Will Congress Overhaul Credit Reporting Laws?

Nearly every day we hear from consumers who feel like their credit reports and scores are holding them back. Some have been battling mistakes they are having trouble getting fixed, others feel like they are stuck in credit purgatory because their credit reports still contain negative information from homes they lost or loans they defaulted on as a result of the Great Recession. Still others are having trouble landing jobs because of their credit reports.

For them, new legislation to update credit reporting laws may feel long overdue. U.S. Rep. Maxine Waters (D-Calif.) is proposing changes with the “Fair Credit Reporting Improvement Act of 2014,” legislation that would make a number of changes including:

Relief for those with negative information on their credit reports. Most negative information could only be reported for four years instead of seven years; paid or settled debts would be removed from credit reports; and consumers who were victims of unscrupulous mortgage lenders or servicers would not see their credit suffer as a result.

Few employers would be able to use credit reports to screen job applicants. There would be a few narrow circumstances where credit reports can be used for employment screening, including when required by local, state or federal law and for security clearances.

Private student loan borrowers would have the chance to rehabilitate their loans. Currently, students with federal student loans in default can get the default notation removed from their credit reports if they successfully rehabilitate their loans. This legislation would offer the same benefit to students with private student loans.

Credit score access and education would be expanded. The cost of credit scores would be capped at $10, and free credit scores would be provided along with free credit reports. Plus, additional disclosures would be required for consumers who obtain free credit scores or purchase credit monitoring products so that they would understand the difference between educational scores and scores used by lenders.

Evaluate the benefits of using additional credit score products for mortgage loans. The majority of mortgage loans made today must comply with Fannie Mae and Freddie Mac guidelines so they can be sold on the secondary market. But critics contend that the use of older FICO credit score models approved by those organizations make it harder for some consumers to get mortgage loans. This proposal would call for a study to find out how the use of other models would affect the home loan market.

Stuart Pratt, president and CEO for the Consumer Data Industry Association, whose members include all the major credit reporting agencies, testified at a hearing on credit reporting held Wednesday. In his written testimony, he pointed out that most consumers are satisfied with the dispute process and the numerous studies into credit reporting accuracy found a relatively low incidence of errors that materially affect scores.

But he also noted some areas for improvement. For example, he wrote that the Federal Housing Finance Authority (FHFA) “could expand the universe of credit-qualified consumers now by simply allowing the GSEs to invest in expanding the number of third-party-developed credit scores that may be used by primary-market lenders.” He also urged Congress to make it clear that legitimate credit monitoring products shouldn’t be subject to the laws that restrict credit repair organizations. In particular, the Credit Repair Organizations Act been used to sue companies for providing credit monitoring to consumers, an unintended consequence of legislation that was passed before those products existed.

In the meantime, it’s important to keep up to date on your credit reports and credit scores — doing so can help you find errors that need to be corrected, evidence of fraud that needs to be resolved or general issues that you need to work on. You’re entitled to obtain your credit reports for free every year from each of the three major credit reporting agencies, and there are resources, like Credit.com, where you can get your credit scores for free.