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Could the Government Mandate Free Credit Scores?

Barry Paperno

This year marks the 10th anniversary of the groundbreaking Fair and Accurate Credit Transactions Act of 2003 (FACTA or FACT Act) that granted all consumers the right to obtain a free annual credit report from each of the three major credit bureaus through  AnnualCreditReport.com.

Yet despite there being no shortage of free credit score offers in the marketplace since then, and much touting of the importance of accurate credit reports and high credit scores, consumers still lack free annual access to the credit scores most commonly used by lenders, FICO and VantageScore. (Note: Credit.com provides users with free credit scores and a breakdown of the information in their credit reports in its free Credit Report Card tool.)

In the past, lawmakers attempted to move in the direction of mandating that consumers receive a free credit score used by lenders, and while the legislation led to other worthwhile consumer protections, the free credit score itself didn’t ultimately make it into the law. Now there’s another bill in the pipeline that aims to resurrect this. As with the originally proposed Fair Access to Credit Scores Act, consumers would be entitled to a free annual credit score along with their free annual credit report. But it faces some obstacles.

The Previous Movement for a Free Annual Credit Score

Sen. Mark Udall (D-Colo.) introduced the Fair Access to Credit Scores Act in 2010, and it would have required the credit reporting agencies to provide a credit score along with a consumer’s free annual credit report. However, by the following year, the scope of the Udall bill had been heavily edited – and no longer required the credit reporting agencies to provide a credit score along with a consumer’s free annual credit report. What remained was an amendment to the Risk Based Pricing Rule that had been added to the Dodd-Frank Wall Street Reform and Consumer Protection Act at the beginning of 2011.

The “Udall amendment” resulted in three types of credit score disclosures now available to consumers — the first of which, listed below, is an update on an existing notification, while the other two are new:

Adverse action (AA) notices — The “turn-down” letters sent by lenders when denying a credit application. AA letters, for years advising consumers of their right to a free credit report upon denial of credit, are now required to include a credit score, if one was used in the decision.

Risk-based pricing (RBP) notices — Sent to people who have been approved for credit, if given less favorable terms than those available to people with higher scores. RBP notices include information on how to obtain your free credit report, your credit score, the score range, and the reasons why the score was not better — if a score contributed to the decision.

Credit score disclosure (CSD) notice — An alternative method where the lender can instead send all credit applicants, including those approved for credit, a CSD notice. Lenders are not required to send you a CSD notice but if they do, it can be used in place of the Risk Based Pricing (RBP) notice as a means of complying with the disclosure rules. Entitled “Your Credit Score and the Price You Pay for Credit,” this notice includes a credit score, an explanation of the score, and information on how to obtain a free annual credit report.

New Legislation

The most recent attempt at legislation to expand consumer access to lender-using credit scores is the 2013 version of Udall’s 2010 bill, the Free Access to Credit Scores Act of 2013, introduced in the Senate in March by Sen. Bernie Sanders (I-Vt.), and in the House by Rep. Steve Cohen (D-Tenn.). Under this act, consumers would get a free annual credit score along with their free annual credit report.

Supporters of the legislation believe consumers should be able to proactively obtain their credit scores annually at no charge without having to apply for credit, as the current Dodd-Frank score disclosures require. Critics, on the other hand, point out that there are many credit scores used by lenders, and having the government mandate which scores consumers receive could be problematic, both in terms of choosing which scores to endorse and giving the false impression that the scores provided are the only ones lenders use.

Such proposals and the Free Access to Credit Scores Act of 2013 clearly have a long way to go  – if they go anywhere at all. For consumers looking for an upside to this story, at this stage of the game the possibilities are indeed endless, meaning it may be a good time for people to let their legislators and regulators know what they’d like to see in terms of having access to the credit information currently only available to lenders and credit bureaus.

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