How the CFPB Should "Regulate" Credit Reporting and Credit Scoring - Page 2 of 3

Based on what I hear from consumers and the credit granting industry in general, it would be ideal if the CFPB plans to research and work with the relevant industry stakeholders to address the six frequently discussed credit topics below:

I. Accuracy of Credit Bureau Data

Consumer credit is such a critical element in the day-to-day functioning of our economy, as hundreds of millions of dollars for goods and services are handled via credit in the U.S. each day. Given this fact, it is critical not only for the individual consumer, but for the economy as a whole, that the underlying consumer credit data on each of us is as accurate as possible.

Historically, there have been numerous studies commissioned and conducted by a variety of different entities with different objectives and methodologies attempting to quantify the quality of credit bureau data and to estimate the associated impact that results from inaccurate reporting. The findings and conclusions are wide ranging.

Given the importance of this topic, I am hopeful that the CFPB will work closely with the industry, other governmental agencies as well as consumers to create an approach or method to accurately (and on a recurring basis) quantify the prevalence of inaccurately reported credit bureau data that has a material impact on a consumer’s access to credit.

II. Effectiveness of the Dispute Process

With an understanding of the prevalence of inaccurate data established (see point above), another logical area of focus is the reviewing of processes available to consumers to dispute and resolve inaccurate data on their credit reports through a well-designed examination process. Opportunities uncovered to enhance this process will benefit the entire credit-granting industry as well as consumers.

How does the current dispute resolution process work and is it effective for all parties involved (the consumer, lenders, credit bureaus)? Are there opportunities to enhance the process, technologies or approach that will increase speed and improve accuracy?

III. Alternative Credit History Data

While the majority of U.S. consumers actively participate in the credit economy and have credit histories and credit scores, it is estimated that 30 to 50 million people do not have or use traditional forms of credit (credit cards, auto loans, a mortgage, etc.) and do not have a traditional credit report as a result. While a percentage of these consumers willingly opt out of using credit, many others are using alternative types of credit (cell phones, checking accounts, etc.) and/or demonstrating ability to pay as agreed on various types of credit (utility bills, rent, etc.) that are oftentimes not reported, or not reported consistently, to the national credit bureaus.

Studies have been conducted by various industry entities showcasing the predictive value this alternative credit information (both positive and negative data elements) can provide if accessed and considered in the lending review process—both for the credit-underserved and for those who have a full credit report. In addition, some of this alternative data is already available via other credit reporting agencies for access by lenders in their credit review decision process, but it is not as commonly accessed as are traditional credit bureau reports.

Perhaps the CFPB can conduct additional research to help quantify the value such alternative data can provide in predicting credit risk and work with the industry to consider such alternative data when making credit decisions on credit applicants with little to no traditional credit histories. This focus could potentially help incremental consumers eventually gain access to more affordable mainstream credit options.

IV. Access to the Credit Score Lenders Use »

Image: Sabrina K, via Flickr