Citing widespread errors in consumer credit reports, two U.S. senators have proposed a bill that would make it easier for people to learn about and challenge errors, as well as increase the credit reporting industry’s accountability for mistakes that go uncorrected. Among the requirements, the proposal would entitle consumers to a free copy of their credit score every 12 months.
Sen. Brian Schatz (D-Hawaii) and Sen. Sherrod Brown (D-Ohio) introduced the Stop Errors in Credit Use and Reporting Act of 2014 on April 9, saying that even those consumers who pay their bills on time and otherwise play by the rules are hurt by errors that show up in their credit reports and affect their scores.
Lenders, insurers, employers, and others use credit reports and scores to determine consumers’ eligibility for loans, credit cards, jobs, housing, and more. Credit reports and scores also affect the rates consumers pay for loans and insurance.
A credit report “can determine whether you can find a job or rent an apartment or buy a car or home,” said Sen. Brown at a news conference announcing the so-called SECURE Act. “But errors are far too common and far too difficult to fix or erase.” Brown is chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection.
Sen. Schatz described the credit reporting industry as a "dark ecosystem of businesses" that operate in a "black box" that prevents people from knowing what information is being collected, who is receiving it, and what errors it contains.
A recent Federal Trade Commission study estimated that five percent of consumers have an error on one of their credit reports significant enough that they likely would be charged higher interest rates on loans.
The bill drew praise from consumer groups, including the Consumer Federation of American, the National Consumer Law Center, Americans for Financial Reform, and Consumers Union, the poliucy and advocacy arm of Consumer Reports.
As a result of credit reports errors, "you may lose that house you wanted to buy or wind up paying a higher rate for a student loan," Pamela Banks, Consumers Union senior policy counsel, said at the news conference.
A Consumers Union policy brief (PDF) issued April 9 said that many credit-report errors occur because companies that provide data to credit reporting agencies include information that's outdated or belongs to the wrong individual. The report also found that correcting credit report errors can be difficult and frustrating for consumers because credit bureaus fail to investigate reported errors fully and often take the word of the companies that report the information, many times with inadequate evidence to support the disputed item.
Norm Magnuson, vice president for public affairs for the Consumer Data Industry Association, which represents the credit bureaus, said he could not comment on the proposal because he did not yet have time to review it.
But he said that a study commissioned by the industry found that "95 percent of people are satisfied with the dispute process.” He said the industry already has taken steps ensure that all the information provided by consumers as part of a dispute gets to the lender or other company that provided the initial data.
He said the industry does not support giving consumers free credit scores because that would "not only stifle competition but would also not be in the best interests of consumers." He noted that lenders and other businesses use many different credit scores, and it would be difficult deciding which one to provide.
Read "Credit Scores: Which One Do Lenders Use?" for more information.
Among the requirements, the bill would:
- Entitle consumers to a free annual credit score from each of the three major credit bureaus, in addition to the free credit report the law already provides. Currently, credit bureaus charge for the scores, although some institutions, including credit card issuer Discover, have begun providing scores for free to their customers. Recently, the federal Consumer Financial Protection Bureau called on the top banks to voluntarily make credit scores freely available to consumers across product lines.
- Require consumer reporting agencies to conduct meaningful investigations when consumers file disputes.
- Mandate that credit bureaus provide more information to consumers when companies accesses their credit report; provide negative information; or use the report to deny credit, provide less favorable rates, or otherwise negativity affect the consumer.
- Ensure that the report consumers receive after a creditor takes an adverse action against them matches the one provided to the creditor. Currently, consumers often see a different version of the report, making it difficult for them to determine if there was an error.
- Allow consumers to re-dispute a possible error if they have additional information. Currently, attempts to reopen a dispute can be dismissed as frivolous or irrelevant.
- Expand consumers' legal remedies by allowing them to ask a court to order a credit bureau or data provider to halt practices that violate the Fair Credit Reporting Act.
- Allow the Federal Trade Commission to impose a civil penalty on credit bureaus and data providers for “negligent, willful, or knowing” violations. Currently, the FTC can impose penalties only for "knowing" violations.
- Require the CFPB to adopt minimum procedures that credit reporting agencies must follow to ensure the accuracy of credit reports.
— Anthony Giorgianni
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