equifax and their smaller competitors know the credit limit on your AmEx card, how much you still owe in student loans, and all about that time you made the car payment late. Now, for a change, we may get to learn a bit more about them.
This week, the year-old Consumer Financial Protection Bureau (CFPB) announced that it will become the first federal entity to exercise supervisory power over credit reporting companies, meaning that it can compel the credit reporting companies to open their books and their internal policies and procedures to examination. The CFPB will be able to assess the companies’ compliance with consumer protection laws and evaluate any additional risks to consumers, potentially drafting new regulations if risks are detected.
The decision has the potential to benefit millions of Americans, given that the three largest credit reporting companies alone each maintain files on more than 200 million people in the U.S., a reason why Demos submitted comments strongly supporting the CFPB’s supervision of Credit Reporting Agencies. And not only is the impact broad, but it's deep as well. As we noted in, “Discrediting America,” our recent paper on credit reporting:
Credit reports and scores have a direct and growing impact on Americans’ economic security and opportunity. Having poor credit can mean a consumer will end up paying a higher interest rate for a loan or a higher premium for car or homeowner’s insurance; have their application for a loan or insurance denied; be turned down for a job, or even be terminated from their current one. Credit history can affect the way Americans are treated by landlords, utility companies, and hospitals.
In the report, we detailed several ways in which the credit reporting system falls short on basic goals of fairness and accuracy. Chief among them was the prevalence of errors in credit reports and the fiendish difficulty getting disputes resolved and errors removed. Luckily, this is the area where consumer advocates see the most potential for the CFPB’s supervision to make a difference, improving accuracy and enhancing dispute resolution processes.
For their part, the credit reporting companies have tried to play it cool. Gerry Tschopp, a spokesman for Experian, told the Associated Press that “the government already oversees the industry, because the Federal Trade Commission has been responsible for enforcing the Fair Credit Reporting Act since it became law in 1970.” But the FTC had more limited and reactive authority over credit bureaus, being empowered only to enforce breaches of the law after they occurred. When it goes into effect on September 30, the CFPB’s authority will be broader and more proactive, capable of probing the hidden recesses of the companies that already know so much about our own private financial details. Or, as Ed Mierzwinski at USPIRG writes, “the Wall Street Reform and Consumer Protection Act establishing the CFPB gave it guns that the FTC has never had.”
Although I’m typically not a fan of violent metaphors, when it comes to secretive companies with a tremendous impact on our economic lives, consumers need the biggest guns we can get. Thanks to the CFPB and the Dodd Frank Act for arming us.