Three credit reporting giants that collect financial data on 220 million Americans face a major crackdown if Democrats regain power in Washington, with Joe Biden and senior lawmakers calling for a sweeping industry overhaul.
Equifax, Experian and TransUnion play a pivotal role in providing credit histories that lenders use to vet potential borrowers. Democratic lawmakers and consumer watchdogs warn that a system dominated by three companies breeds erroneous and harmful financial information about millions of people who may lose access to mortgages and car loans. They say it also amplifies economic disparities and financial discrimination faced by people of color, who may lack credit histories in the first place.
Industry critics now see in a “Blue Wave” scenario their best opportunity in years to enact new safeguards after congressional Republicans derailed earlier efforts.
Leading the charge to revamp credit reporting are House Financial Services Chairwoman Maxine Waters (D-Calif.) and Sen. Sherrod Brown (D-Ohio), who is in line to head the Senate Banking Committee if Democrats win back Congress. The liberal lawmakers want comprehensive changes to rules governing the industry, starting with a temporary suspension of negative credit reporting as part of coronavirus relief legislation. They’ve gotten a boost from Biden, who is calling for the creation of a government-run credit reporting agency to compete against the private firms.
“The next Congress must enact bold, comprehensive legislation to reform a credit reporting industry that has failed working families and that perpetuates systemic racism and economic inequality,” Brown told POLITICO. “And that includes taking up Joe Biden’s proposal for a public credit registry.”
The way Democrats approach the powerful industry will be a key indicator of how aggressively they plan to take on corporate interests and address consumer woes. It’s poised to be a major lobbying fight, with banks also opposed to big changes to credit reporting.
“We’ve been complaining about problems with the credit bureaus for decades now,” said Chi Chi Wu, staff attorney at the National Consumer Law Center. “It’s time for reform.”
The credit reporting industry is preparing for battle. Despite the heightened scrutiny that followed a massive data breach at Equifax in 2017 — information on 147 million consumers was potentially compromised — the firms have beaten back meaningful reforms. Their representatives in Washington argue that suppressing data would erode trust in the consumer reports and have substantial effects on how lenders dole out credit.
“If you take us out of the system or make it so we’re significantly less functional, the only real result is significantly raising costs,” said Francis Creighton, who represents the firms as president and CEO of the Consumer Data Industry Association. “We provide a service that results in cheaper rates and ease of application.”
But there are growing signs that liberal and moderate Democrats will join forces to take on an industry that has been a big source of angst for consumers. Credit reporting has triggered more than 178,000 complaints to the Consumer Financial Protection Bureau since the beginning of March, according to an agency database, making it the top subject of grievances. A 2012 Federal Trade Commission study found that 26 percent of consumers were able to find a potentially material error in their credit reports.
Rep. Josh Gottheimer of New Jersey, a centrist Democrat who was endorsed this year by the U.S. Chamber of Commerce in his reelection bid, is among those pushing legislation that credit reporting firms have resisted. His bill, which the House passed in June, would require the three companies to create an online portal that would provide consumers with free, unlimited credit reports and scores.
“It needs fixing,” Gottheimer said in an interview. “Right now, it’s an oligopoly.”
Equifax, Experian and TransUnion act as powerful gatekeepers in the financial lives of millions of Americans who have little say in the matter. The companies’ real partners and customers are banks and other creditors, which provide consumer account data to the so-called credit bureaus. The reporting firms then provide the credit files to lenders and insurers to vet potential customers. Employers also sometimes use the information to screen hires.
Financial institutions are obligated to report accurate information to the reporting companies but critics say they often don’t — and then fail to reliably correct faulty data.
The credit reporting firms agreed to implement more consumer protections as part of a 2015 settlement with New York’s attorney general, who said the system suffered from inaccuracy “and often from outright injustice.” But watchdogs say problems have persisted.
A National Consumer Law Center report released last year found that the credit bureaus and the companies that supply them with information “still have serious problems in ensuring the accuracy of credit reports.” The group cited incidents where consumers discovered their files were “mixed” with information from other people. Others struggled to dispute errors from identity theft. Some were even shocked to find themselves reported as deceased.
Another set of concerns focus on aspects of the credit reporting system that fuel racial inequities. The worry is not just that credit reports reflect the underlying wealth gap between Black and white Americans but also that the prevalent use of that data perpetuates the disparities, further disadvantaging those suffering from economic discrimination.
The Biden campaign argues that creating a government-run credit reporting agency would help minimize racial disparities by ensuring that algorithms used for credit scores don’t have a discriminatory impact and by accepting non-traditional sources of data, like rental history and utility bills, to establish credit history.
During her nearly two years as chairwoman of the Financial Services Committee, Waters has ushered through the House a series of broad changes to how credit reporting firms handle consumer data. The legislation that her committee produced would give consumers new rights to appeal information in their reports, shorten the amount of time that adverse information could stay on reports and restrict the ability of employers to use credit reports in hiring decisions.
The proposals died in the Senate, but Democrats want to resurrect them if they’re in control of Congress next year.
“This pandemic, which has further exposed the deeply entrenched inequities in our economic system, will have consequences that extend far beyond the public health,” said Ricardo Sánchez, a spokesperson for Rep. Ayanna Pressley (D-Mass.), who sponsored the legislation. “In this country, your credit score is your reputation, and without necessary reforms, like those included in [Pressley’s] bill, our credit reporting system will continue to needlessly punish hardworking people and families.”
For Waters and Brown, the first fight may be over credit reporting during the pandemic. Both have pushed for legislation that would halt the reporting of negative information as consumers struggle to pay their bills amid an economic lockdown. Lawmakers have failed to reach a deal on a new package, and Brown said a moratorium on negative credit reporting is needed “now more than ever.”
“Millions of people are out of work, millions more are worried about whether they’re going to be out of work, and Mitch McConnell refused to make a deal that would help people pay the bills,” Sen. Elizabeth Warren (D-Mass.) told POLITICO. “We need to help people bounce back from this crisis and that should include hitting stop on negative credit reporting so that Americans’ credit is protected even though Senate Republicans refuse to act.”
Opponents say average credit scores have held steady during the pandemic, thanks in part to federal assistance and accommodations made by creditors. The average FICO credit score in July was 711, up from 706 a year earlier. The relief bill that Congress passed in March — the CARES Act — requires that banks report consumer accounts as “current” if they’ve agreed to give borrowers a break.
But Rep. Brad Sherman (D-Calif.) said consumer credit scores “can often lag behind in reflecting economic realities.”
“I fear the trend of rising credit scores may not continue, especially in the absence of additional fiscal stimulus,” Sherman said. “So, there is still a strong argument for making sure that consumers are protected during the current crisis.”
Democrats will likely face resistance not only from the credit reporting firms but also lenders who say they don’t want gaps in data that determine potential creditworthiness.
“Consumers can dispute information on their credit reports but legislation to block certain information will ultimately hurt borrowers, weaken the underwriting process and increase the cost of credit for every consumer,” Consumer Bankers Association spokesperson Nick Simpson said.
Republican lawmakers are signaling that they won’t go along, either, highlighting the pressure Senate Democrats could face to eliminate the legislative filibuster so they can swiftly rewrite laws without GOP obstruction.
“It’s better that we actually strive to have accuracy in our credit ratings,” Sen. Pat Toomey of Pennsylvania, who is in line to be the top Republican on the Banking Committee next year, said in an interview.
Brown, who would be the first Democrat to lead the committee since 2015, is vowing to have the fight.
“As disappointing as it is that Republicans refuse to protect consumers’ credit scores from negative information during the pandemic, Republicans have also done nothing to rein in credit reporting corporations in the three years since Equifax’s negligence allowed hackers to steal the personal information of more than a hundred million Americans,” he said. “This cannot continue.”