Understanding the impact of a federal public credit registry run by CFPB.
Commentary by Service 1st
March 4, 2021
Service 1st strongly advocates for a robust consumer reporting environment that supports full consumer credit histories for the good of all consumers and market participants. Incorrect and incomplete consumer histories are non-beneficial to both consumers and commercial entities.
Government data shows the US credit reporting industry is adequately managing inaccurate data from data furnishers, such as credit card and other finance companies.
In a March 2019 letter to the Senate Banking Committee, industry trade group CDIA noted that the FTC’s last congressionally mandated study on credit reporting (2012) showed, "98.7% of all credit reports are materially accurate.” The letter further noted, “just 2.2% of participants had errors in their reports that lowered their score tier by one or more tiers, like moving from nonprime to subprime.”
While 2.2% is a notably low error rate, impactful errors on a credit file are quite disruptive to affected consumers – who often discover the errors during an important finance application, such as a mortgage.
The Biden Administration is revisiting the contentious discussion of winding down the “Big Three” repositories (TransUnion, Experian, and Equifax) and unifying US credit reporting under the CFPB. A recent plan for a public registry was proposed by think tank, Dēmos in 2019.
The Dēmos study notably mentions concerns with credit modeling biases against minorities; namely that, “generations of discrimination in employment, lending, education and housing have produced significant racial disparities in credit history. Past discrimination is baked in to current determinations of creditworthiness: Credit scores and other lending algorithms disproportionately represent black and Latino loan applicants as “riskier” customers. Black and Latino consumers are also more likely to be ‘credit invisible’…”
"We would be handing the government the ability to determine who gets loans and who doesn't get loans."
Francis Creighton, CEO and President of CDIA when commenting to American Banker on various proposals for the government take-over of credit reporting repositories Equifax, Experian and Trans Union.
Concerns with past scoring biases present new marketplace opportunities for better scoring previous credit invisibles and minorities. Private and public entities could respond with updated scoring models that preserve the gains made in credit history accuracy and improving consumer dispute resolution. Eliminating three publicly traded entities in favor of a single credit repository under the authority of a federal agency is ripe with unintended consequences and inherent risks to the global financial system.
“No other country has it as good as the American consumer when it comes to borrowing money," stated Terry Clemans, Executive Director of National Consumer Reporting Association (NCRA), when asked about his thoughts towards the Dēmos proposal. “What these groups fail to realize is that while the system could always be better as an industry, we are always looking for ways to improve.”
CDIA CEO and President Francis Creighton commented on the topic in a July 2020 article by American Banker on the consequential implications of a government credit repository takeover. Creighton stated, “We would be handing the government the ability to determine who gets loans and who doesn't get loans.”
A single federal credit reporting agency would struggle to manage the volume of customer disputes, including consumer complaints related to furnisher errors. In 2020, disputes doubled causing an unprecedented backlog with all three credit bureaus, as reported by the New York Times.
Federal agencies have demonstrated a greater inability to respond to consumer demand. According to a February Politico article, taxpayers have “11-to-1” odds that an IRS representative will eventually pick up the phone for taxpayer support. Certainly, a new federal credit reporting agency would also lack the ability to properly support consumers.
“While we believe the likelihood of a credit repository government takeover is unlikely, it is unnerving that the Biden Administration is considering proposals such as the one from Dēmos,” stated Curtis Knuth, CEO of Service 1st. Knuth added, “It is important that the consumer data industry and the businesses who depend on consumer data remain engaged and speak with their respective members of Congress on the topic.”
Service 1st regularly participates in industry leadership and government advocacy on improvements and concerns throughout the financial services and credit reporting ecosystems. We encourage your participation in better shaping our financial services landscape.